EXHIBIT 99.1
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SECURITIES PURCHASE AGREEMENT
AMONG
EXCHANGE APPLICATIONS, INC.
AND THE
PURCHASERS IDENTIFIED HEREIN
DATED AS OF JULY 26, 2001
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS..............................................7
1.2 RULES OF CONSTRUCTION............................................8
ARTICLE II PURCHASE AND SALE OF THE CONVERTIBLE DEBENTURES.........9
2.1 CONVERTIBLE DEBENTURES...........................................9
ARTICLE III THE CLOSING; DELIVERY OF DOCUMENTS AT THE CLOSING.....10
3.1 THE CLOSING.....................................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........12
4.1 ORGANIZATION, POWER, AUTHORITY AND GOOD STANDING................12
4.2 CAPITALIZATION..................................................13
4.3 AUTHORIZATION OF AGREEMENT, ETC.................................14
4.4 NO CONFLICTS....................................................14
4.5 APPROVALS.......................................................15
4.6 COMMISSION FILINGS; FINANCIAL STATEMENTS........................15
4.7 PRIVATE OFFERING................................................15
4.8 PROVIDED INFORMATION............................................16
4.9 CERTAIN CONTRACTS...............................................16
4.10 INTELLECTUAL PROPERTY RIGHTS....................................16
4.11 LITIGATION OTHER PROCEEDINGS OR CLAIMS..........................17
4.12 TERMINATION OF EMPLOYMENT.......................................17
4.13 BROKERS.........................................................17
4.14 REGISTRATION RIGHTS.............................................17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........18
5.1 AUTHORIZATION OF THE FINANCING DOCUMENTS........................18
5.2 INVESTMENT REPRESENTATIONS......................................18
ARTICLE VI POST-CLOSING COVENANTS.................................19
6.1 AMENDMENTS TO DEBT DOCUMENTS....................................19
6.2 INFORMATION RIGHTS..............................................20
6.3 BOARD OF DIRECTORS; OBSERVATION RIGHTS..........................23
6.4 RIGHTS TO SUBSCRIBE FOR SECURITIES..............................25
6.5 FINANCIAL AND OTHER COVENANTS...................................26
ARTICLE VII INDEMNIFICATION.......................................27
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AGREEMENTS AND
COVENANTS, ETC..................................................27
7.2 INDEMNIFICATION.................................................27
ARTICLE VIII MISCELLANEOUS........................................28
8.1 PARTIES IN INTEREST; ASSIGNMENT.................................28
8.2 ENTIRE AGREEMENT................................................28
8.3 SENIOR FINANCING................................................28
8.4 PUBLIC ANNOUNCEMENTS............................................28
8.5 NOTICES.........................................................28
8.6 AMENDMENTS......................................................30
8.7 COUNTERPARTS....................................................30
8.8 HEADINGS........................................................30
8.9 GOVERNING LAW...................................................30
8.10 NO THIRD PARTY RELIANCE.........................................30
8.11 SUBMISSION TO JURISDICTION......................................31
8.12 EXTENSION; WAIVER...............................................31
8.13 SEVERABILITY....................................................31
8.14 INDEPENDENCE OF AGREEMENTS......................................32
8.15 ACTIONS OF REPRESENTATIVES......................................32
8.16 EXPENSES........................................................32
ARTICLE IX CONSENT OF THE PURCHASERS..............................33
EXHIBITS
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Exhibit A - Form of Bridge Note Debenture
Exhibit B - Form of Cash Debenture
Exhibit C - Form of Company Counsel Opinion
Exhibit D - Form of Fourth Amended and Restated Registration Rights
Agreement
Exhibit E - Form of Security Agreement
Exhibit F - Form of Subordination Agreement
SCHEDULES
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Schedule 1 - Purchasers and Percentage Allocations
Schedule 4.1 - Foreign Jurisdictions
Schedule 4.2 - Capitalization
Schedule 4.4 - No Conflicts
Schedule 4.6 - Commission Filings; Financial Statements
Schedule 4.10 - Intellectual Property Rights
Schedule 4.11 - Litigation and other Proceedings and Claims
Schedule 4.14 - Registration Rights
Schedule 6.5 - Financial Covenants
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of July
26, 2001, among EXCHANGE APPLICATIONS, INC., a Delaware corporation (the
"Company"), EXSTATIC SOFTWARE, INC. (f/k/a ▇▇▇▇ ▇▇▇▇▇▇▇, INC.), a Washington
corporation ("eXstatic" and together with the Company, the "Issuers"), and the
purchasers (each a "Purchaser" and together, the "Purchasers") identified on the
signature page hereto.
WHEREAS, the Issuers desire to sell to the Purchasers and the
Purchasers desire to purchase from the Issuers (i) U.S. $7,241,307.37 in
principal amount of the Issuers' 12% Senior Secured Convertible Debenture and
(ii) U.S. $5,000,000 in principal amount of the Issuers' 12% Senior Secured
Convertible Debenture, on the terms and subject to the conditions set forth in
this Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used and not otherwise defined in this Agreement
have the meaning ascribed to them below or in the other locations of this
Agreement specified below:
"AFFILIATE" means, with respect to any specified Person,
any other Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such specified Person. As used in this definition, the term "control"
(including, with correlative meaning, the terms "controlling," "controlled by"
and "under common control with") as used with respect to any Person, means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting Securities, by contract or otherwise.
"AGREEMENT" has the meaning ascribed to such term in the
preamble.
"APRIL 16 LETTER" means the letter agreement, dated April
16, 2001, among the Company and the Purchasers.
"APRIL 16 WARRANT SHARES" means the shares of Common Stock
issuable upon exercise of the April 16 Warrant.
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"APRIL 16 WARRANT" means the Warrant, dated April 16, 2001,
issued by the Company to the Purchasers.
"AUDIT COMMITTEE" means the committee of the Board
Directors which shall oversee all financial accounting and auditing activities
of the
Company and shall perform such other functions as is customary for companies
similar to the Company, including approving the engagement of the Company's
auditors and approving the audit prior to its issuance each year
"AUTOMATIC AFFIRMATIVE COVENANT" has the meaning ascribed
to it in Section 0.
"AUTOMATIC FINANCIAL COVENANT AMENDMENT" has the meaning
ascribed to it in Section 6.1.
"BOARD" has the meaning ascribed to it in Section 0.
"BRIDGE NOTE DEBENTURE" has the meaning ascribed to it in
Article II.
"BUSINESS" means the providing of marketing automation and
enterprise customer relationship management solutions by the Company and its
Subsidiaries.
"BUSINESS DAY" means each day except for Saturday, Sunday,
Federal holidays and any other state-recognized holidays in the States of New
York and Massachusetts.
"BY-LAWS" has the meaning ascribed to such term in Section
4.1.
"CASH DEBENTURE" has the meaning ascribed to it in Article
II.
"CERTIFICATE OF INCORPORATION" has the meaning ascribed to
such term in Section 4.1.
"CLAIM" means any claim, demand, assessment, judgment,
order, decree, action, cause of action, litigation, suit, investigation or other
proceeding.
"CLOSING" has the meaning ascribed to such term in Section
0.
"COLLATERAL" has the meaning ascribed to it in the Security
Agreement.
"COMMISSION" means the United States Securities and
Exchange Commission.
"COMMISSION FILINGS" means all reports, registration
statements and other filings filed by the Company with the Commission (and all
notes, exhibits and schedules thereto and documents incorporated by reference
therein).
"COMMON STOCK" means the common stock, $.001 par value per
share, of the Company.
"COMMON STOCK EQUIVALENTS" means all shares of Common Stock
outstanding and all shares of Common Stock issuable (without regard to any
present restrictions on such
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issuance) upon the conversion, exchange or exercise of all Securities of the
Company that are convertible, exchangeable or exercisable for share of Common
Stock.
"COMPANY" has the meaning ascribed to such term in the
preamble.
"COMPANY CONTRACTS" has the meaning ascribed to such term
in Section 4.9.
"CONTRACT" means any written or oral loan contract,
agreement, or credit agreement, note, bond, mortgage, indenture, lease,
sublease, purchase order, instrument, permit, concession, franchise or license.
"CONVERTIBLE DEBENTURES" has the meaning ascribed to it in
Article II.
"CONVERTIBLE DEBENTURE REPRESENTATIVE" means Insight
Venture Associates IV, L.L.C. or any successor thereto approved by the Company
(which approval shall not be unreasonably withheld).
"CONVERTIBLE DEBENTURE SHARES" means the shares of Common
Stock issuable upon conversion of the Convertible Debentures.
"DEFAULT" has the meaning ascribed to it in the Convertible
Debentures.
"EBITDA" shall mean the Company's earnings before interest,
taxes, depreciation and amortization, each as determined in accordance with
generally accepted accounting principles.
"ENCUMBRANCES" means any liens, charges, encumbrances,
claims, options, proxies, pledges, security interests, or other similar rights
of
any nature.
"EQUIPMENT" means all of the Company's present and
hereafter acquired machinery, molds, machine tools, motors, furniture, equipment
furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs,
goods and other tangible personal property (other than Inventory) of every kind
and description used in Company's operations or owned by the Company and any
interest in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"EQUITY INCENTIVE PLANS" means the (i) 2000 Customer
Analytics Holdings, Inc. Equity Incentive Plan, (ii) 1999 Customer Analytics,
Inc. Stock Option and Purchase Plan, (iii) 1999 GBI Stock Acquisition Plan, (iv)
1999 Knowledge Stream Partners, Inc. Stock Option Plan, (v) 1998 Stock Incentive
Plan, (vi) 1998 Director Stock Option Plan, (vii) 1998 Employee Stock Purchase
Plan and (viii) 1996 Stock Incentive Plan, each as amended, and any other stock
option, issuance, appreciation rights or other equity incentive plan for the
directors, officers and employees of, and consultants to, the Company, which
plan has been approved by the Board or appropriate committee thereof.
"EVENT OF DEFAULT" has the meaning ascribed to such term in
the Convertible Debentures.
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"EXCHANGE ACT" means the Securities and Exchange Act of
1934, as amended.
"EXCLUDED SECURITIES" means (i) Securities issued or
granted to eligible officers, employees or directors of, or consultants to, the
Corporation pursuant to the Equity Incentive Plans and any Securities issued
upon exercise of such Securities; (ii) Securities issued upon the exercise,
conversion or exchange of any Common Stock Equivalents outstanding on the
Closing Date, including, without limitation, those Securities issued upon
exercise of the April 16, Warrant and the June 1, Warrant, or pursuant to the
MicroStrategy Agreement; (iii) Securities issued as a stock dividend or upon any
stock split, recapitalization or other subdivision or combination of Common
Stock; (iv) Securities issued pursuant to acquisitions, strategic alliances and
joint ventures; and (v) Securities deemed Excluded Securities by the Purchasers.
"EXSTATIC" has the meaning ascribed to it in the preamble.
"FINANCIAL COVENANT" has the meaning ascribed to it in
Section 0.
"FINANCING DOCUMENTS" has the meaning ascribed to such term
in Section 4.3.
"FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT"
has the meaning ascribed to such term in Section 0.
"FUNDAMENTAL DOCUMENTS" means the documents by which any
Person (other than an individual) establishes its legal existence or which
govern its internal affairs. The "Fundamental Documents" of the Company are the
Certificate of Incorporation and the By-laws.
"GAAP" means United States generally accepted accounting
principles, consistently applied.
"GOVERNMENTAL ENTITY" means any federal, state, municipal,
or other government, governmental department, commission, board, bureau,
agency or instrumentality, or any court or tribunal.
"GUARANTY" means any obligation, contingent or otherwise,
or any Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person in any manner, whether
directly or indirectly, including any obligation of such Person direct or
indirect, (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness or other obligation, (ii) to purchase property, securities or
services for the purpose of assuring the owner of such Indebtedness or other
obligation of payment thereof, (iii) to purchase or otherwise pay for
merchandise, materials supplies, services or other property under an arrangement
which provides that payment for such merchandise, materials, supplies, services
or other property shall be made regardless of whether delivery of such
merchandise, materials, supplies, services or other property is ever made or
tendered, or (iv) to maintain the working capital, equity capital or other
financial statement condition of any primary obligor, provided, however, that
the term Guaranty shall not include endorsement of instruments for deposit and
collection in the ordinary course of business.
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"INDEBTEDNESS" of a Person means, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by (or which customarily would be evidenced by) bonds
debentures, notes or similar instruments, (iii) all reimbursement obligations of
such Person with respect to letters of credit and similar instruments, (iv) all
obligations of such Person under conditional sale or other title retention
agreements relating to property or assets purchased by such Person, (v) all
obligations of such Person incurred, issued or assumed as the deferred purchase
price of property or services other than accounts payable incurred and paid on
terms customary in the business of such Person (it being understood that
"deferred purchase price" in connection with any purchase of property or assets
shall include only that portion of the purchase price which shall be deferred
beyond the date on which the purchase is actually consummated), (vi) all
obligations secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on property
owned or acquired by such Person, whether or not the obligations secured thereby
have been assumed, (vii) all obligations of such Person under forward sales,
futures, options and other similar hedging arrangements (including interest rate
hedging or protection agreements), (viii) all Guaranties by such Person of
obligations of others, (x) all capitalized lease obligations of such Person and
(ix) the Indebtedness of any partnership or joint venture in which such Person
is a general partner or a joint venturer, but only to the extent to which there
is recourse to such Person for payment of such Indebtedness.
"ISSUERS" has the meaning ascribed to it in the Preamble.
"JUNE 1 NOTE" means the 12% Bridge Promissory Note, dated
June 1, 2001, issued by the Company to the Purchasers.
"JUNE 1 WARRANT" means the Warrant, dated June 1, 2001,
issued by the Company to the Purchasers.
"JUNE 1 WARRANT SHARES" means the shares of Common Stock
issuable upon the exercise of the June 1 Warrant.
"LAW" means any constitution, law, statute, treaty, rule,
ordinance, permit, certificate, directive, requirement, regulation or Order
(in each case, whether foreign or domestic) of any Governmental Entity.
"LIABILITY" means any liability or obligation, whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated and whether due or to become due,
regardless of when asserted.
"LIEN" means any security interest, pledge, lien, bailment
(in the nature of a pledge or for purposes of security), mortgage, deed of
trust, the grant of a power to confess judgment, conditional sale or title
retention agreement (including any lease in the nature thereof), charge,
encumbrance, easement, reservation, restriction, cloud, right of first refusal
or first offer, option, commitment or other similar arrangement or interest in
real or personal property, whether oral or written.
5
"LIQUIDITY EVENT" means (i) any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company or (ii) any
Sale of the Company.
"LOSS" means any loss, Liability, Claim, cost, damage,
deficiency, Tax, penalty, fine or expense, including interest, penalties,
reasonable legal and accounting fees and expenses and all amounts paid in
investigation, defense or settlement of any of the foregoing which any such
party may suffer, sustain or become subject to, as a result of, in connection
with, relating or incidental to or by virtue of any indemnifiable event or
condition (including derivative actions brought through or in the name of the
Company).
"MARKET PRICE" means, as to any Marketable Security, the
average of the closing prices of such Marketable Security's sales on all United
States securities exchanges on which such Security may at the time be listed,
or, if there have been no sales on any such exchange on any day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such Security is not so listed, the average of the
representative bid and asked prices quoted on NASDAQ as of 4:00 P.M., New York
time, on such day, or, if on any day such security is not quoted on NASDAQ, the
average of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar or successor organization, in each such case
averaged over a period of 5 Business Days ending immediately prior to the day as
of which "Market Price" is being determined.
"MARKETABLE SECURITIES" means Securities that are traded on
an established United States securities exchange or reported through the
NASDAQ, or otherwise traded over-the-counter or traded on PORTAL (in the case of
Securities eligible for trading pursuant to Rule 144A under the Securities Act).
"MATERIAL ADVERSE EFFECT" means, with respect to the
Company, a material adverse effect on the business, operations, assets,
conditions
(financial or otherwise), operating results, liabilities or prospects of the
Company and its Subsidiaries, taken as a whole.
"MICROSTRATEGY AGREEMENT" means the Payment and
Registration Rights Agreement, dated as of December 28, 1999, between the
Company and
MicroStrategy Incorporated in effect on January 10, 2001 or as amended from time
to time.
"OBLIGATIONS" has the meaning ascribed to it in the
Security Agreement.
"OFFERED SECURITIES" has the meaning ascribed to it in
Section 0.
"ORDERS" means judgments, writs, decrees, injunctions,
orders, compliance agreements or settlement agreements of or with any
Governmental Entity or arbitrator.
"PERSON" shall be construed in the broadest sense and shall
include an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, and any other entity, including a Governmental
Entity.
6
"PREEMPTIVE OFFER ACCEPTANCE NOTICE" has the meaning
ascribed to it in Section 6.4.
"PREEMPTIVE OFFER PERIOD" has the meaning ascribed to it in
Section 6.4.
"PROCEEDING" means any action, suit, proceeding, complaint,
charge, hearing, inquiry or investigation before or by a Governmental Entity
or an arbitrator or administrator.
"PROJECTIONS" has the meaning ascribed to such term in
Section 4.8.
"PROPOSED NEW INVESTOR" has the meaning ascribed to it in
Section 6.4.
"PURCHASER INDEMNIFIED PERSONS" shall have the meaning
ascribed to it in Section 7.2.
"PURCHASER REPRESENTATIVES" shall have the meaning ascribed
to it in Section 7.2.
"PURCHASERS" has the meaning ascribed to such term in the
preamble.
"PURCHASERS' DIRECTORS" has the meaning ascribed to it in
Section 6.3.
"PURCHASERS' REPLACEMENT OBSERVERS" has the meaning
ascribed to it in Section 6.3.
"REFUSED SECURITIES" has the meaning ascribed to it in
Section 6.4.
"SALE OF THE COMPANY" means (i) the sale of all or
substantially all of the Company's assets, (ii) the issuance, sale or transfer
of the outstanding shares of capital stock or other voting securities of the
Company, or (iii) the merger or consolidation of the Company with another person
or entity, in each case in clauses (ii) and (iii) above under circumstances in
which the holders of the voting power of the outstanding shares of capital stock
and other voting securities of the Company, immediately prior to such
transaction, own less than 50% in voting power of the outstanding shares of
capital stock and other voting securities of the Company or the surviving or
resulting corporation or acquirer, as the case may be, immediately following
such transaction. A sale (or multiple sales) of one or more subsidiaries of the
Company (whether by way of merger, consolidation, reorganization or sale of all
or substantially all of the assets or securities) which constitutes all or a
substantial portion of the consolidated assets or revenues of the Company shall
be deemed a Sale of the Company.
"SERIES A STOCK CERTIFICATES" means the certificates issued
by the Company to the Purchasers on January 10, 2001, representing shares of
Series A Preferred Stock.
"SECURITIES" means, with respect to any Person, such
Person's "securities" as defined in Section 2(1) of the Securities Act and
includes such Person's capital stock or other equity interests or any options,
warrants or other securities or rights that are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock or other equity interests.
7
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITY AGREEMENT" has the meaning ascribed to it in
Section 0.
"SERIES A PREFERRED SHARES" means the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock.
"SERIES A PREFERRED STOCK" means the Series A Convertible
Redeemable Preferred Stock, $.001 par value per share, of the Company.
"SUBORDINATION AGREEMENT" has the meaning ascribed to such
term in Section 0.
"SUBSIDIARY" means, at any time, with respect to any Person
(the "Subject Person"), (i) any Person of which either (x) more than 50% of
the Securities entitled to vote in the election of directors or comparable
Persons performing similar functions (excluding Securities entitled to vote only
upon the failure to pay dividends thereon or other contingencies) or (y) more
than a 50% interest in the profits or capital of such Person, are at the time
owned or controlled directly or indirectly by the Subject Person or through one
or more Subsidiaries of the Subject Person or (ii) any Person whose assets, or
portions thereof, are consolidated with the net earnings of the Subject Person
and are recorded on the books of the Subject Person for financial reporting
purposes in accordance with GAAP.
"SUBSIDIARY BOARD" has the meaning ascribed to it in
Section 6.3.
"SUBJECT PERSON" has the meaning ascribed to such term in
the definition of "Subsidiary".
"SVB" shall mean Silicon Valley Bank.
"SVB FACILITY" shall mean the Loan and Security Agreement,
dated April 25, 2001, among the Issuers and SVB.
"TRADING DAY" means any day on which securities are traded
on National Association of Securities Dealers, Inc.'s Automated Quotation
System.
"WIRE AMOUNT" has the meaning ascribed to such term in
Article II.
1.1 RULES OF CONSTRUCTION.
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The term "this Agreement" means this agreement together with all
schedules and exhibits hereto, as the same may from time to time be amended,
modified, supplemented or restated in accordance with the terms hereof. In this
Agreement, the term "Best Knowledge" of the Company means actual knowledge of
the executive officers of the Company, including ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇, after making reasonable inquiry of the
matters in question. The use in this Agreement of the term "including" means
"including, without limitation." The words "herein," "hereof," "hereunder" and
other words of similar import refer to this Agreement as a whole, including the
schedules and exhibits, as the same may from
8
time to time be amended, modified, supplemented or restated, and not to any
particular section, subsection, paragraph, subparagraph or clause contained in
this Agreement. All references to sections, schedules and exhibits mean the
sections of this Agreement and the schedules and exhibits attached to this
Agreement, except where otherwise stated. The title of and the section and
paragraph headings in this Agreement are for convenience of reference only and
shall not govern or affect the interpretation of any of the terms or provisions
of this Agreement. The use herein of the masculine, feminine or neuter forms
shall also denote the other forms, as in each case the context may require or
permit. Where specific language is used to clarify by example a general
statement contained herein, such specific language shall not be deemed to
modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement has been
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party. Unless expressly provided
otherwise, the measure of a period of one month or year for purposes of this
Agreement shall be that date of the following month or year corresponding to the
starting date, provided that if no corresponding date exists, the measure shall
be that date of the following month or year corresponding to the next day
following the starting date. For example, one month following February 18 is
March 18, and one month following March 31 is May 1.
ARTICLE II
PURCHASE AND SALE OF THE CONVERTIBLE DEBENTURES
2.1 CONVERTIBLE DEBENTURES.
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ISSUANCE OF THE CONVERTIBLE DEBENTURES. At the Closing, and
subject to the terms and conditions contained in this Agreement, (i) the Issuers
shall issue, sell and deliver to the Purchasers: (A) a 12% Convertible Debenture
in the aggregate principal amount of U.S. $7,241,307.37, substantially in the
form of Exhibit A (the "Bridge Note Debenture") and (B) a 12% Convertible
Debenture in the aggregate principal amount of U.S. $5,000,000, substantially in
the form of Exhibit B (the "Cash Debenture" together with the Bridge Note
Debenture, the "Convertible Debentures") and (ii) the Purchasers (A) acting as a
group, shall surrender to the Issuers the June 1 Note (which surrender shall
terminate all obligations under the June 1 Note and the Purchasers shall ▇▇▇▇
the June 1 Note "Cancelled" or "Paid in Full") and (B) shall pay to the Issuers
the wire amount set forth opposite each Purchaser's name on Schedule I hereto
(collectively, the "Wire Amount"). The cancellation of the obligations of the
Company under the June 1 Note and the payment of Wire Amount shall together
constitute full payment of the purchase price for the Bridge Note Debenture and
the Cash Debenture, respectively. Each Issuer shall be jointly and severally
liable for all of the monetary and other obligations of the Issuers under this
Agreement and each other Financing Document.
USE OF PROCEEDS. The Issuers shall use the Cash Amount from
the sale of the Convertible Debentures for the Company's working capital and
general corporate purposes.
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ARTICLE III
THE CLOSING; DELIVERY OF DOCUMENTS AT THE CLOSING
3.1 THE CLOSING.
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The closing (the "Closing") shall take place simultaneously
with the execution and delivery of this Agreement at the offices of
▇'▇▇▇▇▇▇▇▇ LLP, ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
The obligation of each Purchaser to purchase and pay for
the Convertible Debentures to be purchased hereunder at the Closing is subject
to the delivery by the Issuer of the following items (unless waived by such
Purchaser):
the Convertible Debentures, which Convertible
Debentures shall have been duly authorized, executed and delivered by
the Issuer and shall be in full force and effect and enforceable
against the Issuer in accordance with their terms;
evidence satisfactory to the Purchasers that the
Company has reserved the Convertible Debenture Shares for issuance
upon conversion of the Convertible Debentures;
the favorable opinion of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP,
counsel to the Company, addressed to the Purchasers, dated as of the
Closing, in substantially the form attached hereto as Exhibit C;
the Fourth Amended and Restated Registration
Rights Agreement in substantially the form attached hereto as Exhibit
D (the "Fourth Amended and Restated Registration Rights Agreement"),
which Fourth Amended and Restated Registration Rights Agreement shall
have been duly authorized, executed and delivered by the Company and
shall be in full force and effect and enforceable against the Company
in accordance with its terms;
the Security Agreement in substantially the form
attached hereto as Exhibit E (the "Security Agreement"), which
Security Agreement shall have been duly authorized, executed and
delivered by the Company and shall be in full force and effect and
enforceable against the Company in accordance with its terms;
the Subordination Agreement in substantially the
form attached hereto as Exhibit F (the "Subordination Agreement"),
which Security Agreement shall have been duly authorized, executed
and delivered by SVB and shall be in full force and effect and
enforceable against SVB in accordance with its terms;
all consents, approvals, authorizations, filings
and notices required to consummate the transactions contemplated
hereby shall have been obtained, made or given and shall be in full
force and effect, including, without limitation, the (A) consent of
SVB and the confirmation of SVB that the Company shall be able to
borrow additional
10
funds pursuant to the terms of the SVB Facility (which consent and
confirmation shall be contained in the Subordination Agreement) and
(B) consent and authorization of the NASD;
evidence reasonably satisfactory to the
Purchasers that the Company has made arrangements to provide notice
to the Company's shareholders pursuant to NASD Rule 4350(i)(2);
receipt of revised cash flow budget through
December 31, 2001, acceptable to the Purchasers;
evidence satisfactory to the Purchasers of the
filings of all UCC-1 Financing Statements and any other required
security interest filings, which Financing Statements and other
filings provide the Purchasers with a perfected security interest in
the Collateral (as defined in the Security Agreement);
a certificate of the Secretary or an Assistant
Secretary of the Company, dated as of the Closing and certifying on
behalf of the Company: (A) that attached thereto is a true, correct
and complete copy of each of the Fundamental Documents of the Company
as in effect on the date of such certification; (B) that attached
thereto is a true, correct and complete copy of all resolutions
adopted by the Board of Directors (and any committees thereof) of the
Company authorizing (1) the execution, delivery and performance of
the Financing Documents, (2) the issuance, sale and delivery of the
Convertible Debentures, and (3) the reservation of the Convertible
Debenture Shares for issuance upon conversion of the Convertible
Debentures, and that all such resolutions in (1), (2) and (3), are in
full force and effect; and (C) the incumbency and specimen signature
of all officers of the Company executing the Financing Documents, and
any certificate or instrument furnished pursuant hereto;
a certification by another officer of the Company
as to the incumbency and signature of the officer signing the
certificate referred to in clause (xi);
a duly authorized, executed and delivered copy of
each of the other Financing Documents, if any, which shall be in full
force and effect and shall be enforceable against the Issuer or the
Company, as the case may be, and such parties in accordance with
their respective terms;
a telegram, telex or other acceptable method of
confirmation from the Secretaries of State of the States of Delaware
and Massachusetts dated on the Closing as to the continued good
standing of the Company and from the Secretaries of State of the
State of Washington as to the due incorporation and good standing of
eXstatic, as applicable; and
such additional supporting documents and other
information with respect to the operations and affairs of the Company
and its Subsidiaries as the Purchasers may reasonably request.
11
The obligation of the Issuers to issue, deliver and sell
the Convertible Debentures at the Closing is subject to the delivery by the
Purchasers of the following items (unless waived by the Company):
a duly authorized, executed and delivered copy of
each of the other Financing Documents which shall be in full force
and effect and shall be enforceable against the Purchasers and such
parties in accordance with their respective terms;
the Purchasers shall surrender to the Company the
June 1 Note;
each Purchaser shall deliver or cause to be
delivered to the Company by wire transfer of immediately available
funds the Wire Amount set forth opposite such Purchaser's name on
Schedule I hereto to such bank account as the Issuers shall designate
to each Purchaser in writing on or prior to the day immediately
preceding the Closing;
all consents, approvals, authorizations, filings
and notices required to consummate the transactions contemplated
hereby shall have been obtained, made or given and shall be in full
force and effect, including, without limitation, the (A) consent of
SVB and (B) consent and authorization of the NASD; and
evidence reasonably satisfactory to the Issuers
that the Company has made arrangements to provide notice to the
Company's shareholders pursuant to NASD Rule 4350(i)(2);
The Convertible Debentures do not constitute a revolving
loan and any amounts repaid or prepaid under the Convertible Debentures may not
be reborrowed.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Each Issuer hereby represents and warrants to each of the Purchasers
as follows:
4.1 ORGANIZATION, POWER, AUTHORITY AND GOOD STANDING.
-------------------------------------------------
Each of the Company and its Subsidiaries is duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation or formation and has all requisite corporate or other power and
authority to own, lease and operate its properties and other assets and to carry
on its business as presently conducted and as proposed to be conducted. Each of
the Company and its Subsidiaries is duly qualified and in good standing to
transact business as a foreign Person in those jurisdictions listed on Schedule
4.1, which constitute all the jurisdictions in which the character of the
property owned, leased or operated by the Company or such Subsidiary or the
nature of the activities conducted by the Company or such Subsidiary makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect. eXstatic is a wholly owned subsidiary of the
Company. The Company has delivered to the Purchasers a correct and complete copy
of the Amended and Restated Certificate of Incorporation of the Company in
effect on the date hereof (the "Certificate of
12
Incorporation"). A copy of the Amended and Restated By-laws of the Company in
effect on the date hereof (the "By-laws") is filed as an exhibit to the
Commission Filings.
4.2 CAPITALIZATION.
---------------
Immediately upon consummation of the Closing, the
authorized, issued and outstanding capital stock of the Company shall consist
of:
(i) 10,000,000 shares of Preferred Stock, of which
5,330,000 are designated as Series A Preferred Stock and 5,325,645
are validly issued and outstanding, fully paid and nonassessable; and
(ii) 150,000,000 shares of Common Stock, of which:
34,052,921 shares are validly issued and
outstanding, fully paid and nonassessable;
9,600,000 shares shall be reserved for issuance
upon conversion of the Series A Preferred Stock;
29,020,524 shares are reserved as Convertible
Debenture Shares for issuance upon conversion of the
Convertible Debentures;
1,363,672 shares are reserved as Replacement
Warrant Shares for issuance upon exercise of the
Replacement Warrant
1,519,091 shares are reserved as April 16 Warrant
Shares for issuance upon exercise of the April 16 Warrant;
366,565 shares are reserved as treasury shares;
and
11,846,875 shares are reserved for issuance in
accordance with the Equity Incentive Plans.
Except as contemplated by the Financing Documents or as
otherwise set forth on Schedule 4.2, there are, and immediately after
consummation of the Closing there will be, no (i) outstanding warrants, options,
agreements, convertible Securities or other commitments or instruments pursuant
to which the Company is obligated to issue, sell or otherwise transfer any
Securities or (ii) preemptive or similar rights to purchase or otherwise acquire
Securities of the Company pursuant to any provision of Law, the Company's
Fundamental Documents or any Contract to which the Company is a party.
13
All Securities issued by the Issuers have been issued in
transactions in accordance in all material respects with applicable state and
federal Laws governing the sale and purchase of Securities.
The authorization, reservation, issuance, sale and
delivery, as applicable, of the Convertible Debenture Shares, the June 1 Warrant
Shares, the April 16 Warrant Shares and the Series A Preferred Shares have been
duly and validly authorized by all requisite corporate action on the part of the
Company and eXstatic, as the case may be. The Convertible Debenture Shares, June
1 Warrant Shares, the April 16 Warrant Shares and the Series A Preferred Shares
(assuming the issuance thereof in accordance with the applicable terms of the
Convertible Debenture, the June 1 Warrant, the April 16 Warrant Shares and the
Series A Preferred Shares, respectively), will be duly and validly issued and
outstanding, fully paid and nonassessable, with no personal liability attaching
to the ownership thereof, free and clear of any Encumbrances whatsoever and with
no restrictions on the voting rights thereof and not subject to any preemptive
rights, rights of first refusal or other similar rights of the stockholders of
the Company and eXstatic, as the case may be.
4.3 AUTHORIZATION OF AGREEMENT, ETC.
--------------------------------
Each Issuer, as the case may be, has or had, as the case may be, all
requisite corporate power and authority to execute and deliver this Agreement,
the Convertible Debentures, the Fourth Amended and Restated Registration Rights
Agreement and the Security Agreement and any and all instruments necessary or
appropriate in order to effectuate fully the terms and conditions of each such
agreement and all related transactions (collectively, the "Financing Documents")
and to perform its obligations under and to consummate the transactions
contemplated by each such Financing Document. The execution, delivery and
performance by each Issuer, as the case may be, of each Financing Document to
which it is a party and the issuance, sale and delivery of the Convertible
Debentures has been duly authorized by all requisite corporate action by each
Issuer, as the case may be, and this Agreement and each other Financing Document
has been duly executed and delivered by each Issuer, as the case may be. No
other corporate or stockholder action on the part of any Issuer, as the case may
be, is necessary for such authorization, execution and delivery. Each of the
Financing Documents constitutes a legal, valid and binding obligation of each
Issuer, as the case may be, enforceable against each Issuer, as the case may be,
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar Laws
affecting creditors' rights and remedies generally, and subject, in the case of
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a Proceeding at law or in equity).
4.4 NO CONFLICTS.
-------------
Except as otherwise disclosed on Schedule 4.4, the execution,
delivery and performance by each Issuer, as the case may be, of this Agreement
and each of the other Financing Documents, the issuance, sale and delivery of
the Convertible Debentures and compliance with the provisions hereof and thereof
by such Issuer, does not or will not, as the case may be, (a) violate any
provision of Law or any Order applicable to any Issuer or any of its properties
or
14
assets or (b) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of, any Encumbrance upon any of
the properties or assets of the Issuer or, except as previously disclosed in
writing to the Purchasers, any material Contract to which it is a party or (c)
conflict with or violate any provision of the Fundamental Documents of any
Issuer currently in effect.
4.5 APPROVALS.
----------
No permit, authorization, consent or approval of or by, or any
notification of or filing with, any Person is required in connection with the
execution, delivery or performance by each Issuer, as the case may be, of each
Financing Document to which it is a party.
4.6 COMMISSION FILINGS; FINANCIAL STATEMENTS.
-----------------------------------------
The Company has filed all Commission Filings that it has
been required to file with the Commission under the Securities Act and the
Exchange Act. As of the respective dates of their filing with the Commission, or
the date of any amendment thereto filed on or prior to the date hereof, the
Commission Filings complied as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Each of the historical consolidated financial statements of
the Company (including any related notes or schedules) included in the
Commission Filings was prepared in accordance with GAAP (except as may be
disclosed therein), and complied in all material respects with the rules and
regulations of the Commission. Such financial statements fairly present in all
material respects the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the consolidated results of operations,
cash flows and changes in stockholders' equity for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal,
recurring year-end audit adjustments). Except as set forth or reflected in the
Commission Filings filed prior to the date hereof or as set forth on Schedule
4.6, neither the Company nor any of its Subsidiaries have any liabilities or
obligations of any nature (whether accrued, absolute, contingent, unasserted or
otherwise) that individually or in the aggregate could reasonably be expected to
have a Material Adverse Effect.
4.7 PRIVATE OFFERING.
-----------------
Assuming the accuracy of the representations of the Purchasers in
Section 5.2, the offering, sale, issuance and delivery by the Issuers of the
Convertible Debentures are exempt from the registration and prospectus delivery
requirements of the Securities Act and applicable state securities laws and the
rules and regulations promulgated thereunder. Neither the Company or its
Subsidiaries, nor any Person acting on their behalf, has offered or sold or will
offer or sell any Securities, or has taken or will take any other action
(including, without limitation, any offering of any Securities of the Company
under circumstances that would require, under the
15
Securities Act or any applicable blue-sky laws, the integration of such offering
with the transactions contemplated by this Agreement), which would subject the
transactions contemplated by this Agreement to the registration provisions of
the Securities Act.
4.8 PROVIDED INFORMATION.
---------------------
All written summaries provided by the Company to legal counsel for
the Purchasers on or about December 26, 2000, with regard to the events leading
up to the Company's press releases of September 29, 2000, and October 2, 2000,
are accurate in all material respects and do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which such statements are made. The financial projections concerning the Company
and its Subsidiaries contained in the most recent version of the "revised street
plan" projections delivered to the Board of Directors (the "Projections") were
at the time they were made available to the Board of Directors prepared on a
basis reflecting the reasonable good faith estimates and judgments of the
Company's management as to the future financial performance of the Company and
its Subsidiaries for the periods covered thereby. The Projections are
specifically and expressly limited and qualified by underlying written
assumptions disclosed therein.
4.9 CERTAIN CONTRACTS.
------------------
All material Contracts to which the Company or any of its
Subsidiaries is a party or may be bound that are required by Item 610(b)(10) of
Regulation S-K to be filed as exhibits to, or incorporated by reference in, the
Company's Form 10-K or the Company's Form 10-Q are referred to herein as
"Company Contracts". All Company Contracts are legal, valid and binding and in
full force and effect on the date hereof except to the extent previously
disclosed in writing to the Purchasers, to the extent they have previously
expired in accordance with their terms or to the extent such failure to be so
legal, valid and binding would not reasonably be expected to have a Material
Adverse Effect and, except as set forth on Schedule 4.9, neither the Company nor
any of its Subsidiaries has violated any provision of, or committed or failed to
perform any act that, with or without notice, lapse of time, or both, would
constitute a default under the provisions of any Company Contract, except as
previously disclosed in writing to the Purchasers or for defaults that would
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
4.10 INTELLECTUAL PROPERTY RIGHTS.
-----------------------------
To the Company's Best Knowledge, each of the Company and
its Subsidiaries owns or is licensed to use all trademarks, copyrights, service
marks, and applications and registrations therefor, and all trade names, domain
names, web sites, customer lists, trade secrets, proprietary processes and
formulae, inventions, know-how, other confidential and proprietary information,
and other industrial and intellectual property rights necessary to permit each
of the Company and its Subsidiaries to carry on its business as presently
conducted. To the Company's Best Knowledge, each of the Company and its
Subsidiaries has the right to bring infringement actions with respect to all
trademarks, copyrights, service marks, trade names, domain names, trade secrets,
proprietary processes and formulae, inventions, know how and other confidential
16
and proprietary information that it owns. Except as otherwise disclosed in
Schedule 4.10, all registered patents, copyrights, trademarks, and service marks
owned by the Company and its Subsidiaries are in full force and effect and are
not subject to any taxes or maintenance fees. Except as otherwise disclosed in
Schedule 4.10, there is no pending or, to the Best Knowledge of the Company,
threatened Claim or litigation against the Company or any Subsidiary contesting
the right to use its intellectual property rights, asserting the material misuse
of any thereof, or asserting the material infringement or other material
violation of any intellectual property right of a third party. All inventions
and know-how conceived by employees of the Company or its Subsidiaries and used
by the Company and its Subsidiaries in the business of the Company and its
Subsidiaries as currently conducted are owned by the Company or its
Subsidiaries. Except as disclosed on Schedule 4.10, each of the Company and its
Subsidiaries has taken reasonable security measures to protect the secrecy,
confidentiality, and value of its trade secrets, proprietary processes,
formulae, inventions, know-how and other confidential and proprietary
information.
Except as otherwise disclosed in Schedule 4.11, no
Proceedings or Claims in which the Company or any Subsidiary alleges that any
Person is materially infringing upon, or otherwise materially violating, any
patents, trademarks, copyrights, service marks, and applications and
registrations therefor are pending, and none have been served by, instituted or
asserted by the Company or any Subsidiary, nor are any Proceedings or Claims
threatened alleging any such material violation or material infringement, nor
does the Company or any Subsidiary know of any valid basis for any such
Proceedings or Claims.
4.11 LITIGATION OTHER PROCEEDINGS OR CLAIMS.
---------------------------------------
Except as set forth on Schedule 4.11, there are no (i) Proceedings or
Claims pending against or initiated by the Company or any Subsidiary or, to the
best knowledge of the Company, threatened against the Company or any Subsidiary,
whether at law or in equity, whether civil or criminal in nature, except for
Proceedings or Claims that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, or (ii) material
Orders with respect to the Company or any Subsidiary.
4.12 TERMINATION OF EMPLOYMENT.
--------------------------
To the Company's Best Knowledge, except as set forth on Schedule 4.12
no executive officer or key employee, or any group of key employees, intends to
terminate their employment with the Company or any Subsidiary, nor does the
Company or any Subsidiary have a present intention to terminate the employment
of any officer, key employee or group of key employees.
4.13 BROKERS.
--------
Neither the Company nor any of its Subsidiaries have employed or
otherwise retained any broker or finder in connection with the transactions
contemplated by this Agreement.
4.14 REGISTRATION RIGHTS.
--------------------
Except as contemplated by the Fourth Amended and Restated
Registration Rights Agreement and except as set forth on Schedule 4.14, no
Person has any right to cause the
17
Company to effect the registration under the Securities Act of any shares of
Common Stock or any other Securities of the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company as
follows:
5.1 AUTHORIZATION OF THE FINANCING DOCUMENTS.
-----------------------------------------
Each Purchaser has the requisite power and authority (corporate or
otherwise) to execute, deliver and perform the Financing Documents to which it
is a party and the transactions contemplated thereby, and the execution,
delivery and performance by such Purchaser of the Financing Documents to which
it is a party have been duly authorized by all requisite action by such
Purchaser and each such Financing Document, when executed and delivered by such
Purchaser, constitutes a legal, valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar Laws affecting creditors' rights and remedies
generally, and subject, in the case of enforceability, to general principles of
equity (regardless of whether enforcement is sought in a Proceeding at law or in
equity).
5.2 INVESTMENT REPRESENTATIONS.
---------------------------
The Convertible Debentures to be purchased by each
Purchaser hereunder are acquired for its own account, for investment and not
with a view to the distribution thereof in violation of the Securities Act or
applicable foreign or state securities Laws.
Each Purchaser understands that (i) the Convertible
Debentures have not been, and the Securities issuable upon conversion or
exercise thereof will not be, registered under the Securities Act or applicable
foreign or state securities Laws, by reason of their issuance by the Company in
a transaction exempt from the registration requirements of the Securities Act
and applicable foreign and state securities Laws and (ii) the Convertible
Debentures, and the Securities issuable upon conversion or exercise thereof,
must be held by the Purchasers or each Purchaser, as the case may be,
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act and applicable foreign and state securities Laws or is exempt
from registration thereof. Each Purchaser is an "accredited investor" (as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act).
Except for the acquisition of the Securities of the Company
pursuant to the Note Purchase Agreement, dated December 15, 2000, the
Securities Purchase Agreement, dated January 10, 2001, the Securities Purchase
Agreement, dated February 20, 2001, the Securities Purchase Agreement, dated
March 28, 2001, the April 16 Letter and the Securities Purchase Agreement, dated
June 1, 2001, each such agreement by and among the Company and the Purchasers,
and for the transactions contemplated hereby, no Purchaser or any affiliate has
(i) bought or sold Securities, or options to buy or sell Securities, of the
Company, (ii) requested,
18
instructed or knowingly participated in a plan or arrangement with another
Person to buy or sell Securities, or options to buy or sell Securities, of the
Company, at any time during the period commencing on October 15, 2000, and
ending on (and including) the Closing.
None of the Purchasers have employed or otherwise retained
any broker or finder in connection with the transactions contemplated by this
Agreement.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 AMENDMENTS TO DEBT DOCUMENTS.
-----------------------------
Neither the Company nor any of its Subsidiaries shall or
shall permit any change, amendment, supplement or other modification of any
terms of the SVB Facility or related documents, without the prior consent of the
Purchasers, if the effect of such change, amendment, supplement or other
modification (or renewal, refinancing, refunding or extension) is to:
increase any applicable margin with respect to
the interest rate in effect on the extensions of credit under the SVB
Facility by more than a rate equal to 2% per annum from those
provided for in the SVB Facility as in effect on the date hereof, or
otherwise change the basis for the calculation of the interest rate
thereunder if such change has the effect of increasing the interest
rate charged thereunder by more than 2% per annum from those provided
for in the SVB Facility as in effect on the date hereof (provided,
that nothing herein shall preclude the imposition of a post-default
rate of interest in the amount and under the circumstances provided
in the SVB Facility as in effect on the date hereof);
shorten or extend the scheduled maturity of any
payment of any principal amount of the revolving loans under the SVB
Facility from the scheduled maturity thereof as in effect on the date
hereof, except extending the payment schedule of such revolving loans
so long as the final maturity on such loans shall fall on or before
180 days prior to the maturity date (provided, that nothing herein
shall preclude the Issuers from reducing the amount of commitments
under the SVB Facility);
add any additional defaults or events of default
under the SVB Facility or permit any modifications to the terms of
any defaults or events of default under the SVB Facility except for
any modifications to make such terms less restrictive on the Issuers
and their Subsidiaries);
make any numerically based restriction in any one
or more of the financial covenants under the SVB Facility (or related
documents) as in effect on the date hereof more restrictive on the
Issuers and their Subsidiaries by more than 10%; provided, that, an
amendment to a numerically based restriction in a financial covenant
in the SVB Facility shall result in an automatic equal percentage
amendment (an "AUTOMATIC FINANCIAL COVENANT AMENDMENT") in the
corresponding financial covenant (if any) in
19
the Financing Documents (and the Issuers agree to execute and deliver
promptly thereafter an amendment thereto that incorporates each such
Automatic Financial Covenant Amendment);
add any financial covenant to the SVB Facility;
or
except in connection with waiving any violation
of the SVB Facility or modifying any covenant to eliminate any
violation of the SVB Facility, add any negative covenant.
For purposes of this Section 6.1, the term "FINANCIAL COVENANT" means
any covenant, for which the compliance or noncompliance therewith is based on
the financial performance or financial condition of a Person. Notwithstanding
anything to the contrary contained in this Section 6.1, if an amendment to the
SVB Facility results in the modification or addition of an affirmative covenant,
then such amendment shall result in an automatic amendment to this Agreement,
subject to the consent of the Purchasers (an "AUTOMATIC AFFIRMATIVE COVENANT
AMENDMENT") modifying or adding, as the case may be, such affirmative covenant
to this Agreement (and the Issuer agrees to execute and deliver promptly
thereafter an amendment hereto that incorporates each such Automatic Affirmative
Covenant Amendment).
6.2 INFORMATION RIGHTS.
-------------------
REPORTS. For so long as the Convertible Debentures remain
outstanding, the Company shall furnish to the following Purchasers:
WEEKLY STATEMENTS. As soon as available, but no
later than Wednesday after the end of each week, an unaudited
internal financial report of the Company, which report shall be
prepared in a manner consistent with GAAP consistently applied, and
otherwise in the form provided to the Company's senior management,
and which shall consist of cash flow analysis for such weekly
accounting period together with a cumulative cash flow statement from
the first day of the current year to the last day of such weekly
accounting period;
MONTHLY STATEMENTS. As soon as available, but no
later than 20 days after the end of each monthly accounting period,
an unaudited internal financial report of the Company, which report
shall be prepared in a manner consistent with GAAP consistently
applied, and otherwise in the form provided to the Company's senior
management, and which shall include the following:
profit and loss statement for such
monthly accounting period, together with a cumulative
profit and loss statement for the prior twelve-month period
and for the comparable twelve-month period for the prior
year;
balance sheet as at the last day of
such monthly accounting period;
20
cash flow analysis for such monthly
accounting period together with a cumulative cash flow
statement from the first day of the current year to the
last day of such monthly accounting period;
comparison between all of the actual
figures provided pursuant to clauses (1), (2) and (3) above
(including, in the cases of clauses (1) and (2), the
cumulative statements), for such monthly accounting period
and the comparable figures for the prior year for such
monthly accounting period, with an explanation of any
material differences between them and compared to the
budget for such period; and
a report by management of the Company
of the operating and financial highlights of the Company
for such monthly accounting period and the cumulative
period for the fiscal year to date which shall include a
comparison between operating and financial results and the
corresponding plan or budget and a discussion of the
variances between current and prior periods.
The reports furnished by the Company pursuant to clauses
(1) and (5) of the preceding sentence shall be certified by
the chief financial officer of the Company.
QUARTERLY REPORT. As soon as available, but no
later than 45 days after the end of each calendar quarter, in
addition to the financial statements for the three prior monthly
accounting periods, the Company shall complete a quarterly report,
which quarterly report shall be certified by the chief financial
officer of the Company.
ANNUAL AUDIT. As soon as available, but not later
than 90 days after the end of each fiscal year of the Company,
audited financial statements of the Company, which shall include a
statement of cash flows and statement of operations for such fiscal
year and a balance sheet as at the last day thereof, each prepared in
accordance with GAAP (except as set forth in the notes thereto), and
accompanied by the report of a firm of independent certified public
accountants of nationally recognized standing selected by the Audit
Committee (the "Accountants").
BUDGET. Within 30 days after the end of each
fiscal year of the Company, an annual updated consolidated budget and
work plan, including projected income statements, balance sheets and
cash flow statements (setting forth in detail the assumptions
therefor) on a quarterly basis for the Company and its Subsidiaries
for the immediately following fiscal year of the Company, which such
budget and work plan shall be approved by the Board and the
Purchasers at the first regularly scheduled meeting of the Board of
the Company thereafter.
SUBSIDIARIES. If for any period the Company shall
have any Subsidiary or Subsidiaries whose accounts are consolidated
with those of the Company, then in respect of such period the
financial statements delivered pursuant to the foregoing clauses
shall be consolidated (and consolidating if normally prepared by the
Company) financial statements of the Company and all such
consolidated Subsidiaries.
21
ACCOUNTANTS REPORTS. Promptly upon becoming
available, copies of all reports prepared for or delivered to the
management of the Company by the Accountants.
SECURITY HOLDERS REPORTS. Promptly upon becoming
available, copies of all reports prepared for or delivered to the
Company's lenders or other security holders.
MATERIAL EVENTS. Promptly upon becoming aware of
a Liquidity Event or any other condition or event that could
reasonably be expected to have a Material Adverse Effect on the
Company (including any material defaults, litigation, governmental
inquiry, or discovery of a significant liability but excluding
general market conditions), (1) a report summarizing such condition
or event and the Company's proposed response thereto (2) have the
right to retain counsel to represent the Purchasers (and such
counsels' reasonable fees and expenses shall be paid directly by (or
reimbursed by) the Company and (3) be afforded time to review and
comment on any agreements relating thereto.
MISCELLANEOUS. Promptly upon request, any other
documentation or information reasonably requested by any Purchaser.
ACCESS TO RECORDS AND PROPERTIES. For so long as
the Convertible Debentures remains outstanding, the Company shall
afford to each Purchaser and its Representatives, during normal
business hours upon 3 Business Days advance notice, the right to (i)
visit and inspect the assets and properties of the Company, (ii)
examine upon reasonable advance notice, the books of accounts and
records of the Company and (iii) make copies of such records and
permit such Persons to discuss all aspects of the Company with any
officers, employees or Accountants of the Company; provided, however,
that such investigation shall not unreasonably interfere with the
operations of the Company. The Company will instruct the Accountants
to discuss such aspects of the financial condition of the Company
with each Purchaser and its Representatives as may reasonably
request, and to permit each Purchaser and its Representatives to
inspect, copy and make extracts from such financial statements,
analyses, work papers and other documents and information (including
electronically stored documents and information) prepared by the
Accountants with respect to the Company as may reasonably request.
All costs and expenses incurred by each Purchaser and its
Representatives in connection with exercising such rights of access
shall be borne by each Purchaser, and all out-of-pocket costs and
expenses incurred by the Company in complying with any extraordinary
requests by each Purchaser and its Representatives in connection with
exercising such access rights shall be borne by each Purchaser.
CONFIDENTIAL INFORMATION. Each Purchaser and its
Representatives shall hold in confidence all nonpublic information of
the Company provided or made available to such Purchaser and its
Representatives pursuant to this Section 6.1 until such time as such
information has become publicly available other than as a consequence
of any breach by such Purchaser and its Representatives of its
confidentiality obligations hereunder (provided that such information
may be disclosed to any other Purchaser and Representatives who are
bound by this provision) and shall not (A) trade or otherwise
directly or indirectly transfer any Securities of the Company in
violation of the Securities
22
Act or Exchange Act or (B) use such information for any purpose other
than exercise of its rights as a holder of Securities and its rights
under this Agreement and the Related Documents.
6.3 BOARD OF DIRECTORS; OBSERVATION RIGHTS.
---------------------------------------
BOARD OF DIRECTORS.
-------------------
The number of directors constituting the Board of
Directors of the Company (the "Board") and the Board of Directors of
each Subsidiary (each, a "Subsidiary Board"), as fixed from time to
time by the Board of Directors of the Company or any Subsidiary in
accordance with the Company's or each Subsidiary's By-laws, shall be
five. At the option of the Purchasers at anytime, the Company shall
use its best efforts to cause two individuals appointed by the
Purchasers to be nominated and elected to the Board and each
Subsidiary Board, and any committee thereof (the "Purchasers'
Directors"). The Purchasers' Directors shall be removed without cause
only by the Purchasers.
The provisions of clause (i) notwithstanding, at
any time and from time to time, the Purchasers shall have the right
to remove any or both of Purchasers' Directors from the Board and
each Subsidiary Board and, in such case, the Purchasers shall be
entitled to appoint an observer or observers (in addition to the
Purchaser's Current Observers (as hereinafter defined)) to serve as
an observer or observers at all meetings of the Board and each
Subsidiary Board, and any committees thereof (the "Purchasers'
Replacement Observers"). The Purchasers' Replacement Observers shall
have all of the rights of the Purchasers' Current Observers (as
hereinafter defined). At the election of the Purchasers at any time
and from time to time, the Company shall use its best efforts to
cause the Purchasers' Replacement Observers, or, at the Purchasers'
option, individuals appointed by the Purchasers in place of the
Purchasers' Replacement Observers, to again be nominated and elected
to the Board and each Subsidiary Board, and any committee thereof.
The Purchasers shall not be entitled to appoint more than two
individuals to the Board or each Subsidiary Board, or any committee
thereof, as a result of this clause (ii). Such procedure shall be
repeated at any time and from time to time at the option of the
Purchasers.
The Company shall pay, or reimburse, the
Purchasers' Directors or the Purchasers' Replacement Observers, as
the case may be, for all travel and related expenses incurred by the
Purchasers' Directors, or the Purchasers' Replacement Observers, as
the case may be, in connection with attending such meetings and
monitoring the Purchasers' investment in the Convertible Debentures.
The Company shall also pay for, or reimburse, the Purchasers for the
travel and related expenses incurred by any advisors of the
Purchasers' Directors or the Purchasers' Replacement Observers, as
the case may be, in connection with such matters.
The Company and each Subsidiary shall maintain
directors' and officers' insurance policies from an insurance company
rated "A" or above by A.M. Best and
23
otherwise in form and substance reasonably satisfactory to the
Purchasers, which policies shall name as an insured, or otherwise
provide coverage to, the Purchasers' Director. The Company and each
Subsidiary shall maintain such insurance policies for so long as any
Purchasers' Director remains on the Board or any Subsidiary Board.
The Company and each Subsidiary shall otherwise indemnify all of the
members of the Board and each Subsidiary Board to the fullest extent
permissible under applicable law.
OBSERVATION RIGHTS.
-------------------
Two representatives appointed by the Purchasers
(the "Current Observers" and collectively with the Purchasers'
Replacement Observers, the "Observers")) shall be entitled to serve
as observers at all meetings of the Board and each Subsidiary Board,
and any committees thereof. Such right shall from time to time be
exercisable by delivery to the Company of written notice from the
Purchasers specifying the names of the Current Observers.
Each Observer shall have all of the rights of a
member of the Board and each Subsidiary Board, provided, that no
Observer shall have the right to vote on matters on which the members
of the Board or any Subsidiary Board are entitled to vote. Each of
the Company and its Subsidiaries will give each Observer reasonable
prior notice (it being agreed that the same prior notice given to the
Board and each Subsidiary Board shall be deemed reasonable prior
notice) in any manner permitted in the Company's or each Subsidiary's
By-laws for notices to directors of the time and place of any
proposed meeting of each such Board of Directors, such notice in all
cases to include true and complete copies of all documents furnished
to any director in connection with such meeting. Each Observer will
be entitled to be present in person as an observer at any such
meeting or, if a meeting is held by telephone conference, to
participate therein.
Each of the Company and its Subsidiaries will
deliver to each Observer copies of all papers which may be
distributed from time to time to the members of the Board and each
Subsidiary Board at such time as such papers are so distributed to
them, including copies of any written consent. In addition, from time
to time upon the request of each Observer, the Company or each
Subsidiary will furnish to such Observer such information regarding
the business, affairs, prospects and financial condition of the
Company or each Subsidiary as such Observer may reasonably request.
Each of the Company and its Subsidiaries shall
pay, or reimburse, the Observers for all travel and related expenses
incurred by the Observers in connection with attending such meetings
and monitoring the Purchasers' investment in the Convertible
Debentures.
Each Observer shall hold in confidence all
nonpublic information of the Company provided or made available to
such Observer pursuant to this Section 6.2(b) until such time as such
information has become publicly available other than as a consequence
of any breach by such Observer or any Purchaser of its
confidentiality obligations hereunder (provided that such information
may be disclosed to any other
24
Persons who are bound by this provision) and shall not (1) trade or
otherwise directly or indirectly transfer any Securities of the
Company in violation of the Securities Act or Exchange Act or (2) use
such information for any purpose other than exercise of its rights as
a holder of Securities and its rights under this Agreement and the
other Financing Documents.
The rights of the Purchasers in subsections (a) and (b)
above are all of the Purchasers' rights with respect to the appointment of
members of the Board and any Subsidiary Board and Observer rights, and are not
in addition to the rights provided to the Purchasers pursuant to Section 5.3(c)
of the Securities Purchase Agreement dated as of January 10, 2001, among the
Purchasers and the Company.
6.4 RIGHTS TO SUBSCRIBE FOR SECURITIES.
-----------------------------------
For so long as any of the Convertible Debentures remain
outstanding, in the event that any equity and/or equity-linked Securities (the
"Offered Securities"), other than Excluded Securities, are proposed to be issued
by the Company or any Subsidiary to any Person (a "Proposed New Investor"), the
Company or any Subsidiary shall deliver to each Purchaser a written notice
(which notice shall state the number or amount of the Offered Securities
proposed to be issued, the purchase price therefor and any other terms or
conditions of the proposed issuance) of such issuance at least 30 days prior to
the date of the proposed issuance (the "Preemptive Offer Period").
Each Purchaser shall have the option, exercisable at any
time during the first 20 days of the Preemptive Offer Period by delivering
written notice to the Company (a "Preemptive Offer Acceptance Notice"), to
subscribe for (i) the number or amount of such Offered Securities up to its
Percentage Allocation set forth on Schedule 1 hereto of the total number or
amount of Offered Securities proposed to be issued and (ii) up to its Percentage
Allocation set forth on Schedule 1 hereto of the Offered Securities not
subscribed for by other Purchasers as specified in its Preemptive Offer
Acceptance Notice. Any Offered Securities not subscribed for by the Purchasers
shall be deemed to be re-offered to and accepted by the Purchasers exercising
their options specified in clause (ii) of the immediately preceding sentence
with respect to the lesser of (A) the amount specified in their respective
Preemptive Offer Acceptance Notices and (B) an amount equal to their respective
Proportionate Percentages (computed without including Purchasers who have not
exercised their option specified in clause (ii) of the immediately preceding
sentence) with respect to such deemed reoffer. Such deemed reoffer and
acceptance procedures described in the immediately preceding sentence shall be
deemed to be repeated until either (x) all of the Offered Securities are
accepted by the Purchasers or (y) no Purchaser desires to subscribe for more
Offered Securities. The Company shall notify each Purchaser within five days
following the expiration of the Preemptive Offer Period of the number or amount
of Offered Securities which such Investor has subscribed to purchase.
If Preemptive Offer Acceptance Notices are not given by the
Purchasers for all the Offered Securities, the Company may issue all or any part
of such Offered Securities as to which Preemptive Offer Acceptances Notices have
not been given by the Purchasers (the "Refused Securities") to the Proposed New
Investor, in accordance with the terms set forth in the
25
Preemptive Offer. Upon the closing, which shall include full payment to the
Company, of the sale to the Proposed New Investor of all the Refused Securities,
the Purchasers shall purchase from the Company, and the Company shall sell to
the Purchasers, the Offered Securities with respect to which Preemptive Offer
Acceptance Notices were delivered by the Purchasers, at the terms specified in
the Preemptive Offer Acceptance Notice. In each case, any Offered Securities not
purchased within 90 days of the end of the Preemptive Offer Period by the
Proposed New Investor in accordance with this Section 6.3(a) may not be sold or
otherwise disposed of until they are again offered to the Purchasers under the
procedures specified in this Section 6.3(a).
6.5 FINANCIAL AND OTHER COVENANTS.
------------------------------
(a) The Issuers shall at all times comply with the financial and other covenants
set forth on Schedule 6.5. To the extent the Issuers enter into an agreement
with SVB providing for the loosening or relaxation of one or more of the
financial covenants in the Credit Agreement, the Issuers and the Purchasers
agree (only with respect to the first agreement after the dates hereof between
SVB and the Issuers) to cause the financial covenants set forth on Schedule 6.5
to be loosened and or relaxed in the same manner.
INSURANCE. The Issuers shall, at all times insure its
tangible personal property Collateral in the amount of not less than Ten Million
Dollars ($10,000,000.00) and carry such other business insurance, with insurers
reasonably acceptable to the Purchasers, in such form and amounts as the
Purchasers may reasonably require, and the Issuers shall provide evidence of
such insurance to the Purchasers, so that the Purchasers is satisfied that such
insurance is, at all times, in full force and effect. All such insurance
policies shall name the Purchasers as additional loss payees and shall contain a
lenders loss payee endorsement in form reasonably acceptable to the Purchasers.
Upon receipt of the proceeds of any such insurance, the Purchasers shall apply
such proceeds to the Obligations as the Purchasers shall determine in their
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, the Purchasers shall release to the Company insurance
proceeds with respect to Equipment totaling less than $100,000, which shall be
utilized by the Issuers for the replacement of the Equipment with respect to
which the insurance proceeds were paid. The Purchasers may require reasonable
assurance that the insurance proceeds so released will be so used. If the
Issuers fails to provide or pay for any insurance, the Purchasers may, but is
not obligated to, obtain the same at the Issuers' expense. The Issuers shall
promptly deliver to the Purchasers copies of all reports made to insurance
companies.
LITIGATION COOPERATION. Should any third-party suit or
proceeding be instituted by or against the Purchasers with respect to any
Collateral or in any manner relating to the Issuers, the Issuers shall, without
expense to the Purchasers, make available the Issuers and their respective
officers, employees and agents and the Issuers' books and records, to the extent
that the Purchasers may deem them reasonably necessary in order to prosecute or
defend any such suit or Proceeding.
26
ARTICLE VII
INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS,
------------------------------------------------------------------
ETC.
----
All statements contained in any other Financing Document or any
closing certificate delivered by the Company, the Issuers, or the Purchasers
pursuant to this Agreement shall constitute representations and warranties by
the Issuers, or the Purchasers, as applicable, under this Agreement.
Notwithstanding any investigation made at any time by or on behalf of any party
hereto, all representations and warranties contained in this Agreement or made
in writing by or on behalf of the Issuers or any Purchaser, as applicable, in
connection with the transactions contemplated by this Agreement shall survive
the Closing until the fifteenth (15th) month anniversary of the Closing Date.
All agreements and covenants contained in this Agreement or made in writing by
or on behalf of the Issuers, or any Purchaser, as applicable, in connection with
the transactions contemplated by this Agreement shall survive the Closing
indefinitely or until they are earlier terminated by their terms.
7.2 INDEMNIFICATION.
----------------
In addition to all other rights and remedies available to
the Purchasers, the Company and each Subsidiary shall indemnify, defend and
hold harmless each Purchaser and its Affiliates and their respective partners,
officers, directors, employees, agents and representatives (collectively, the
"Purchaser Representatives"; and together with such Purchaser, the "Purchaser
Indemnified Persons") against all Losses in connection with or arising from any
Claim asserted against any Person (whenever made) resulting from or caused by
any transaction, status, event, condition, occurrence or situation relating to,
arising out of or in connection with (A) the status, or conduct of the Business
and affairs of, the Issuers, (B) the execution, delivery and performance by the
Issuers of this Agreement and the other Financing Documents and the transactions
contemplated hereby and thereby or (C) any actions taken by or omitted to be
taken by any of the Purchaser Indemnified Persons in connection with this
Agreement and the other Financing Documents or the transactions contemplated
hereby and thereby, except, in each case, to the extent such Losses result from
the gross negligence or willful misconduct of the Purchaser Indemnified Persons.
All indemnification rights hereunder shall survive
indefinitely the execution and delivery of the Financing Documents and the
consummation of the transactions contemplated herein and therein,
notwithstanding any inquiry or examination made for or on behalf of, or any
knowledge of any of the Purchasers and/or any of the other Purchaser Indemnified
Persons or the acceptance by any such Purchaser of any certificate or opinion.
27
ARTICLE VIII
MISCELLANEOUS
8.1 PARTIES IN INTEREST; ASSIGNMENT.
--------------------------------
This Agreement shall bind and inure to the benefit of the Issuers,
the Purchasers and their respective successors and assigns. No party hereto may
assign this Agreement, any other Financing Document or any of its rights,
interests or obligations hereunder or thereunder without the prior written
consent of the other parties; provided, however, that each Purchaser may assign
any of its rights under this Agreement, any other Financing Document or any
other document or investment contemplated hereby to any Affiliate or limited
partner of such Purchaser.
8.2 ENTIRE AGREEMENT.
-----------------
This Agreement, each other Financing Document and the other writings
and agreements referred to herein or delivered pursuant hereto contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings among the parties with
respect thereto.
8.3 SENIOR FINANCING.
-----------------
At the Issuers' request, the Purchasers shall negotiate in good faith
with any successor to SVB and the SVB Facility to execute and deliver reasonable
and customary documentation required to subordinate (on reasonable and customary
terms) the right of the Purchasers to receive payments of cash from the Company
with respect to their Convertible Debentures.
8.4 PUBLIC ANNOUNCEMENTS.
---------------------
Except as otherwise required by Law or by the rules of NASDAQ, so
long as this Agreement is in effect, neither the Company (or any of its
Subsidiaries) nor the Purchasers, will issue or cause the publication of any
press release or make any other public announcement with respect to the
transactions contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld. The Issuers and the
Purchasers will cooperate with each other in the development and distribution of
all press releases and other public announcements with respect to this Agreement
and the transactions contemplated hereby, and will furnish the other with drafts
of any such releases and announcements as far in advance as practicable.
8.5 NOTICES.
--------
All notices, demands and requests of any kind to be delivered to any
party in connection with this Agreement shall be in writing and shall be deemed
to have been duly given if personally delivered or if sent by
internationally-recognized overnight courier or by registered or certified mail,
return receipt requested and postage prepaid, addressed as follows:
28
if to the Issuers, to:
Exchange Applications, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Purchasers, to:
InSight Venture Partners
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇'▇▇▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. Nissan, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance with the
provisions of this Section 8.5. Any such notice or communication shall be deemed
to have been received (i) in the case of personal delivery, on the date of such
delivery, (ii) in the case of internationally-recognized overnight courier, on
the next business day after the date when sent and (iii) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted.
29
8.6 AMENDMENTS.
-----------
This Agreement may not be modified or amended, or any of the
provisions hereof waived, except by written agreement of the Issuers and the
Purchasers.
8.7 COUNTERPARTS.
-------------
This Agreement may be executed in any number of counterparts, and
each such counterpart hereof shall be deemed to be an original instrument, but
all such counterparts together shall constitute but one agreement.
8.8 HEADINGS.
---------
The section and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.9 GOVERNING LAW.
--------------
All questions concerning the construction, interpretation
and validity of this Agreement shall be governed by and construed and enforced
in accordance with the domestic Laws of the State of New York without giving
effect to any choice or conflict of law provision or rule (whether in the State
of New York or any other jurisdiction) that would cause the application of the
Laws of any jurisdiction other than the State of New York. In furtherance of the
foregoing, the internal Law of the State of New York will control the
interpretation and construction of this Agreement, even if under such
jurisdiction's choice of law or conflict of law analysis, the substantive Law of
some other jurisdiction would ordinarily or necessarily apply.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT OR ANY DOCUMENTS RELATED HERETO.
8.10 NO THIRD PARTY RELIANCE.
------------------------
Anything contained herein to the contrary notwithstanding, the
representations and warranties of the Issuers contained in this Agreement (a)
are being given by the Issuers as an inducement to the Purchasers to enter into
this Agreement and the other Financing Documents (and the Issuers acknowledge
that the Purchasers have expressly relied thereon) and (b) are solely for the
benefit of the Purchasers. Accordingly, no third party (including, without
limitation, any holder of Securities of the Issuers) or anyone acting on behalf
of such third party (other than the Purchasers) shall be a beneficiary of such
representations and warranties and no such third party
30
shall have any rights of contribution against the Purchasers or the Issuers with
respect to such representations or warranties or any matter subject to or
resulting in indemnification under this Agreement or otherwise.
8.11 SUBMISSION TO JURISDICTION.
---------------------------
Any Proceeding with respect to this Agreement or the other Financing
Documents may be brought in the courts of the State of New York and the United
States of America for the Southern District of New York and, by execution and
delivery of this Agreement, each Issuer hereby accepts for itself and in respect
of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each Issuer hereby irrevocably waives, in connection with any
such action or Proceeding, any objection, including, without limitation, any
objection to the venue or based on the grounds of forum non conveniens, which it
may now or hereafter have to the bringing of any such action or Proceeding in
such respective jurisdictions. Each Issuer hereby irrevocably consents to the
service of process of any of the aforementioned courts in any such action or
Proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to it at its address as set forth herein. Nothing herein shall
affect the right of the Investors to serve process in any other manner permitted
by Law or to commence Proceedings or otherwise proceed against the Issuers in
any other jurisdiction.
8.12 EXTENSION; WAIVER.
------------------
The parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement and (c) waive compliance with any
of the agreements or conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party, and any such
waiver shall not operate or be construed as a waiver of any subsequent breach by
the other party.
8.13 SEVERABILITY.
-------------
It is the desire and intent of the parties that the provisions of
this Agreement and the other Financing Documents be enforced to the fullest
extent permissible under the Law and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, in the event that any
provision of this Agreement and the other Financing Documents would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement and the other Financing Documents or
affecting the validity or enforceability of such provision in any jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not be invalid, prohibited or unenforceable in such jurisdiction, it shall,
as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement and the other Financing Documents or
affecting the validity or enforceability of such provision in any other
jurisdiction.
31
8.14 INDEPENDENCE OF AGREEMENTS.
---------------------------
All agreements and covenants hereunder shall be given independent
effect so that if a certain action or condition constitutes a default under a
certain agreement or covenant, the fact that such action or condition is
permitted by another agreement or covenant shall not affect the occurrence of
such default, unless expressly permitted under an exception to such covenant. In
addition, all representations and warranties hereunder shall be given
independent effect so that if a particular representation or warranty proves to
be incorrect or is breached, the fact that another representation or warranty
concerning the same or similar subject matter is correct or is not breached will
not affect the incorrectness of or a breach of the representation and warranty
first referred to in this sentence.
8.15 ACTIONS OF REPRESENTATIVES.
---------------------------
A decision, act, consent or instruction of the Purchaser
Representative in respect of any action hereunder shall constitute a decision
of all Purchasers and shall be final, binding and conclusive upon each such
Purchaser and the Issuers may rely upon any decision, act, consent or
instruction of the Purchaser Representative hereunder as being the decision,
act, consent or instruction of each and every such Purchaser. Notice delivered
to the Purchasers' Representative shall for all purposes constitute notice to
all Purchasers. The foregoing shall be binding upon all Purchasers and all
transferees and assignees thereof.
A decision, act, consent or instruction of the Company in
respect of any action hereunder shall constitute a decision of any Issuer and
shall be final, binding and conclusive upon each such Issuer and the Purchasers
may rely upon any decision, act, consent or instruction of the Company hereunder
as being the decision, act, consent or instruction of each and every such
Issuer. Notice delivered to the Company shall for all purposes constitute notice
to all Issuers. The foregoing shall be binding upon all Issuers and all
transferees and assignees thereof.
8.16 EXPENSES.
---------
The Issuers agree to pay, and hold the Purchasers and/or their
representatives harmless against, as incurred, all liability for the payment of
(i) the actual, out-of-pocket costs and expenses incurred by the Purchasers (A)
at or prior to Closing in connection with the transactions contemplated hereby,
including, without limitation, all fees and expenses of counsel, accountants and
other advisors, in connection with the preparation of the Financing Documents,
the purchase of the Convertible Debentures and the consummation of all of the
transactions contemplated by the Financing Documents (including, but not limited
to, the conversion of the Convertible Debentures into Convertible Debenture
Shares), (ii) the reasonable costs and expenses (including fees and expenses of
counsel, accountants and other advisors) incurred by the Purchasers in
connection with any amendment or waiver of, or enforcement of, any Financing
Documents, (iii) any costs reasonably incurred by the Purchasers in rendering
assistance to the Company or any of its Subsidiaries, to the extent the Company
or such Subsidiary requested such assistance (it being understood that the
Purchasers are not obligated to render, and may charge additional fees for, such
assistance), (iv) the reasonable fees and expenses incurred by the Purchasers in
any filing with any governmental authority with respect to its investment in the
Issuers or in any other filing
32
with any governmental authority with respect to the Company or any of its
Subsidiaries that mentions the Purchasers or their affiliates, and (v) any stamp
or similar taxes which may be determined to be payable in connection with the
execution and delivery and performance of any of the Financing Documents or any
modification, amendment or alteration of any of the Financing Documents, and all
issue taxes in respect of the issuance of any Convertible Debenture or
Convertible Debentures Shares.
ARTICLE IX
CONSENT OF THE PURCHASERS
Pursuant to Section 3(b) of the Company's Certificate of
Incorporation, the Purchasers hereby consent to the transactions contemplated by
this Agreement and the other Financing Documents.
33
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Securities Purchase Agreement as of the date first written above.
ISSUER:
-------
EXCHANGE APPLICATIONS, INC.
By: /s/ F. ▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------
Name: F. ▇▇▇▇▇▇ ▇▇▇▇▇
Title: CSO
EXSTATIC SOFTWARE, INC.
By: /s/ F. ▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------
Name: F. ▇▇▇▇▇▇ ▇▇▇▇▇
Title: CSO
PURCHASERS:
-----------
INSIGHT VENTURE PARTNERS IV, L.P.
INSIGHT VENTURE PARTNERS (CAYMAN) IV, L.P.
INSIGHT VENTURE PARTNERS IV (FUND B), L.P.
INSIGHT VENTURE PARTNERS IV (CO-INVESTORS), L.P.
By: Insight Venture Associates IV, L.L.C.,
the general partner to each of the above-referenced entities:
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Managing Director
EXHIBIT A
FORM OF BRIDGE NOTE DEBENTURE
-----------------------------
See attached.
EXHIBIT B
FORM OF CASH DEBENTURE
----------------------
See attached.
EXHIBIT C
FORM OF COMPANY COUNSEL OPINION
-------------------------------
See attached.
EXHIBIT D
FORM OF FOURTH AMENDED AND RESTATE REGISTRATION RIGHTS AGREEMENT
----------------------------------------------------------------
See attached.
EXHIBIT E
FORM OF SECURITY AGREEMENT
--------------------------
See attached.
EXHIBIT F
FORM OF SUBORDINATION AGREEMENT
-------------------------------
See attached.
SCHEDULE I
----------
Purchasers and Percentage Allocations
-----------------------------------------------------------------------------------------------------------------------
BRIDGE NOTE DEBENTURE
---------------------------------- ------------ -------------------------------------------------------------------
PERCENTAGE CURRENT OUTSTANDING BRIDGE NOTE DEBENTURE
PURCHASER ALLOCATION JUNE 1 NOTE AMOUNT INTEREST AMOUNT AMOUNT
---------------------------------- ------------ -------------------- -------------------- -------------------------
InSight Venture Partners IV, L.P. 76.666130% $5,452,825.24 $98,804.79 $5,551,630.03
---------------------------------- ------------ -------------------- -------------------- -------------------------
InSight Venture Partners
(Cayman) IV, L.P. 10.537455% $749,469.17 $13,580.33 $763,049.49
---------------------------------- ------------ -------------------- -------------------- -------------------------
InSight Venture Partners IV
(Fund B), L.P. 12.136382% $863,191.74 $15,640.97 $878,832.71
---------------------------------- ------------ -------------------- -------------------- -------------------------
InSight Venture Partners IV
(Co-Investors), L.P. .660033% $46,944.39 $850.63 $47,795.02
---------------------------------- ------------ -------------------- -------------------- -------------------------
TOTAL: 100.00% $7,112,430.54 $128,876.71 $7,241,307.25
-----------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
CASH DEBENTURE
---------------------------------- ------------------------------------------ -----------------------
CASH DEBENTURE AGGREGATE CONVERTIBLE
PURCHASER WIRE AMOUNT AMOUNT DEBENTURES AMOUNT
---------------------------------- --------------------- -------------------- -----------------------
InSight Venture Partners IV, L.P. $3,833,306.50 $3,833,306.50 $9,384,936.53
---------------------------------- --------------------- -------------------- -----------------------
InSight Venture Partners
(Cayman) IV, L.P. $526,872.75 $526,872.75 $1,289,922.24
---------------------------------- --------------------- -------------------- -----------------------
InSight Venture Partners IV
(Fund B), L.P. $606,819.10 $606,819.10 $1,485,651.81
---------------------------------- --------------------- -------------------- -----------------------
InSight Venture Partners IV
(Co-Investors), L.P. $33,001.65 $33,001.65 $80,796.67
---------------------------------- --------------------- -------------------- -----------------------
TOTAL: $5,000,000.00 $5,000,000.00 $12,241,307.25
---------------------------------------------------------------------------------------------------------
SCHEDULE 4.1
Foreign Jurisdiction
SCHEDULE 4.2
Capitalization
SCHEDULE 4.4
No Conflicts
SCHEDULE 4.6
Commission Filings; Financial Statements
SCHEDULE 4.10
Intellectual Property Rights
SCHEDULE 4.11
Litigation and Other Proceedings or Claims
SCHEDULE 4.14
Registration Rights
SCHEDULE 6.5
Financial Covenants
The Issuers shall comply with each of the following covenant(s).
Compliance shall be determined as of the end of each month and quarterly where
indicated, except as otherwise specifically provided below:
EBITDA: The Issuers shall suffer maximum negative EBITDA or
maintain a minimum positive EBITDA per month and per quarter in accordance with
the schedule provided below:
Maximum Negative ($2,600,000)
EBITDA -
August 2001 - ($2,500,000)
September 2001 - $7,750,000
3rd Quarter 2001
Minimum Positive
EBITDA - $250,000
October 2001 - ($5,750,000)
November 2001 - ($2,150,000)
December 2001 - $8,000,000
4th Quarter 2001
Minimum Positive
EBITDA - $1,700,000
January 2002 - ($5,500,000)
February 2002 - ($2,000,000)
March 2002 - $8,500,000
1st Quarter 2002
Minimum Profit $2,000,000
The Issuers will at all times maintain (i) cash on the
balance sheet of the Company of a minimum of $2,000,000.00 or (ii) excess
"availability" under the SVB Facility, as determined by the Purchasers based
upon the Credit Limit (as defined in the SVB Facility) restrictions set forth
herein, of a minimum of $2,000,000.00.
On or before December 30, 2001, the Company shall have
received a minimum of an additional $10,000,000.00 through a single transaction
or series of related transactions, through the sale and issuance by the Company
of equity securities (excluding any amounts received by the Company from the
conversion of any convertible debt securities of the Company outstanding as of
the date hereof other than the $4,500,000.00 received from the Purchasers and
related entities prior to March 31, 2001).