VSOURCE, INC.
CONVERTIBLE NOTE PURCHASE AGREEMENT
This Convertible Note Purchase Agreement (this "Agreement") is made as
of this 25th day of June, 2001 by and among Vsource, Inc., a Delaware
corporation (the "Company"), ▇▇▇▇▇▇▇▇▇.▇▇▇ Ltd., a Cayman Islands company
("NetCel"), NetCel360 Sdn Bhd, a Malaysian company ("NetCel Malaysia" together
with NetCel, the "Guarantors"), and each of the persons and entities listed on
the Schedule of Purchasers attached as Exhibit A hereto (hereinafter
collectively referred to as "Purchasers" and each individually as a
"Purchaser").
R E C I T A L S
A. Pursuant to that certain Bridge Loan Agreement, dated as of April
6, 2001, as amended by that certain Amended and Restated Bridge Loan Agreement,
dated as of May 24, 2001, (as amended, supplemented or otherwise modified from
time to time, the "Bridge Agreement"), among NetCel360 Holdings Limited, a
Cayman Islands company ("Holdings"), the Guarantors and certain other
individuals and entities listed as signatories thereto, NetCel has heretofore
borrowed from the persons and entities (the "Bridge Lenders") listed on (i)
Schedule 1A thereto (collectively, the "Tranche A Bridge Lenders") an aggregate
principal amount of $2.25 million (the "Tranche A Bridge Loan") and (ii)
Schedule 1B thereto (collectively, the "Tranche B Bridge Lenders", and, together
with the Tranche A Bridge Lenders, the "Bridge Lenders") an aggregate principal
amount of US$1.45 million (the "Tranche B Bridge Loan", and, together with the
Tranche A Bridge Loan, the "Bridge Loans") in accordance with and subject to the
terms and conditions of the Bridge Agreement;
B. The Company has acquired certain subsidiaries of Holdings (and
related assets), including each of the Guarantors, pursuant to that certain
Acquisition Agreement, dated as of May 24, 2001, between Holdings and the
Company (as amended, the "Acquisition");
C. The Company is also considering a Series B Exchangeable Note and
Warrant Purchase Agreement providing for financing to the Company of up to $4
million pursuant to the issuance of Series B Exchangeable Promissory Notes (the
"Series B Notes") which are expected to be exchangeable for Series A Promissory
Notes;
D. The Company wishes to issue, and the Purchasers wish to purchase
from the Company, the Company's Convertible Promissory Notes in accordance with
and subject to the terms and conditions of this Agreement in order to provide
for the working capital requirements of the Company and its subsidiaries
following the Acquisition;
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE AND SALE OF SERIES A NOTES
1.1 SALE AND ISSUANCE OF SERIES A NOTES. Subject to the terms and
conditions of this Agreement, each Purchaser agrees, severally and not jointly,
to purchase, and the Company agrees to sell and issue to each such Purchaser,
that principal amount of the Company's Series A Convertible Promissory Notes
(individually, a "Note" and collectively, the "Series A Notes") set forth
opposite such Purchaser's name on Exhibit A hereto, for the purchase price equal
to the principal amount thereof, (the "Purchase Price"), payable in cash or
other consideration permitted by Section 1.3(d) hereunder in the amount set
forth opposite such Purchaser's name on Exhibit A hereto. The aggregate
Purchase Price of the Series A Notes for all Purchasers combined shall be not
less than $2,950,000 nor more than $11,500,000 plus the principal amount of
Series A Notes issued under Section 1.3(c) hereof.
1.2 SUBORDINATION. Each Purchaser agrees that no amount (for
interest, principal, fees or otherwise) shall be paid in respect of the Series A
Notes unless and until NetCel, the Company and/or NetCel Malaysia shall have
paid in full all due and owing amounts in respect of the Bridge Loans based on
the principal amount currently outstanding. Each Purchaser agrees, for the
benefit of the Bridge Lenders, that all amounts owing by Company and Guarantors
under the Series A Notes are subordinated to the prior payment in full of all
amounts in respect of the Bridge Loans. Each Purchaser agrees to hold any
amount received in violation of the preceding sentence in trust for the benefit
of the Bridge Lenders.
1.3 CLOSING; ADDITIONAL CLOSINGS.
(a) The purchase and sale of the Series A Notes with an
aggregate Purchase Price of not less than $2,950,000 shall take place at the
offices of ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇, Chicago, Illinois at 10:00 a.m., on June 22,
2001, or at such later time, not beyond June 30, 2001, as the Company may
specify in writing to the Purchasers (which time and date are designated as the
"First Closing").
(b) For a period of 120 days following the date of the First
Closing, the Company may, at any time or from time to time, issue and sell
additional Series A Notes of like tenor (other than issuance date) to one or
more individuals or entities ("New Purchasers") on the same terms as set forth
in this Agreement. Each New Purchaser, if any, which is not already a Purchaser
hereunder, shall execute a joinder to this Agreement agreeing to be fully bound
by, and subject to, all of the covenants, terms and conditions of the Agreement
and shall be deemed a "Purchaser" for all purposes hereof. In connection with
any sale of Series A Notes to any New Purchaser pursuant to this Section 1.3(b),
Exhibit A shall be automatically amended to reflect the identity of such New
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Purchaser and such New Purchaser's purchase of Series A Notes. The date of
closing of any purchase of Series A Notes pursuant to this Section 1.3(b) shall
be an "Additional Closing" and each of the First Closing and each Additional
Closing shall be a "Closing" hereunder.
(c) In the event a holder of Series B Notes ("Series B
Holders") elects to exchange his Series B Notes for Series A Notes, the Company
may issue to the Series B Holders in respect of the Series B Notes so exchanged
Series A Notes identical to the Series A Notes (except for issue date). Each
Series B Holder, if any, who is not already a Purchaser hereunder, shall execute
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a joinder to this Agreement agreeing to be fully bound by, and subject to, all
of the covenants, terms and conditions of the Agreement and shall be deemed a
"Purchaser" for all purposes hereof. In connection with any issuance of Series
A Notes to any Series B Holder pursuant to this Section 1.3(c), Exhibit A shall
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be automatically amended to reflect the identity of such Series B Holder and
such Series B Holder's purchase of Series A Notes.
(d) Subject to the terms of this Agreement, at the
Closing, the Company shall deliver to each Purchaser a Note in the principal
amount of the applicable Purchase Price, against payment of the Purchase Price
therefor by check or a wire transfer of funds to the following Account:
City National Bank, Encino ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ABA #: ▇▇▇▇▇▇▇▇▇
Beneficiary: Vsource, Inc.
Acct #: 024-845419
, or such other form of payment as shall be mutually agreed upon by such
Purchaser and the Company. In the case of a Purchaser which is a Tranche B
Bridge Lender or a Series B Holder, the Purchase Price may be paid by the
surrender to the Company of a promissory note issued in respect of such Tranche
B Bridge Lender's Tranche B Bridge Loan or such Series B Holder's Series B Note,
as the case may be for cancellation in full of the Company's and its
Subsidiaries obligations thereunder and the Purchase Price so paid will be
deemed to be the principal amount thereof and all accrued interest thereon
through the applicable date of Closing.
(e) Shares of the Preferred Stock of the Company issuable
upon conversion of the Series A Notes are herein referred to as the "Series 3-A
Preferred Stock" or the "Exchange Shares." The shares of the Company's common
stock, par value $0.01 share ("Common Stock") issuable upon conversion of the
Series 3-A Preferred Stock are sometimes herein referred to as the "Conversion
Shares" and the Series A Notes, Conversion Shares and the Exchange Shares are
sometimes herein referred to collectively as the "Securities."
1.4 USE OF PROCEEDS. The proceeds of the sale of Series A Notes
by the Company will be used at the option of the Company (a) to redeem up to
$200,000 principal amount of the Bridge Loan made by ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇, as Tranche B Bridge Lenders, (b) for general corporate purposes, and (c)
to pay the fees and expenses incurred in connection with the Acquisition and the
transactions contemplated hereby, including the fees and expenses described in
Section 6.3 of this Agreement.
2. GUARANTEE AND INDEMNITY.
2.1 GUARANTEE. In consideration of the purchase of the Series A
Notes upon the terms and conditions of this Agreement, the Guarantors hereby
jointly and severally and unconditionally and irrevocably guarantee as a
continuing obligation, the due and punctual payment of the Obligations (as
defined in Section 2.4 below) in the currency in which the same is payable under
the terms of this Agreement and the due and punctual performance and observance
by the Company of all other obligations of the Company contained in this
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Agreement and the Series A Notes (as defined below) (collectively, the
"Guarantee"), and if the Company fails to pay any amount of the Obligations when
due the Guarantors shall pay such amount to the Purchasers in the required
currency as aforesaid forthwith upon receiving the written demand of the
Majority Holders.
2.2 DEMANDS. Demands may be made under the Guarantee from time to
time and may be enforced irrespective of whether any steps or proceedings are or
will be taken against the Company or any other person to recover under the
Series A Notes or interest accrued thereon or this Agreement.
2.3 INDEMNITY. Without prejudice to the guarantee contained in
Section 2.1, the Guarantors hereby jointly and severally and unconditionally and
irrevocably undertake, as a separate, primary, additional and continuing
obligation, to indemnify each Purchaser against all losses, liabilities,
damages, costs and expenses whatsoever arising out of any failure by the Company
to make due and punctual payment of the Obligations or in the due and punctual
performance and observance of all other obligations under this Agreement and the
Series A Notes. This indemnity shall remain in effect notwithstanding that the
Guarantee under Section 2.1 may cease to be valid and enforceable against the
Guarantors for any reason whatsoever.
2.4 OBLIGATIONS. For the purpose of this Agreement,
"Obligations" means any and all of the obligations of the Company (whether or
not for the payment of money, and including any obligation to pay damages for
breach of contract) which are or may become payable to the Purchasers or any of
them pursuant to this Agreement, the Series A Notes or Article V (redemption) of
the Certificate of Designation for the Series 3-A Preferred Stock.
2.5 CONTINUING GUARANTEE. This Guarantee shall be a continuing
guarantee and shall remain in full force and effect until the Obligations have
been paid and performed in full, notwithstanding the insolvency or liquidation
or any incapacity or change in the constitution or status of the Company or
either or both of the Guarantors or any other person or any intermediate
settlement of account or other matter whatsoever.
2.6 PROTECTIVE CLAUSES. Without limiting Section 2.5, neither the
liability of either of the Guarantors nor the validity or enforceability of this
Guarantee shall be prejudiced, affected or discharged by:
(a) the granting of any time or indulgence to the Company or
any other person;
(b) any variation or modification of this Agreement, the
Series A Notes or any other document referred to herein or therein or related
thereto;
(c) the invalidity or unenforceability of any obligation or
liability of any party under this Agreement, the Series A Notes or any other
documents referred to herein or therein or related thereto;
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(d) any invalidity or irregularity in the execution of this
Agreement, the Series A Notes or any other documents referred to herein or
therein or related thereto;
(e) any lack of capacity or deficiency in the powers of the
Company, any Guarantor or any other person to enter into or perform any of its
obligations under this Agreement, the Series A Notes or any other documents
referred to herein or therein or related thereto or any irregularity in the
exercise thereof or any lack of authority by any person purporting to act on
behalf of the Company, the Guarantors or such other person;
(f) the insolvency, bankruptcy or liquidation or any
incapacity, disability or limitation or any change in the constitution or status
of the Company or either or both of the Guarantors or any other person;
(g) any other security document, security interest,
guarantee or other security or right or remedy being or becoming held by or
available to any Purchaser or by any other person or by any of the same being or
becoming wholly or partly void, voidable, unenforceable or impaired or by any
Purchaser at any time releasing, refraining from enforcing, varying or in any
other way dealing with any of the same or any power, right or remedy any
Purchaser may now or hereafter have from or against the Company or any other
person;
(h) any waiver, exercise, omission to exercise, compromise,
renewal or release of any rights against the Company or any other person or any
compromise, arrangement or settlement with any of the same; or
(i) any act, omission, event or circumstance which would or
may but for this provision operate to prejudice, affect or discharge this
Guarantee or the liability of the Guarantors hereunder.
2.7 Taxes and Other Deductions.
(a) Funds. All payments to be made by the Company or
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Guarantors or any other person under this Purchaser shall be made in full in
immediately available U.S. Dollars without any set off or consideration
whatsoever, free and clear of any Taxes, deductions or withholdings save as
required by law.
(b) Taxes. If at any time Company or a Guarantor is required
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to make any deduction or withholding in respect of Taxes (as defined below) or
otherwise from any payment due under this Agreement or the Series A Notes, the
sum due from such Guarantor in respect of such payment shall be increased to the
extent necessary to ensure that, after the making of such deduction or
withholdings, each Purchaser receives on the due date for such payment (and
retains, free from and clear of any Taxes or otherwise) a net sum equal to the
sum which it would have received had no such deduction or withholding been
required to be made and such Guarantor shall indemnify each Purchaser against
any losses or costs incurred by any of them by reason of any failure of such
Guarantor to make any such deduction or withholding or by reason of any
increased payment not being made on the due date for such payment. Such
Guarantor shall promptly deliver to the Purchaser any receipts, certificates or
other proof evidencing the amounts (if any) paid or payable in respect of any
deduction or withholding as aforesaid. "Taxes" shall mean taxes, charges, fees,
levies or other assessments of any nature, including, without limitation, sales,
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value added, use, excise, real or personal property, withholding, stamp or other
taxes, customs, duties or landing fees or other government charges however
designated, now or hereafter imposed, collected or assessed by, or payable to,
any taxing authority of any country and shall include interest, penalties and
additions imposed, collected or assessed or payable with respect to such amount.
2.8 COSTS, CHARGES AND EXPENSES. The Company and each of the
Guarantors shall from time to time forthwith on demand of the holders of a
majority of the then outstanding principal amount of the Series A Notes (the
"Majority Holders") pay to or reimburse the Purchaser for all reasonable costs,
charges and expenses (including reasonable legal fees for one counsel for all
Purchasers and other reasonable fees on a full indemnity basis) incurred by any
Purchaser in connection with the enforcement of any of their rights or powers
hereunder or in suing for or seeking to recover any sums due hereunder or in
defending any claims brought against them in respect of this Agreement, the
Series A Notes or this Guarantee and until payment of the same in full, all such
costs, charges and expenses shall be secured by this Guarantee.
2.9 UNDERTAKINGS. Each Guarantor hereby undertakes and agrees
jointly and severally with the Purchasers that the undertakings in this Article
2 shall remain in force throughout the continuance of this Guarantee and so long
as the Obligations or any part thereof remains owing or outstanding.
2.10 UNRESTRICTED RIGHT OF ENFORCEMENT. The Guarantee may be
enforced without any Purchaser first having made any demand or had recourse to
any other security or rights or taking any other steps or proceedings against
the Company, either or both of the Guarantors or any other person and may be
enforced for any balance due after resorting to any one or more other means of
obtaining payment or discharge of the monies, obligations and liabilities hereby
secured.
2.11 DISCHARGE AND RELEASE. Notwithstanding any discharge,
release or settlement from time to time between any Purchaser and the
Guarantors, if any security, disposition or payment granted or made to the
Majority Holders or any Purchaser in respect of the Obligations by the
Guarantors or any other person is avoided or set aside or ordered to be
surrendered, paid away, refunded or reduced by virtue of any provision, law or
enactment relating to bankruptcy, insolvency, liquidation, winding-up,
composition or arrangement for the time being in force or for any other reason,
the Majority Holders shall be entitled hereafter to enforce this Agreement as if
no such discharge, release or settlement had occurred.
2.12 AMENDMENT. Any amendment or waiver of any provision of the
Guarantee and any waiver of any default under this Agreement shall only by
effective if made in writing and signed by the Majority Holders.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As used herein, (i) any reference to any event, change or effect
being "material" with respect to the Company or any Subsidiary (as defined
herein) means an event, change or effect which is material in relation to the
financial condition, properties, business, operations, assets or results of
operations of the Company and each Subsidiary, taken as a whole, and (ii) the
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term "Material Adverse Effect" on the Company means a material adverse effect on
the financial condition, properties, business, operations, assets or results of
operations of the Company and its Subsidiaries, taken as a whole. As of the
date hereof and each Additional Closing, the Company hereby represents and
warrants to, and covenants with, each Purchaser, except as contemplated by this
Agreement or as set forth in the Disclosure Schedule (the "Disclosure Schedule")
attached hereto, as follows:
3.1 ORGANIZATION AND STANDING. The Company has been duly
incorporated, is validly existing and in good standing under the laws of the
State of Delaware and has corporate power and authority to own, lease and
operate its properties and to conduct its business in the manner presently
conducted and to enter into and perform its obligations under this Agreement,
the Series A Notes and, subject to obtaining shareholder approval of the
Shareholder Proposals, the Certificate of Designation for designation of the
Exchange Shares (the "Certificate of Designation"). The Company and each of the
Subsidiaries is duly qualified as a foreign corporation to transact business and
is in good standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure to so qualify or to be in good
standing would not result in a Material Adverse Effect. The Company is not
required to register as an "investment company" within the meaning of the
Investment Company Act of 1940. The Company has made available to the
Purchasers a true, complete and correct copy of the Company's certificate of
incorporation and bylaws and the constitution documents of each Subsidiary, each
as amended to date (collectively, the "Organizational Documents"). The
Organizational Documents are in full force and effect.
3.2 CAPITALIZATION. As of the date hereof, the authorized, issued
and outstanding shares of capital stock of the Company are as set forth in the
Company's Annual Report on form 10-KSB for the fiscal year ended January 31,
2001, as filed with the SEC on May 16, 2001, as amended (the "Form 10-K") and
Quarterly Report on form 10-Q for the fiscal period ended April 30, 2001 (the
"Form 10-Q"), with such changes as are (a) contemplated by the Acquisition
Agreement, this Agreement or the Series B Note Agreement or (b) set forth on
Schedule 3.2. The authorized capital also includes shares of Series 3-A
Preferred Stock having the rights, privileges and preferences set forth in the
Certificate of Designation, none of which shares have been issued prior to the
date hereof. All issued and outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the Company
have been issued in violation of the pre-emptive or other similar rights of any
person or in violation of any applicable securities laws or regulations. Except
as otherwise specified in Schedule 3.2 hereto or described in the Form 10-Q,
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there are no shares of capital stock or other securities of the Company or any
Subsidiary (i) reserved for issuance or (ii) subject to preemptive rights or any
outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or other instruments outstanding or in effect
giving any person the right to acquire any shares of capital stock or other
securities of the Company or any Subsidiary or any commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company or any Subsidiary. On the date hereof the Company does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of Company. The sale
of the Series A Notes, Exchange Shares and Conversion Shares is not subject to
any preemptive rights or rights of first refusal and, when issued and delivered
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in compliance with the provisions of this Agreement, the Series A Notes and/or
the Certificate of Designation, the Exchange Shares and Conversion Shares will
be duly and validly issued, fully paid and nonassessable, and will be free of
any liens, encumbrances or restrictions on transfer; provided, however, that (a)
the Securities may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by such
laws at the time a transfer is proposed, and (b) the Securities shall only be
assigned pursuant to Section 8.3 hereof.
3.3 AUTHORIZATION OF AGREEMENTS. This Agreement and the Series A
Notes have been duly authorized, executed and delivered by the Company, and this
Agreement and each of the Series A Notes constitute valid and legally binding
obligations of the Company, enforceable in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles except that the right of the holder of
Exchange Shares to convert Exchange Shares into Conversion Shares is subject to
receipt of shareholder approval of the Shareholder Proposals (as herein
defined). The Board of Directors of the Company has approved the Shareholder
Proposals and recommended approval thereof by the stockholders of the Company
and has duly approved the Certificate of Designation. Such Certificate of
Designation has been duly filed with the Secretary of State of Delaware and is
in full force and effect.
3.4 ABSENCE OF DEFAULTS AND CONFLICTS. None of the Company nor
any Subsidiary (as defined below) is in violation of its organizational
documents. Except as set forth on Schedule 3.4, the execution, delivery,
performance and consummation of this Agreement and the Series A Notes and
issuance of the Exchange Shares and the Conversion Shares by the Company does
not and will not, with respect to the Company and each Subsidiary, directly or
indirectly, (with or without the giving of notice or the lapse of time or both):
(i) subject in the case of the issuance of the Conversion Shares to the receipt
of shareholder approval of the Shareholder Proposals, contravene, conflict with,
or constitute or result in a breach or violation of, or a default under (A) any
provision of any of the Organizational Documents or (B) any resolution adopted
by the Board of Directors (or similar governing body) or the stockholders of the
Company or any Subsidiary; (ii) contravene, conflict with, or constitute or
result in a breach or violation of, or a default under, or the acceleration of,
or the triggering of any payment or other obligations pursuant to, any existing
benefit plan maintained by the Company or any Subsidiary or any grant or award
made under any of the foregoing; (iii) contravene, conflict with, or constitute
or result in a breach or violation of, or a default under, or the cancellation,
modification or termination of, or the acceleration of, or the creation of a
lien on any properties or assets owned or used by the Company or any Subsidiary
pursuant to, any provision of any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to which
it is a party or by which it may be bound, or to which any of its property or
assets is subject ("Contract"), except for those that would not individually or
in the aggregate result in a Material Adverse Effect; (iv) contravene, conflict
with, or constitute or result in a breach or violation of, any federal, state,
local, municipal, foreign, international, multinational, or other constitution,
law, rule, requirement, administrative ruling, order, ordinance, principle of
common law, code, regulation, statute, treaty or process ("Law") or any award,
decision, injunction, judgment, decree, settlement, order, process, ruling,
subpoena or verdict (whether temporary, preliminary or permanent entered,
issued, made or rendered by any court, administrative agency, arbitrator,
Governmental Entity or other tribunal of competent jurisdiction ("Order") or
give any foreign, federal, state, local, municipal, county or other
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governmental, quasi-governmental, administrative or regulatory authority, body,
agency, court, tribunal, commission or other similar entity (including any
branch, department or official thereof) ("Governmental Entity") or any other
person the right to challenge any of the transactions contemplated herein or to
exercise any remedy or obtain any relief under, any Law or any Order to which
the Company or any Subsidiary, or any of the assets owned or used by the Company
or any Subsidiary, are subject; (v) require any filing by the Company or any
Subsidiary with, or approval or consent or other action by, any Governmental
Entity or any other person; (vi) contravene, conflict with, or constitute or
result in a breach or violation of, or a default under, any provision of, or
give any Governmental Entity the right to revoke, withdraw, suspend, cancel,
terminate or modify, any license or permit that is held by the Company or any
Subsidiary or that otherwise relates to the business of the Company or any
Subsidiary, or any of the assets owned or used by the Company or any Subsidiary;
or (vii) cause any of the assets owned by the Company or any Subsidiary as of
the date hereof to be reassessed or revalued by the taxing authority or other
Governmental Entity.
3.5 ABSENCE OF PROCEEDINGS. Except as described in the Form 10-K
or the Form 10-Q or set forth in Schedule 3.5, there is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or any
Subsidiary which might reasonably be expected individually or in the aggregate
to result in a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets of the Company or any
Subsidiaries or the consummation of the transactions contemplated in this
Agreement, the Series A Notes or the Certificate of Designation or the
performance by the Company of its obligations hereunder. Except as disclosed in
the Form 10-K or Form 10-Q, or set forth in Schedule 3.5, no event has occurred
or circumstance exists that is reasonably likely to give rise to or serve as a
basis for the commencement of any such action.
3.6 INTELLECTUAL PROPERTY.
(a) Intellectual Property Assets. The term "Intellectual
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Property Assets" includes:
(i) names Vsource, NetCel360 and all registered trademarks,
service marks, and applications (collectively, "Marks");
(ii) all know-how, trade secrets, confidential information,
software, technical information, process technology, plans, drawings,
and blue prints (collectively, "Trade Secrets"); and
(iii) all domain names and URL addresses for websites on the
internet or the world wide web ("Domain Names"); owned, used, or
licensed by the Company or any Subsidiary as licensee or licensor.
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(b) Intellectual Property Necessary for the Company's
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Business. The Intellectual Property Assets are all those necessary for the
-
operation of the business of the Company and its Subsidiaries as it is currently
conducted. Except as set forth in Schedule 3.6(b) of the Disclosure Schedule,
the Company and/or one or more of the Subsidiaries is the owner of all right,
title, and interest in and to, or has the right to use, each of the Intellectual
Property Assets, free and clear of all Liens (except for the Liens granted under
the Bridge Loans (the "Bridge Loan Liens")), and other adverse claims and has
the right to use, without any payment to any third party in excess of $50,000
per year, all of the Intellectual Property Assets.
(c) Trademarks.
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(i) Except as set forth on Schedule 3.6(c), the Form 10-K
contains a true, complete and correct list and summary description of
all Marks. To the knowledge of the Company, the Company and/or one or
more of the Subsidiaries is the owner, licensor or licensee of all
right, title, and interest in and to each of the Marks, free and clear
of all Liens (except for the Bridge Loan Liens), and other adverse
claims.
(ii) No ▇▇▇▇ has been or is now involved in any opposition,
invalidation, or cancellation and, to the knowledge of the Company, no
such action is threatened with respect to any of the Marks.
(iii) To the knowledge of the Company, there is no trademark
or trademark application of any third party which potentially
interferes with any of the Marks.
(iv) No ▇▇▇▇ is infringed or, to the knowledge of the
Company, has been challenged or threatened in any way by any other
Person. To the knowledge of the Company, none of the Marks used by the
Company or any Subsidiary infringes or is alleged to infringe any
trade name, trademark, or service ▇▇▇▇ of any third party.
(d) Trade Secrets. To the knowledge of the Company, the
--------------
Company and/or one or more of the Subsidiaries has good title and an absolute
(but not necessarily exclusive) right to use the Trade Secrets. To the knowledge
of the Company, the Trade Secrets are not part of the public knowledge or
literature, and, to the knowledge of the Company, have not been used, divulged,
or appropriated either for the benefit of any person (other than the Company or
any Subsidiary or pursuant to a non-disclosure agreement), or to the detriment
of the Company or any Subsidiary. No Trade Secret is subject to any adverse
claim or, to the knowledge of the Company or any Subsidiary, has been challenged
or threatened in any way.
(e) Domain Names. Schedule 3.6(e) of the Disclosure
-------------
Schedule sets forth a complete list of all Domain Names used in the conduct of
the business of the Company and its Subsidiaries. The Company and/or one or
more Subsidiaries is the owner of all right, title, and interest in and to each
of the Domain Names, free and clear of all Liens (except for the Bridge Loan
Liens). Such Domain Names are properly registered with Network Solutions or
-10-
such other agency or company duly authorized by relevant Governmental Entities
to maintain such registry, and all fees due in respect of such registration have
been paid.
3.7 PRIVATE PLACEMENT. Neither the Company nor any affiliate (as
defined in Rule 405 under the Securities Act) thereof has (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or will be integrated with
the sale of the Securities in a manner that would require the registration under
the U.S. Securities Act of 1933 (the "Securities Act") of the Securities or (ii)
engaged in any form of general solicitation or general advertising (within the
meaning of Rule 502(c) of Regulation D under the Securities Act) or any directed
selling efforts (as defined under the Securities Act) in the United States in
connection with the offer and sale of the Securities. Assuming the accuracy of
the representations and warranties of each Purchaser contained in Section 3
hereof, the offer, issue, and sale of the Securities: (a) are and will be
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "1933 Act"); and neither the Company nor
any authorized agent acting on its behalf will take any action hereafter that
would cause the loss of such exemption, and (b) have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit, or qualification requirements of all applicable state
securities laws.
3.8 SUBSIDIARIES. Each subsidiary of the Company, meaning any
entity in which the Company, directly or indirectly, beneficially owns more than
50% of the equity interest in, or the voting control of, such company (each, a
"Subsidiary"), is a corporation validly existing and in good standing under the
laws of its jurisdiction of incorporation and has full corporate power and
authority to own, lease and operate its properties, conduct its business as and
to the extent now conducted. All of the outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable, and, except as set out in Schedule 3.8, are owned, beneficially
------------
and of record, by the Company or Subsidiaries wholly owned by the Company free
and clear of all liens, charges, encumbrances, options, rights of pre-emption
and third party rights whatsoever (collectively, "Liens"). A complete list of
all Subsidiaries is set out in Schedule 3.8. Except as set out in that
-------------
schedule, the Company does not own, directly or indirectly, any of the capital
stock or voting stock of any other company or corporation.
3.9 LIABILITIES. Except potential Liabilities referred to in
the Form 10-Q or as set forth on Schedule 3.9, neither the Company nor any
Subsidiary has any debt, liability, commitment or obligation of any kind,
character or nature whatsoever, whether known or unknown, ▇▇▇▇▇▇ or inchoate,
secured or unsecured, accrued, fixed, absolute, contingent or otherwise, and
whether due or to become due ("Liability") (and, to the knowledge of the
Company, there is no basis for any present or future action against it giving
rise to any Liability) except for (i) Liabilities or obligations reflected or
reserved against on the balance sheet contained in the Financial Statements or
the Interim Financial Statements (as defined herein) and (ii) current
Liabilities incurred in the ordinary course of business (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of Law)
since the date thereof.
3.10 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Company directly
-11-
without the intervention of any person on behalf of the Company in such manner
as to give rise to any valid claim by any person against the Purchasers (or any
of them), the Company or any Subsidiary for a finder's fee, brokerage commission
or similar payment.
3.11 SEC FILINGS. Except as disclosed in the Disclosure Schedule,
the Form 10-K or the Form 10-Q (including any financial statements or schedules
included therein) and each other filing of the Company under the Securities
Exchange Act of 1934, as amended, made since May 15, 2001 (i) complied with the
requirements of the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, as the case may be, in all material respects,
and (ii) did not at the time of filing (or if amended, supplemented or
superseded by a filing prior to the date hereof, on the date of that filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3.12 FINANCIAL STATEMENTS. The audited consolidated financial
statements of (i) the Company as of and for the years ended January 31, 2000 and
January 31, 2001 and (ii) NetCel360 Holdings Limited ("Holdings") as of and for
the year ended December 31, 2000 (collectively, the "Financial Statements") and
the unaudited consolidated financial statements of the Company as of and for the
three months ended April 30, 2001 and of Holdings as of and for the three months
ended March 31, 2001 (collectively, the "Interim Financial Statements"), which
have been made available to the Purchasers, have been prepared in accordance
with US generally accepted accounting principles ("GAAP") applied on a basis
consistent throughout the periods indicated (except as may be indicated in the
notes thereto) and present fairly in all material respects the consolidated
financial condition and consolidated operating results of the Company or
Holdings, as the case may be, of the dates and during the periods indicated
therein in conformance with GAAP, subject, in the case of the Interim Financial
Statements, to normal year-end adjustments, consistent with past practices. As
of their respective date, the Financial Statements 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 light of the
circumstances under which they were made, not misleading. Except as set forth
in the Financial Statements, the Interim Financial Statements, the Form 10-K,
Form 10-Q or a Current Report on Form 8-K filed by the Company with the SEC
prior to the applicable Closing, or arising in the ordinary course of business
since April 1, 2001, as of the date hereof none of the Company nor any
Subsidiary has (A) incurred any material liabilities of any nature (matured or
unmatured, fixed or contingent) or (B) made any material disposal of assets,
suffered any loss or material damage of any assets, waived any valuable rights,
made any material change in any material contract to which it is a party or
declared or paid any dividends.
3.13 NON-COMPETITION AGREEMENTS. Except as set forth in the
Disclosure Schedule delivered by Holdings to the Company in connection with the
Acquisition, neither the Company nor any of its Subsidiaries is a party to any
non-competition or other agreement or subject to any duty which prohibits or
limits the ability of the Company or any Subsidiary (i) to engage in any line of
business, (ii) to compete with any person, (iii) to carry on or expand the
nature or geographical scope of the business of the Company or such Subsidiary
anywhere in the world or (iv) to disclose any confidential information in the
possession of the Company or any Subsidiary (any not otherwise generally
-12-
available to the public), other than, in the case of (iv) only, any contract for
the sale or purchase of goods or services or any non-disclosure agreement
entered into in connection with the possible or actual sale or purchase of goods
or services in the ordinary course of business that does not meet any other of
the criteria set forth in this Section 3.13.
3.14 CERTAIN PAYMENTS. Since their incorporation or organization,
neither the Company nor any Subsidiary has, nor has any representative of
Company or any Subsidiary, or to the knowledge of the Company or any other
person associated with or acting for or on behalf of the Company or any
Subsidiary, directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, or (iii) to obtain special concessions
or for special concessions already obtained, for or in respect of the Company or
any Subsidiary or (b) established or maintained any fund or asset that has not
been recorded in the books and records of the Company or any Subsidiary.
3.15 SMALL BUSINESS MATTERS. The Company acknowledges and
understands that Mercantile Capital Partners I, LP is a Federal licensee under
the Small Business Investment Act of 1958 and the regulations promulgated
thereunder, each as amended (the "SBIC Act"). The Company, together with its
"affiliates" (as that term is defined in the SBIC Act, including, without
-----------
limitation, Title 13, Code of Federal Regulations, Sec.121.103), is a "small
-----
business concern" within the meaning of Title 13, Code of Federal Regulations,
-----------------
Sec.121.301(c). The information regarding the Company and its affiliates set
forth in the SBA Form 480, Form 652 and Parts A and B of Form 1031 and the Use
of Proceeds Statement delivered at the Closing is accurate and complete. The
Company does not presently engage in, and does not intend to engage in, any
activities, nor does the Company intend to use, directly or indirectly, the
proceeds from the Series A Notes for any purpose for which a licensee under the
SBIC Act is prohibited from providing funds by the SBIC Act (including under
Title 13, Code of Federal Regulations, Sec.Sec. 107.720).
3.16 NO OTHER REPRESENTATIONS. Notwithstanding anything to the
contrary contained in this Agreement, it is the explicit intent of each party
hereto that the Company is not making any representation or warranty whatsoever,
express or implied, except those representations, and warranties contained in
this Article 3.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally but not jointly, hereby represents and
warrants to the Company as follows:
4.1 LEGAL POWER. It has the requisite legal power to enter into
this Agreement, to purchase the Series A Notes hereunder and to carry out and
perform its obligations under the terms of this Agreement.
4.2 DUE EXECUTION. This Agreement have been duly authorized,
executed and delivered by it, and, upon due execution and delivery by the
Company and such Purchaser, this Agreement and will be valid and binding
agreements of it, subject to laws of general application relating to bankruptcy,
-13-
insolvency and the relief of debtors and subject to the availability of
equitable remedies.
4.3 NO CONFLICTS; NO CONSENTS REQUIRED. The execution, delivery
and performance of and compliance with this Agreement by such Purchaser will not
result in any violation of any term of any material mortgage, indenture,
contract, agreement or other instrument or any judgment, decree or order to
which such Purchaser is a party or subject, or be in conflict with or constitute
a default under any such term. All consents, approvals, orders, or
authorizations of or registrations, qualifications, designations, declarations,
or filings with, any governmental authority or other third party, required on
the part of the Purchaser in connection with the valid execution and delivery of
this Agreement, the purchase of the Securities, or the consummation of any other
transaction contemplated hereby have been obtained, or will be effective at the
Closing, except for notices required or permitted to be filed with certain state
and federal securities commissions after the Closing.
4.4 INVESTMENT REPRESENTATIONS.
(a) It is acquiring the Securities for its own account, not
as nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the 1933 Act.
(b) It understands that (i) the Securities have not been
registered under the 1933 Act by reason of a specific exemption therefrom, that
they must be held by it indefinitely, and that it must, therefore, bear the
economic risk of such investment indefinitely, unless a subsequent disposition
thereof is registered under the 1933 Act or is exempt from such registration;
(ii) each certificate representing the Series A Notes, Exchange Shares and
Conversion Shares will be endorsed with a legend similar to the following
legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "1933 ACT") OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT COVERING SUCH SECURITIES AND IN
COMPLIANCE WITH SUCH STATE LAWS OR IF THE COMPANY RECEIVES AN OPINION
OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE 1933 ACT AND SUCH APPLICABLE STATE LAWS."
and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Securities unless the conditions specified in the
foregoing legend are satisfied; provided, however, that no such opinion of
counsel shall be necessary if the sale, transfer or assignment is made pursuant
to Securities and Exchange Commission ("SEC") Rule 144 and such Purchaser
-14-
provides the Company with evidence reasonably satisfactory to the Company and
its counsel that the proposed transaction satisfies the requirements of Rule
144. The Company agrees to remove the foregoing legend from any securities if
the requirements of SEC Rule 144(k) (or any successor rule or regulation) apply
with respect to such securities and the Company and its counsel are provided
with reasonably satisfactory evidence that the requirements of Rule 144(k)
apply.
(c) It is an investor in securities of companies in the
development stage and acknowledges that it can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Securities.
(d) It has reviewed this Agreement and the Certificate
of Designation and all the schedules and exhibits to such documents carefully
and has conducted such investigation of the Company as it has deemed appropriate
and has had the questions it has asked of the Company answered to its
satisfaction.
(e) It has not been offered the Securities by any form
of advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by such media.
(f) It is (i) an "accredited investor" within the
meaning of SEC Rule 501 of Regulation D, as presently in effect; or (ii) not a
"U.S. person" within the meaning of SEC Rule 902 and is acquiring the Securities
in an "offshore transaction" as defined in SEC Rule 902.
(g) If Purchaser is a corporation, partnership, trust
or other entity, it was not formed for the specific purpose of acquiring the
Shares offered hereunder.
(h) Its principal address is as set forth on Exhibit A
hereto, and it does not reside in any state of the United States other than the
state specified in its address on Exhibit A, if at all.
5. CONDITIONS TO CLOSING
5.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASERS AT THE CLOSING.
Each Purchaser's obligation to purchase the Series A Notes at the Closing is
subject to the fulfillment, at or prior to the Closing, of all of the following
conditions, any of which may be waived by such Purchaser:
(a) Representations and Warranties; Performance of
--------------------------------------------------
Obligations. The representations and warranties made by the Company in Section
-
3 hereof shall be true and correct in all material respects on the date of the
Closing, with the same force and effect as if they had been made on and as of
said date; and the Company shall have performed and complied with in all
material respects all obligations and conditions herein required to be performed
or complied with by it on or prior to the Closing.
-15-
(b) Certificate of Designation. The Company shall have
----------------------------
executed and filed with the Delaware Secretary of State the Certificate of
Designation in the form of Exhibit C attached hereto (the "Certificate of
Designation").
(c) Proceedings and Documents. All corporate and other
---------------------------
proceedings in connection with the transactions contemplated at the Closing, and
all documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchasers' counsel, which shall have
received all such counterpart originals or certified or other copies of such
documents as it may reasonably request.
(d) Qualifications; Legal Investment. All authorizations,
----------------------------------
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with and
prior to the lawful sale and issuance of the Securities pursuant to this
Agreement and all authorizations, approvals and permits, if any, needed by such
Purchaser to purchase the Securities shall have been duly obtained and shall be
effective on and as of the Closing. No stop order or other order enjoining the
sale of the Shares shall have been issued and no proceedings for such purpose
shall be pending or, to the knowledge of the Company, threatened by the SEC, the
California Commissioner of Corporations, the Delaware Secretary of State or a
similar official of any other state having jurisdiction over this transaction.
At the time of the Closing, the sale and issuance of the Shares shall be legally
permitted by all laws and regulations to which each Purchaser and the Company
are subject.
(e) Payment of Purchase Price. The aggregate Purchase Price
--------------------------
for all Series A Notes purchased on or before the First Closing date by all
Purchasers at the First Closing shall equal or exceed $1,500,000.
(f) Use of Proceeds. The Company shall have delivered for
-----------------
each Purchaser which is licensed as a small business investment company under
the SBIC Act (the "SBIC Holder"), completed and executed United States Small
Business Administration ("SBA") Forms 480, 652 and 1031 (Parts A and B) together
with a written statement from the Company regarding its intended use of proceeds
from the sale of the Series A Notes hereunder (the "Use of Proceeds Statement").
(g) Opinion of Company Counsel. The Company's legal counsel,
--------------------------
▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇, shall have delivered an opinion to the Purchasers
addressing the issues customarily addressed in transactions of the nature of
those contemplated in this Agreement and which shall be reasonably satisfactory
in form and content to Mercantile Capital Partners I, L.P., one of the
Purchasers ("Mercantile").
(h) SBA Approval. Each Purchaser which is a SBIC Holder
-------------
shall have received all approvals from the SBA necessary to purchase the
Securities.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT THE CLOSING. The
Company's obligation to issue and sell the Series A Notes under this Agreement
to a Purchaser is subject to the fulfillment, on or prior to the Closing, of the
following conditions as to such Purchaser, any of which may be waived by the
Company:
-16-
(a) Representations and Warranties, Performance of
--------------------------------------------------
Obligations. The representations and warranties made by such Purchaser in
-
Section 4 hereof shall be true and correct at the date of the Closing, with the
same force and effect as if they had been made on and as of said date. Such
Purchaser shall have performed and complied with all agreements and conditions
herein required to be performed or complied with by it on or before the Closing.
(b) Qualifications, Legal Investment. All authorizations,
----------------------------------
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Series A Notes pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing. No
stop order or other order enjoining the sale of the Securities shall have been
issued and no proceedings for such purpose shall be pending or, to the knowledge
of the Company, threatened by the SEC, the California Commissioner of
Corporations, the Delaware Secretary of State or any similar officer of any
other state having jurisdiction over this transaction. At the time of the
Closing, the sale and issuance of the Securities shall be legally permitted by
all laws and regulations to which such Purchaser and the Company are subject.
(c) Payment of Purchase Price. Such Purchaser shall have
----------------------------
delivered the Purchase Price for the Series A Notes purchased by it.
6. COVENANTS
6.1 COVENANTS OF THE COMPANY. The Company and each Guarantor
covenants with each Purchaser, so long as Series A Notes with an aggregate
principal amount of at least 50% of the principal amount of the Series A Notes
issued at the First Closing are outstanding, that:
(a) Stamp Tax. The Company and the Guarantors will pay (1)
----------
any stamp, issue, registration, documentary or other similar taxes and duties
including interest and penalties, payable on or in connection with the issuance
of the Series A Notes or the Guarantee, the creation, issue and offering of the
Securities, if any, received in the exchange or upon conversion of the Series A
Notes or Series 3-A Preferred Stock, or the execution or delivery of this
Agreement or the Series A Notes; and (2) in addition to any amount payable by
the Company or the Guarantors under this Agreement, any value added, turnover or
similar tax payable in respect of that amount.
(b) Notification of Defaults. Each of the Company and the
--------------------------
Guarantors will notify the Purchasers in writing of any Event of Default (as
defined in Section 7.1) forthwith upon the occurrence thereof.
(c) Consents. Each of the Company and the Guarantors will
--------
obtain and promptly renew from time to time and thereafter maintain in full
force and effect, and will comply with and upon the Purchasers' request will
promptly furnish certified copies to the Purchasers of, all such authorizations,
approvals, consents, licenses and exemptions as may be required under any
applicable law or regulation to enable it to perform its obligations under this
Agreement or required for the validity or enforceability of this Agreement.
-17-
(d) Pari Passu Ranking. Each of the Company and the
--------------------
Guarantors undertakes that its obligations hereunder and under the Series A
Notes do and will at all times rank at least pari passu with all of its other
present and future unsecured obligations save for the obligations under the
Bridge Loan and any obligations preferred by law.
(e) Disposals. Except for entering into and consummating
---------
the Acquisition, each of the Company and the Guarantors will not and will
procure that no other Subsidiary will, either in a single transaction or in a
series of transactions whether related or not and whether voluntarily or
involuntarily, sell, transfer, lease or otherwise dispose of all or any
substantial part of its assets or revenues except for any of the following types
of disposals provided such disposal does not adversely affect the ability of the
Company or the Guarantors to perform its obligations under this Agreement:
(i) disposals made with the prior written consent of the
Majority Holders;
(ii) disposals of cash raised or borrowed for the
purposes for which such cash was raised or borrowed;
(iii) disposals of assets in exchange for other assets
comparable as to type and value;
(iv) disposals of any of its assets on terms whereby
such asset is leased to or re-acquired by the Company or Guarantor or
any other Subsidiary in an amount not to exceed $5,000,000;
(v) any distribution of the surplus assets to the
Company of either Guarantor or any Subsidiary in a liquidation or
winding-up not involving insolvency;
(vi) the application of the proceeds of an issue of
securities (whether equity or debt) for the purposes stated in the
prospectus or other offering document relating to that issue; or
(vii) sales of assets pursuant to sale and leaseback
transactions in an aggregate amount not to exceed $5,000,000.
(f) Mergers.
-------
(i) None of the Company or the Guarantors will without
the prior written consent of the Majority Holders enter into any
merger or consolidation with any entity.
(ii) None of the Company or the Guarantors will, and
will procure that no Subsidiary will, without the prior written
consent of the Majority Holders, acquire any assets or business or
acquire or make any investment if such assets, business or investment
is substantial in relation to the Company and its Subsidiaries taken
as a whole.
-18-
(g) Maintenance of status and franchises.
----------------------------------------
(i) Each of the Company and the Guarantors will do all
such things as are necessary to maintain its corporate existence in
good standing and to conduct its business in compliance with all laws,
regulations, authorizations, agreements and obligations applicable to
it and pay all taxes imposed on it when due.
(ii) Each of the Company and the Guarantors will and
will procure that each Subsidiary will, ensure that it has the right and is duly
qualified to conduct its business as it is or is intended as at the date
hereof to be conducted in all applicable jurisdictions and will obtain and
maintain all franchises and rights necessary for the conduct of its
business.
(h) Constitutional Documents. Each of the Company and the
-------------------------
Guarantors shall procure that no amendment or supplement is made to their
respective certificate of incorporation, by-laws, memorandum of association or
articles of association, if any, which would have a material adverse effect on
the Purchasers' interests hereunder without the prior written consent of the
Majority Holders such consent not to be unreasonably withheld or delayed.
(i) Share Capital. Except upon conversion or exchange of any
-------------
class of convertible or exchangeable securities, each of the Company and the
Guarantors will not without the prior written consent of the Majority Holders,
purchase or redeem any of their respective issued shares.
(j) Dividends. Each of the Company and the Guarantors will
---------
not and will procure that no Subsidiary will, without the prior written consent
of the Majority Holders, pay any cash dividend or make any other distribution of
cash to their respective shareholders other than dividends and distributions by
Subsidiaries to the Company.
(k) Indebtedness. None of the Company or any Guarantor or
------------
any Subsidiary will incur or guarantee any indebtedness exceeding US$5,000,000
in the aggregate without the prior written consent of the Majority Holders,
other than pursuant to Section 1.3(b) and 1.3(c) hereof and other than as
contemplated by the Tranche B Loan Agreement or, subject to the limitations
contained in Section 6.3(e)(vii), in connection with customary sale and
leaseback transactions.
(l) Lending. Each of the Company and the Guarantors will
-------
not and will procure that no Subsidiary will make or grant any loan or advance
except as may be necessary in the ordinary course of its business.
(m) Taxation. All payments of interest in respect of the
--------
Loan will be made without withholding or deduction of or on account of any
present or future taxes, duties, assessments or governmental charges of whatever
nature imposed or levied by any authority unless the withholding or deduction of
such taxes, duties, assessments or governmental charges is required by law. The
Company will pay such additional amounts as may be necessary in order that the
net amounts received by the Purchasers after such withholding or deduction shall
equal the respective amounts receivable in respect of the Series A Notes in the
absence of such withholding or deduction.
-19-
(n) Inspection of Property. The Company will permit each
------------------------
SBIC Holder or its representative, at such SBIC Holder's expense, and examiners
of the SBA to visit and inspect the properties and assets of the Company and its
Subsidiaries, to examine its books of account and records, and to discuss the
Company's affairs, finances and accounts with the Company's and its
Subsidiaries' officers, senior management and accountants, all at such
reasonable times as may be requested by such Purchaser or the SBA.
6.2 SBIC MATTERS. This Section 6.2 shall apply with regard to any
Purchaser for so long as such Purchaser is an SBIC Holder regardless of whether
such Purchaser holds Series A Notes, Exchange Shares or Conversion Shares.
(a) From time to time as requested by any SBIC Holder, the
Company shall deliver to each SBIC Holder a written statement certified by the
Company's Chief Executive Officer or Chief Financial Officer describing in
reasonable detail the use of the proceeds of the sale of the Series 3-A
Preferred Stock hereunder by the Company and such other information as may be
reasonably requested by the SBIC Holder, including without limitation a
description of the use of proceeds of each SBIC Holder's investment, to (i)
evaluate the financial condition of the Company for the purposes of valuing the
SBIC Holder's investment, (ii) determine the continued eligibility of the
Company under the SBIC Act, and (iii) verify the use of proceeds. In addition
to any other rights granted hereunder, the Company shall grant each SBIC Holder
and the SBA access to the Company's books and records for the purpose of
verifying the use of such proceeds and the other information which was provided
by the Company at or before the Closing on Forms 480 and 652. Such information
shall be certified by the Company's Chief Executive Officer or Chief Financial
Officer.
(b) Promptly after the end of each fiscal year (but in any
event prior to February 28 of each year) and at such other times as may be
reasonably requested by an SBIC Holder, the Company shall deliver to each SBIC
Holder a written unaudited assessment of the economic impact of the SBIC
Holder's investment in the Company, specifying the full-time equivalent jobs
created or retained in connection with the investment, the impact of the
investment on the businesses of the Company in terms of expanded revenue and
taxes, other economic benefits resulting from the investment (including, but not
limited to, technology development or commercialization, minority business
development, urban or rural business development and expansion of exports) and
such other information as may be required regarding the Company in connection
with the filing of each SBIC Holder's SBA Form 468. All information submitted
to the Purchasers in accordance with this Section shall be certified by the
Chief Executive Officer or the Chief Financial Officer of the Company.
(c) Neither the Company nor any of its "affiliates" (as that
term is defined in Title 13, Code of Federal Regulations, Sec. 121.103) will
engage in any activities or use directly or indirectly the proceeds from the
sale of the Series A Notes hereunder for any purpose for which a licensee under
the SBIC Act is prohibited from providing funds by Title 13, Code of Federal
Regulations, Sec. 107.720.
-20-
(d) Without obtaining the prior written approval of each SBIC
Holder, the Company will not change, within one (1) year of the First Closing,
the Company's business activity to a business activity which a licensee under
the SBIC Act is prohibited from providing funds by Title 13, Code of Federal
Regulations, Sec. 107.720.
(e) If the Company breaches the representations in Section
3.15 or the covenants set forth in this Section 6.2 in which, in either case,
could result in an assertion by the SBA that the SBIC Holder and its Affiliates
are not entitled to hold, or exercise any significant right with respect to, the
Series A Notes or the Securities, and such breach continues for 20 days after
receiving written notice thereof from a SBIC Holder, such breach or failure to
comply shall constitute a material breach of this Agreement (a "Material
Breach"). If a Material Breach occurs, then in addition to any other remedies
generally available to the holders of the Securities pursuant to this Agreement,
such SBIC Holder may demand that the Company repurchase any Series A Notes then
held for the then outstanding principal amount plus all accrued interest thereon
and any other Securities acquired by such SBIC Holder upon conversion of the
Series A Notes pursuant to this Agreement at the redemption price for the Series
3-A Preferred Stock set forth in Section 5 of the Certificate of Designation.
The Company will make such payment within thirty (30) days of receipt of a
demand and SBIC Holder's delivery of the Securities, as the case may be.
6.3 FEES. Promptly upon receipt of invoices therefor, the Company
shall (a) pay one counsel for the lead Purchaser up to $100,000 for the actual
legal fees and costs incurred in negotiating the terms hereof, the preparation
of this Agreement and the other agreements and instruments delivered pursuant
hereto, and consummating the transactions contemplated by this Agreement, (b)
reimburse Mercantile for up to $45,000 of fees payable to the SBA as a result of
its purchase of Series A Notes.
6.4 REGISTRATION RIGHTS. The Company agrees that each of the
Purchasers shall have the registration rights with respect to the Conversion
Shares, if any, received by the Purchasers, which are set forth on Exhibit B
---------
hereto.
6.5 SHAREHOLDER APPROVALS. Unless and until the applicable
Alternative Condition (as defined below) is satisfied for a Shareholder Proposal
(as defined below), the Company will use its reasonable efforts to (a) promptly
(but not later than 60 days) following the Closing, prepare in proper form and
file with the SEC a proxy statement on Schedule 14A ("Proxy Statement") for use
in soliciting proxies for the approval by the shareholders of the Company of
such Shareholder Proposal, (b) duly call, give notice of and convene a special
meeting of its shareholders, as soon as practicable, but not later than 40 days
after the Proxy Statement is cleared by the SEC, for purposes of obtaining
shareholder approval of such Shareholder Proposal, and (c) have the Proxy
Statement cleared by the SEC and obtain such shareholder approval. The term
"Shareholder Proposals" shall mean each of (i) a proposal to amend the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock to at least 200 million shares, and (ii) a proposal to approve the
issuance of the Conversion Shares upon conversion of the Series 3-A Preferred
Stock. The "Alternative Condition" shall be satisfied with respect to a
Shareholder Proposal if the Company has determined not to seek approval of such
-21-
proposal and the Company has received an opinion of counsel, which has not been
withdrawn, to the effect that (I) the approval that is not being sought is not
required for the Company to issue shares of Common Stock upon the conversion of
the Series 3-A Preferred Stock pursuant to Section VII of the Certificate of
Designation, (II) such shares of Common Stock, upon issuance, will be fully
paid, validly issued and nonassessable, and (III) such issuance would not
violate the rules or regulations of any securities exchange or market on which
any of the Company's securities are then listed, if any.
7. EVENTS OF DEFAULT
7.1 DEFAULT. Upon the occurrence of any Event of Default, each
Note then outstanding shall forthwith be immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, unless the Majority Holders otherwise determines, and
the Purchasers may exercise any and all rights and remedies available to them
under this Agreement or the Series A Notes or as provided by law.
An "Event of Default" shall mean the occurrence of any of the following events:
(a) Any proceeding shall be commenced by or against the
Company or either Guarantor under any bankruptcy or insolvency laws, or the
Company or a Guarantor shall take any action to authorize any of the foregoing;
provided that if such proceeding is not instituted by or on behalf of the
Company (or acquiesced by it) there shall be an "Event of Default" only if such
proceeding shall remain unstayed for 60 days;
(b) Any law, rule or regulation of any jurisdiction shall be
enacted or promulgated that shall have a material adverse affect on the ability
of the Company to perform any of its obligations hereunder or under the Series A
Notes, including, without limitation, any moratorium or similar laws;
(c) This Agreement or any of the Series A Notes ceases to be
the legal, valid and binding obligation of the Company or the Guarantors
enforceable in accordance with its terms;
(d) if any governmental authority or agency of any
jurisdiction condemns, seizes, compulsorily purchases or expropriates all or a
substantial part of the assets of the Company and its Subsidiaries, taken as a
whole, or places any material restriction on a material portion of the assets of
such Company and its Subsidiaries, taken as a whole whether by way of
cancellation or revocation of, or the imposition of conditions on, any licenses
of such companies, or otherwise howsoever; and
(e) as to an SBIC Holder only, there exists any Material
Breach (as defined in Section 6.2(e).
7.2 OTHER EVENTS. Without implication that the contrary would
otherwise be true, the Purchasers retain all right to pursue any cause of action
(including breach of contract) in the event that:
(a) there is a material breach of this Agreement, the
Certificate of Designation for the Series 3-A Preferred Stock or any Note by the
Company or a Guarantor; or
-22-
(b) Any representation or warranty made or deemed to be made
or repeated by or in respect of the Company or either Guarantor in or pursuant
to this Agreement is or proves to have been incorrect or misleading in any
respect.
8. MISCELLANEOUS
8.1 GOVERNING LAW AND JURISDICTION. This Agreement shall be
governed by and construed under the laws of the State of Delaware. If any
Delaware law or laws shall require or permit the application of the laws of any
other jurisdiction to this Agreement, such Delaware law or laws shall be
disregarded with the effect that the remaining laws of the State of Delaware
shall nonetheless be applied.
8.2 SURVIVAL AND DISCLOSURE SCHEDULE. The representations,
warranties, covenants, and agreements made herein shall survive any
investigation made by any party hereto and the closing of the transactions
contemplated hereby and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Purchasers or the Company.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto. Each Purchaser shall be entitled to assign, transfer or
participate all or any portion of the Securities; provided that (1) such
transfers comply with all applicable law, (2) no such transfer is made to an
entity which the Board of Directors of the Company determines in good faith is
then a competitor of the Company (unless all common and preferred stock in the
Company is being transferred to such competitor in such transaction), (3)
transfers of Securities may not be made in amounts of less than $500,000, and
(4) prior to any assignment, each assignee shall execute and deliver to the
Company a joinder to this Agreement agreeing to be fully bound by, and subject
to, all of the covenants, terms and conditions of this Agreement.
8.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, and
the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and no party shall be liable or bound to any other party in any manner by any
covenants or agreements except as specifically set forth herein or therein.
Nothing in this Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
8.5 SEVERABILITY. In case any provision of this Agreement shall
be invalid, illegal, or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties; and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.6 AMENDMENT AND WAIVER. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either for a specified period of time
-23-
or indefinitely), with the written consent of the Company and the holders of 75%
of the sum of the aggregate principal amount of the Series A Notes then
outstanding and the aggregate Original Issue Price (as defined in the
Certificate of Designation) of the Series 3-A Preferred Stock then outstanding,
if any; provided, however, that no such amendment or waiver shall reduce the
amount of the Series A Notes or Series 3-A Preferred Stock the holders of which
are required to consent to any waiver or supplemental agreement, without the
consent of the holders of all of the Series A Notes; provided, further, however,
that any amendment, modification or waiver that would change the interest rate,
maturity date, or conversion price or privilege (it being understood that if the
Company complies with Section 5 of the Note, the Company will not be deemed to
have modified such conversion price or privilege), shall not be effective as to
such Purchaser without such Purchaser's prior written consent. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding,
each future holder of all such securities, and the Company. Upon the
effectuation of each such amendment or waiver, the Company shall promptly give
written notice thereof to the record holders of the Securities who have not
previously consented thereto in writing.
8.7 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power, or remedy accruing to any party hereto or any subsequent holder of
any Securities upon any breach, default or noncompliance of any other party
under this Agreement or under the Certificate of Incorporation or Bylaws of the
Company shall impair any such right, power, or remedy, nor shall it be construed
to be a waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. Any waiver, permit, consent, or approval of any kind or character on
any party's part of or to any breach, default or noncompliance under this
Agreement or under the Certificate of Incorporation or Bylaws of the Company or
any waiver on any party's part of any provisions or conditions of this Agreement
must be in writing and shall be effective only to the extent specifically set
forth in such writing; and all remedies, either under this Agreement, the
Certificate of Incorporation or Bylaws, any law, or otherwise afforded to any
party, shall be cumulative and not alternative.
8.8 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be effective if in writing and delivered personally
or sent by telecopier, nationally recognized overnight courier or registered or
certified mail, return receipt requested, postage prepaid, addressed:
If to a Purchaser: at such Purchaser's address as set forth on
Exhibit A attached hereto, or at such other
address as such Purchaser shall have furnished to
the Company in writing,
If to the Company, to: Vsource, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-24-
with a copy to: ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Unless otherwise specified herein, such notices or other
communications shall be deemed effective (a) on the date delivered, if delivered
personally, (b) two business days after being sent, if sent by nationally
recognized overnight courier, (c) one business day after being sent, if sent by
telecopier with confirmation of good transmission and receipt, and (d) three
business days after being sent, if sent by registered or certified mail, postage
prepaid, return receipt requested. Each of the parties herewith shall be
entitled to specify another address by giving notice as aforesaid to each of the
other parties hereto.
8.9 TITLES AND SUBTITLES, NUMBER AND GENDER. The titles of the
paragraphs and subparagraphs of this Agreement are for convenience of reference
only and are not to be considered in construing this Agreement. Whenever the
context requires, the plural shall include the singular and the reverse and each
gender shall include the others.
8.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
Executed as of the date first set forth above.
VSOURCE, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Chief Financial Officer
-25-
GUARANTORS
▇▇▇▇▇▇▇▇▇.▇▇▇ LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------
Title:
NETCEL360 SDN BHD
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------
Title:
-26-
This is page 27 to the Convertible Note Purchase Agreement to which Vsource,
Inc., a Delaware corporation, the Guarantors and the Purchaser set forth below
are parties:
PURCHASER:
MERCANTILE CAPITAL PARTNERS I, L.P.,
an Illinois limited partnership
By: Mercantile Capital Group, LLC,
a Delaware limited liability company,
its General Partner
By: Mercantile Capital Management Corp.,
an Illinois Corporation
its Manager
By: /s/ I. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------
I. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
President
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Purchase Price: $ 1,300,000 Dated: June 20, 2001
-----------------
[amount investing]
This is page 28 to the Convertible Note Purchase Agreement to which Vsource,
Inc., a Delaware corporation, and the Purchaser set forth below are parties:
PURCHASER:
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
------------------
▇▇▇▇▇▇ ▇▇▇▇▇
Pursuant to Section 1.3(d), the undersigned is delivering a promissory note in
the initial principal amount of $237,500, issued in respect of the undersigned's
Tranche B Loan.
____________________
____________________
____________________
Purchase Price: $239,030.56 Dated: June 20, 2001
----------
[amount investing]
This is page 29 to the Convertible Note Purchase Agreement to which Vsource,
Inc., a Delaware corporation, and the Purchaser set forth below are parties:
PURCHASER:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------
▇/▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇ Centre
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
Purchase Price: $ * Dated: 6/19/01
-------------------- -------
[amount investing]
* Pursuant to Section 1.3(d) of the Convertible Note Purchase Agreement, the
Purchase is hereby paying the Purchase Price for its Series A Notes by
delivering its Tranche B Bridge Note in the principal amount of US$
This is page 29 to the Convertible Note Purchase Agreement to which Vsource,
Inc., a Delaware corporation, and the Purchaser set forth below are parties:
PURCHASER:
BAPEF Investments XII, Ltd.,
a British Virgin Islands company
By: /s/ ▇. ▇. ▇▇▇▇▇▇
-----------------------
Name: ▇. ▇. ▇▇▇▇▇▇
Title: Director
c/o International Private Equity Services Ltd.
▇.▇. ▇▇▇ ▇▇▇
▇▇-▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Purchase Price: $ 1,000,000 Dated: 21 June 2001
--------- ------------
This is page 30 to the Convertible Note Purchase Agreement to which Vsource,
Inc. a Delaware corporation, and the Purchaser set forth below are parties:
PURCHASER:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------
10 Jalan ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇
Purchase Price: $ * Dated: 20/6/01
-------------------- -------
[amount investing]
Tranche A: $1,000,000
Tranche B: $500,000
EXHIBIT A
SCHEDULE OF PURCHASERS
NAME AND ADDRESS PRINCIPAL AMOUNT FORM AND AMOUNT OF
OF OF NOTE PURCHASE PRICE
PURCHASER
==============================================================================
Mercantile Capital Partners I, L.P. $ 1,300,000 Cash
▇▇▇▇▇▇ ▇▇▇▇▇ $ 239,030.56 Surrender of note for
Tranche B Loan
▇▇▇▇▇▇▇ ▇▇▇▇▇ $ 767,413.89 Surrender of note for
Tranche B Loan
Barings $ 1,000,000 ▇▇▇▇
▇▇▇▇ Cantilon $ 1,000,000 Cash
EXHIBIT B
REGISTRATION RIGHTS PROVISIONS
Section 1.1 Definitions. The following terms when used in this Exhibit B
-----------
shall have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof):
"Holder" shall mean any Purchaser or any transferee permitted under Section
8.3 of the Agreement.
"Registrable Securities" shall mean any Conversion Shares held by a Holder
and any equity securities of the Company issued or issuable with respect to such
shares of common stock by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization and held by a Holder; provided, however, that any share
of such securities shall cease to be a Registrable Security when (i) a
registration statement covering such Registrable Security has been declared
effective by the Commission and such securities have been disposed of pursuant
to such effective registration statement or (ii) such securities are distributed
to the public pursuant to Rule 144 (or any similar or successor provision then
in force) under the Securities Act.
Section 1.2 Registration Procedures. The Company shall:
------------------------
(a) Prepare and file with the Commission a registration statement with
respect to the Registrable Securities (which registration statement may also
include securities held by other holders of Company common stock) within the
later of (a) December 20, 2001 and (b) one (1) month after an issuance of common
stock of the Company pursuant to Section 7 of the Certificate of Designation,
and use its reasonable efforts to (A) have such registration statement declared
effective within two (2) months after such registration statement was required
to be filed, and (B) cause the registration statement to remain effective until
the earlier of (i) the date when all Registrable Securities have been sold, or
(ii) one (1) year after such registration statement is declared effective
(unless the Company is, and remains, eligible to use Form S-3 or any successor
short-form form registration statement, in which case the period shall be 2
years) provided however, that such 1-year period (or 2-year period as the case
may be) shall be extended for a period of time equal to the period the Holders
refrain from selling any securities included in such registration at the request
of an underwriter of the Company common stock of the Company (or other
securities of the Company) pursuant to Section 1.5 and for a period of time
equal to the period during which Registrable Securities could not be sold
pursuant to a notice delivered by the Company pursuant to Section 1.2(d);
(b) Use its reasonable efforts to prepare and file with the Securities and
Exchange Commission (the "Commission") such amendments and supplements
(including post-effective amendments) to such registration statement and the
prospectuses used in connection therewith as may be necessary to keep the
registration statement effective for the period referred to in clause (a) and
comply with the provisions of the Securities Act of 1933, as amended (the
"Securities Act") with respect to the disposition of all securities covered by
the registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in the registration
statement;
(c) Furnish to each Holder of Registrable Securities such number of copies
of the registration statement, each amendment and supplement thereto (including
post-effective amendments), the prospectus included in the registration
statement (including each preliminary prospectus) and such other documents as
such Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Holder;
(d) Notify each Holder of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and
promptly prepare and file a supplement or amendment (including post-effective
amendments) to the prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(e) Cause all such Registrable Securities registered pursuant to this
Agreement to be listed on each securities exchange or market on which similar
securities issued by the Company are then listed, if any;
(f) Use reasonable efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that (a) if the Company's shares are no longer listed on a national securities
exchange or traded on the Nasdaq National Market then the Holders may only
request such registration and qualification in up to 10 jurisdictions and (b)
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act; and
(g) Advise each seller of such Registrable Securities, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued.
Section 1.3 Registration Expenses.
----------------------
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for the Company, reasonable fees and disbursements of one counsel for the
Holders and all independent certified public accountants, and other Persons
retained by the Company (all such expenses being herein called "Registration
Expenses"), shall be borne by the Company, and the Company shall pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit or quarterly review, the expense of any liability insurance
and the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD automated quotation system if the common stock of the
Company is listed on any such exchange or system.
(b) To the extent Registration Expenses are not required to be paid by the
Company, each Holder of securities included in any registration hereunder shall
pay those Registration Expenses allocable to the registration of the Holder's
securities so included, and any Registration Expenses not so allocable shall be
borne by all sellers of securities included in the registration
Section 1.4 Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law, each
Holder of Registrable Securities, its affiliates and their respective officers,
directors, employees and agents, as the case may be, and each Person who
controls the Holder (within the meaning of the Securities Act), against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement under which Registrable Securities were registered, any prospectus or
preliminary prospectus contained therein or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to the Company by such Holder expressly for use therein as
provided in Section 1.4(b) below.
(b) In connection with any registration statement in which a Holder of
Registrable Securities is participating, each Holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by the Holder; provided, however, that such Holder shall
not be liable in any such case to the extent that any alleged losses or damages
result from the failure of the Company to promptly amend or take action to
correct or supplement any such registration statement or prospectus on the basis
of corrected or supplemental information provided in writing by such Holder to
the Company expressly for such purpose; provided, further, that the obligation
to indemnify shall be individual to each Holder and shall be limited to the net
amount of proceeds received by the Holder from the sale of Registrable
Securities pursuant to the registration statement.
(c) Any Person entitled to indemnification hereunder shall (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification (provided, however, that the failure of any indemnified
party to give notice shall not relieve the indemnifying party of its obligations
under this Section 1.4, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice) and (ii) permit the
indemnifying party to assume and undertake the defense of such claim with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party of its election to undertake and assume the defense thereof,
the indemnifying party shall not be liable to such indemnified party for any
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnifying party shall not be subject to any
liability for any settlement made by the indemnified party without the
indemnifying party's advance written consent (but such consent shall not be
unreasonably withheld). The indemnifying party shall not consent to a
settlement of, or the entry of any judgment arising from, any third party claim,
unless (i) the settlement or judgment is solely for money damages and the
indemnifying party admits in writing its liability to hold the indemnified party
harmless from and against any losses, damages, expenses and liabilities arising
out of such settlement or judgment or (ii) the indemnified party consents
thereto, which consent shall not be unreasonably withheld. An indemnifying
party who elects not to assume the defense of a claim shall not be obligated to
pay the fees and expenses of more than one counsel for all parties indemnified
by the indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between the
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Section 1.4 shall remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company
also agrees to make such provisions as are reasonably requested by any
indemnified party for contribution to the party in the event the Company's
indemnification is unavailable for any reason.
(e) If the indemnification provided for in paragraphs (a) and (b) of this
Section 1.4 is unavailable or insufficient to hold harmless an indemnified party
under such paragraphs in respect of any losses, claims, damages, liabilities and
expenses in respect thereof referred to therein, then each indemnifying party
shall in lieu of indemnifying such indemnified party contribute to the amount
paid or payable by such indemnified party as a result of such losses, losses,
claims, damages, liabilities or expenses in such proportion as appropriate to
reflect the relative fault of the Company, on the one hand, and the sellers of
such Registrable Securities on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations, including the
failure to give any notice under paragraph (c) of this Section 1.4. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact relates to information
supplied by the Company, on the one hand, or the sellers of such Registrable
Securities on the other hand, and to the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the sellers of Registrable Securities agree that it
would not be just and equitable if contributions pursuant to this paragraph were
determined by pro rata allocation (even if all of the sellers of such
Registrable Securities were treated as one entity for such purpose) or by any
other method of allocation which did not take account of the equitable
considerations referred to above in this paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or action in respect thereof, referred to above in this paragraph, shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph, no seller of such
Registrable Securities shall be required to contribute any amount in excess of
the total proceeds received from the sale of such seller's Registrable
Securities.
Section 1.5 Lockup Agreement. Each Holder agrees in connection with any
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underwritten public sale or distribution of the Common Stock by the Company
pursuant to a registration statement filed with the Commission, that upon the
request of the Company, such Holder shall not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities without the prior written consent of the Company, for
such period of time (not to exceed 180 days after the effective date of such
registration statement) as the Company may reasonably request, provided, that
all officers and directors of the Company, all securityholders who hold at least
one percent of the common stock of the Company , on a fully-diluted basis, and
all other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements. Notwithstanding the foregoing, the
obligations described in this Section 1.5 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms which may be promulgated in the future, or a registration relating solely
to an Commission Rule 145 transaction on Form S-4 or similar forms which may be
promulgated in the future.
Section 1.6 Reports Under Securities Exchange. With a view to making
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available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the Commission that may at
any time period a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to
use its reasonable efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Commission Rule 144, so long as the Company
remains subject to the periodic reporting requirements under Sections 13 or
15(d) of the Exchange Act;
(b) take such action as is necessary to enable the Holders to utilize
Form S-3 for the sale of their Registrable Securities;
(c) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company
as to whether it has complied with the reporting requirements of Commission
Rule 144, the Securities Act and the Exchange Act, or that it qualifies as
a registrant whose securities may be resold pursuant to Form S-3, (ii) a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company , and (iii) such other
information as may be reasonably requested in availing any Holder of any
rule or regulation of the Commission which permits the selling of any such
securities without registration or pursuant to such form.
Section 1.7 Termination. Except for Section 1.4 which shall survive
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indefinitely, the provisions of this Exhibit B shall terminate with respect to
each Holder of Registrable Securities on the earlier of (a) the date that there
are no longer any Registrable Securities, and (b) the date when no shares of the
Company's common stock are registered under the Exchange Act and the Company is
no longer required to make any filings under the Exchange Act.
References to Sections in the Exhibit B refer to Sections in this Exhibit B and
not to Sections in the Agreement.
The following Schedules and Exhibit to the Convertible Note Purchase
Agreement have not been filed as part of this Form 8-K. The Company agrees to
furnish supplementally to the Commission, upon request, a copy of all omitted
schedules.
Schedule Description
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3.2 Capitalization
3.4 Absence of Defaults
3.5 Absence of Proceedings
3.6(b) Intellectual Property Assets Liens
3.6(c) Trademarks
3.6(e) Domain Names
3.8 Subsidiaries
3.9 Liabilities
3.11 SEC Reports
Exhibit Description
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C Form of Certificate of Designations