EXHIBIT 10.1
================================================================================
SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 30, 1998
BY AND BETWEEN
ONHEALTH NETWORK COMPANY
AND
ADVANTAGE FUND II LTD.
____________________
COMMON STOCK
AND
COMMON STOCK PURCHASE WARRANTS
____________________
================================================================================
SUBSCRIPTION AGREEMENT
COMMON STOCK
AND
COMMON STOCK PURCHASE WARRANTS
ONHEALTH NETWORK COMPANY
PAGE
1. DEFINITIONS 1
2. AGREEMENT TO SUBSCRIBE 18
(a) Subscription 18
(b) Form of Payment 18
3. COMPANY PUT OPTIONS 18
(a) Option Exercise 18
(b) Buyer's Assignment of Rights and Obligations under
Section 3 19
(c) Form of Payment 19
(d) Buyer's Conditions Precedent to Purchase of Optional
Shares 19
(e) Company's Conditions Precedent to Sale and Issuance
of Optional Shares 20
4. RESET SHARES 20
(a) Reset Date No.1 20
(b) Subsequent reset Dates 21
(c) Reset Notices 21
(d) Delivery of Reset Shares to the Escrow Agent 22
(e) Buyer's Assignment of Rights to Acquire Reset Shares 23
(f) Delivery of Reset Shares to the Company 24
i
5. BUYER REPRESENTATIONS, WARRANTIES, ETC 24
(a) Purchase for Investment 24
(b) Accredited Investor 24
(c) Reoffers and Releases 24
(d) Company Reliance 24
(e) Information Provided 25
(f) Absence of Approvals 25
(g) Subscription Agreement 25
6. COMPANY REPRESENTATION, WARRANTIES, ETC 25
(a) Organization and Authority 25
(b) Capitalization 26
(c) Concerning the Shares and the Common Stock 27
(d) Subscription Agreement 27
(e) Non-contravention 27
(f) Approvals 28
(g) Information Provided 28
(h) Absence of Certain Changes 29
(i) Absence of Certain Proceedings 29
(j) Properties 30
(k) Labor Relations 31
(l) SEC Filings 31
(m) Absence of Brokers, Finders,, Etc. 31
(n) No Solicitation. 31
(o) Certain Issuances of Securities 32
7. Certain Covenants and Acknowledgements 32
(a) Transfer Restrictions 32
(b) Restrictive Legend 32
(c) Escrow Agreement; Registration Rights Agreement 33
(d) Form D 34
(e) Authorization for Trading 34
(f) Use of Proceeds 34
(g) Blue Sky Laws 34
(h) Certain Expenses 35
ii
(i) Certain Issuances of Securities 35
(j) Certain Trading Restrictions 38
(k) Reservation of Common Stock 38
(l) Consolidation, Merger, etc. 39
(m) Overdue Amounts 39
(n) Other 40
(1) Payment of Obligations 40
(2) Maintenance of Property 40
(3) Conduct of Business and Maintenance of
Existence 40
(4) Compliance with Laws 40
(5) Investment Company Act 40
(6) Transactions with Affiliates 41
(o) Best Efforts 41
8. ESCROW SHARES. 41
9. CLOSING DATE. 42
10. CONDITIONS TO THE COMPANY'S OBLIGATION TO
SELL AND ISSUE. 42
11. CONDITIONS TO THE BUYER'S OBLIGATION TO
PURCHASE. 43
12. REPURCHASE AT OPTION OF THE BUYER. 44
(a) Repurchase Right; Method of Exercising Optional
Repurchase Right, Etc. 44
(b) Notices 44
(c) Other 45
(d) Special Repurchase Events 45
13. REPURCHASE AT OPTION OF THE COMPANY 46
14. MISCELLANEOUS 47
(a) Governing Law. 47
(b) Counterparts. 47
iii
(c) Headings, etc. 47
(d) Severability 47
(e) Amendments 48
(f) Waivers. 48
(g) Notices. 48
(h) Assignment 48
(i) Survival of Representations and Warranties 49
(j) Entire Agreement 49
(k) Termination 49
(l) Further Assurances 50
(m) Public Statements, Press Releases, Etc. 50
(n) Construction 50
ANNEXES
Annex I Form of Common Stock Purchase Warrant
Annex II Form of Escrow Agreement
Annex III Form of Registration Rights Agreement
Annex IV Form of Opinion of Counsel to be Delivered on Closing Date
Annex V Form of reset Notice
iv
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of October 30, 1998 (this
"Agreement"), by and between ONHEALTH NETWORK COMPANY, a Washington corporation
(the "Company"), with headquarters located at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and ADVANTAGE FUND II LTD., a British Virgin Islands
corporation (the "Buyer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, shares of Common Stock (such capitalized terms
and all other capitalized terms used in this Agreement without definition having
the respective meanings provided in Section 1) for consideration consisting of
cash and outstanding shares of the Company's preferred stock, and in connection
therewith the Company is to issue to the Buyer warrants to purchase shares of
Common Stock as provided in the Agreement; and
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D as promulgated by the SEC under the 1933 Act;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS
(a) As used in this Agreement, the terms "Agreement," "Buyer" and
"Company" shall have the respective meanings assigned to such terms in the
introductory paragraph of this Agreement.
(b) All the agreements or instruments herein defined shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Agreement.
(c) The following terms shall have the following meanings (such
meanings
1
to be equally applicable to both the singular and plural forms of the
terms defined):
"Action" means an action, suit, proceeding, inquiry or investigation
before or by any court, public board or body, arbitrator or governmental agency.
"Adjustment Price" means the lesser of (x) the arithmetic average of
the Market Price of the Common Stock on each of the Trading Days during the
applicable Measurement Period and (y) $6.50 (subject to equitable adjustments
from time to time on terms reasonably acceptable to the Buyer for stock splits,
stock dividends, combinations, recapitalizations, reclassifications and similar
events occurring after the Closing Date); provided, however, that,
notwithstanding any other provision of this Agreement, if a Registration Event
occurs then all Adjustment Prices determined thereafter shall be permanently
reduced on each Computation Date by one percent from the amount otherwise used
to calculate the Adjustment Price (such reduction to be prorated in the case of
any Computation Date which is less than 30 days after a Registration Event
occurs or less than 30 days after another Computation Date) and; provided
further, however, that the Adjustment Price applicable to a particular Reset
Date shall be subject to reduction as provided in Section 4(d).
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject Person; for purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Aggregate Option Purchase Price" means the product of (x) the
Optional Share Amount of Optional Shares being purchased on an Option Closing
Date times (y) the Purchase Price.
"Amendment Event" means a Repurchase Event described in clause (4) of
the definition of Repurchase Event which arises under the terms of any amendment
of any of the following: this Agreement, the Escrow Agreement, the Registration
Rights Agreement, the Warrants, or any other agreements or documents entered
into in connection with the issuance of the Shares.
"AMEX" means the American Stock Exchange, Inc.
2
"Auditors" means Ernst & Young LLP or such other firm of independent
public accountants of recognized national standing as shall have been engaged by
the Company to audit its financial statements.
"Auditors' Determination" means a determination requested by the
Company and signed by the Auditors concurring with the Company's conclusion that
(a) a requirement of the Company to repurchase, or a right of any holder of
Shares to require repurchase of, Shares, or (b) a requirement of the Company to
make a payment pursuant to Section 7(i)(1)(B), by reason of the occurrence of
(i) a specified Repurchase Event which occurs by reason of (x) an event
described in clause (1), (2), (3) or (5) of the definition of Repurchase Event
or (y) an Amendment Event or (ii) a specified Share Limitation Event, whichever
is applicable, would result in the Company being required to classify the Shares
as redeemable common stock on a balance sheet of the Company in accordance with
Generally Accepted Accounting Principles. The Auditors' Determination shall (i)
set forth in reasonable detail all relevant facts considered by the Auditors in
connection therewith, (ii) set forth all applicable accounting principles and
assumptions used, and (iii) set forth in reasonable detail or attach copies of
all legal, expert and other advice or information used by the Auditors in
reaching their conclusion. To the extent any facts are assumed for purposes of
either the Company's conclusion or the Auditor's Determination, the validity of
such conclusion or determination shall depend upon such assumed facts being true
and complete in all material respects.
"Blackout Period" means any period of one or more consecutive Trading
Days, but not in excess of 30 Trading Days, occurring after the SEC Effective
Date as to which the Company has notified the holders of Shares on or prior to
such Trading Day in accordance with Section 3(f) of the Registration Rights
Agreement that they are required, pursuant to Section 3(f) of the Registration
Rights Agreement, to suspend offers and sales of shares of Common Stock
pursuant to the Registration Statement as a result of an event or circumstance
which relates to a development concerning a business combination involving the
Company which development occurred subsequent to the later of (x) the SEC
Effective Date and (y) the latest date prior to such notice on which the Company
has amended or supplemented the Registration Statement as to which the Board of
Directors shall have determined in good faith that public disclosure of such
event or circumstance at such time would not be in the best interests of the
Company, which determination shall be set forth in a resolution duly adopted by
the Board of Directors and copies of which shall be furnished to the Buyer;
provided, however, that no more than two Blackout Periods may commence in any
period of 365 consecutive days.
"Board of Directors" or "Board" means the Board of Directors of the
3
Company.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.
"Cash Consideration" means $2,000,000.00.
"Closing Date" means the date and time of the issuance and sale of the
Initial Shares and the issuance of the Warrants.
"Closing Date Price" means the arithmetic average of the Market Price
of the Common Stock on the five consecutive Trading Days ending on the Trading
Day prior to the Closing Date.
"Closing Price" means the closing sale price of the Common Stock on
the principal securities market for the Common Stock, as reported by Bloomberg,
L.P.
"Common Shares" means the Initial Shares, the Optional Shares and the
Reset Shares.
"Common Shares Held" means with respect to any Reset Date the number
of Common Shares held in escrow by the Escrow Agent and beneficially owned by
the Buyer on such Reset Date, determined immediately prior to the computation of
Reset Shares for such Reset Date pursuant to Section 4.
"Common Stock" means the Common Stock, $.01 par value, of the Company.
"Company Disclosure Letter" means the letter from the Company to the
Buyer delivered on or prior to the Closing Date regarding certain disclosures.
"Company Escrow Shares" means Escrow Shares which are due to the
Company as specified in a Reset Notice pursuant to Section 4 which have not been
released to the Company.
"Company Proprietary Rights" means all patents, patent applications,
inventions, trademarks, trade names, applications for registration of
trademarks, service marks, service ▇▇▇▇ applications, copyrights, know-how,
manufacturing processes, formulae, trade secrets, licenses and rights in any
thereof and any other intangible
4
property and assets which are material to the businesses of the Company and the
Subsidiary as now conducted, as proposed to be conducted or as described in this
Agreement.
"Company Repurchase Notice" means a notice given by the Company to the
Buyer pursuant to Section 13 exercising the Company's right to repurchase all or
a portion of the Buyer's Escrow Shares pursuant to Section 13, (2) the number of
Escrow Shares which are to be repurchased, (3) the Company Repurchase Price or
the formula for determining the same, determined in accordance herewith and (4)
the applicable Repurchase Date.
"Company Repurchase Price" with respect to the repurchase by the
Company of any Escrow Shares pursuant to Section 13 means:
(1) in the case of any Repurchase Date which is on or prior to
December 31, 1998, 105% of the Purchase Price;
(2) in the case of any Repurchase Date which occurs during the period
from January 1, 1999 to and including Reset Date No. 1, the Floor Price;
(3) in the case of any Repurchase Date which is after Reset Date No. 1
and not subject to clause (4) below, the greater of (A) the arithmetic
average of the Market Price for the five consecutive Trading Days prior to
such Repurchase Date and (B) the most recently determined Adjustment Price;
and
(4) in the case of any Repurchase Date which is after Reset Date No. 4
and where for each of ten consecutive Trading Days commencing after Reset
Date No. 4 and on such Repurchase Date the Closing Price of the Common
Stock is greater than $8.50 (subject to equitable adjustments from time to
time on terms reasonably acceptable to the Buyer for stock splits, stock
dividends, combinations, recapitalizations, reclassifications, and similar
events occurring after the Closing Date), the Purchase Price.
"Computation Date" means, if a Registration Event occurs, any of (1)
the date which is 30 days after such Registration Event occurs, if any
Registration Event is continuing on such date, (2) each date which is 30 days
after a Computation Date, if any Registration Event is continuing on such date,
and (3) the date on which all Registration Events cease to continue.
5
"Control Notice" means a notice given by the Company to the Buyer, in
accordance with Section 7(i)(1)(C) or Section 12(d), (i) stating that a Share
Limitation Event or a Repurchase Event, as the case may be, has occurred by
reason of events which are not solely within the control of the Company and (ii)
enclosing an executed copy of an Auditors' Determination.
"DTC" means the Depository Trust Company.
"Equity Securities" means Common Stock or securities convertible into,
exchangeable for, or otherwise entitling the holder to acquire, any Common
Stock.
"Escrow Agent" means the Escrow Agent named in the Escrow Agreement
and any successor thereto.
"Escrow Agreement" means the Escrow Agreement to be entered into by
and between the Company, the Buyer and the Escrow Agent in the form attached
hereto as ANNEX II.
"Escrow Shares" means the Common Shares held in escrow by the Escrow
Agent from time to time, including any additional shares of Common Stock
distributed or received by the Escrow Agent as a stock dividend, stock split or
other distribution on the Escrow Shares.
"Exchange Act" means the Securities Exchange Act of 1934 , as amended.
"Floor Price" means, with respect to any date, the price for one share
of Common Stock equal to 115% of the Purchase Price.
"Generally Accepted Accounting Principles" for any Person means the
generally accepted accounting principles and practices applied by such Person
from time to time in the preparation of its audited financial statements.
"Initial Shares" means the number of whole shares of Common Stock
(rounded to the next highest number) equal to the quotient obtained by dividing
(x) $3,690,500 by (y) the Purchase Price on the Closing Date.
"Market Price" of the Common Stock on any date means the closing bid
price for one share of Common Stock on such date on the first applicable among
the following:
6
(a) the national securities exchange on which the shares of Common Stock are
listed which constitutes the principal securities market for the Common Stock,
(b) the Nasdaq, if the Nasdaq constitutes the principal market for the Common
Stock on such date, or (c) the Nasdaq SmallCap, if the Nasdaq SmallCap
constitutes the principal securities market for the Common Stock on such date,
in any such case as reported by Bloomberg, L.P.; provided, however, that if
during any Measurement Period or other period during which the Market Price is
being determined:
(i) The Company shall declare or pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of
Common Stock or fix any record date for any such action, then the Closing
Price for each day in such Measurement Period or such other period which
day is prior to the earlier of (1) the date fixed for the determination of
shareholders entitled to receive such dividend or other distribution and
(2) the date on which ex-dividend trading in the Common Stock with respect
to such dividend or distribution begins shall be reduced by multiplying the
Closing Price (determined without regard to this proviso) for each such day
in such Measurement Period or such other period by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding at the close of business on the earlier of (1) the record date
fixed for such determination and (2) the date on which ex-dividend trading
in the Common Stock with respect to such dividend or distribution begins
and the denominator of which shall be the sum of such number of shares and
the total number of shares constituting such dividend or other
distribution;
(ii) The Company shall issue rights or warrants to all holders of its
outstanding shares of Common Stock, or fix a record date for such issuance,
which rights or warrants entitle such holders (for a period expiring within
forty-five 45) days after the date fixed for the determination of
shareholders entitled to receive such rights or warrants) to subscribe for
or purchase shares of Common Stock at a price per share less than the
Closing Price (determined without regard to this proviso) for any day in
such Measurement Period or such other period which day is prior to the end
of such 45-day period, then the Closing Price for each such day shall be
reduced so that the same shall equal the price determined by multiplying
the Closing Price (determined without regard to this proviso) by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on the record date fixed for the
determination of shareholders entitled to receive such rights or warrants
plus the number of shares which the aggregate offering price of the total
number of shares so offered would
7
purchase at such Closing Price, and the denominator of which shall be the
number of shares of Common Stock outstanding on the close of business on
such record date plus the total number of additional shares of Common Stock
so offered for subscription or purchase. In determining whether any rights
or warrants entitle the holders to subscribe for or purchase shares of
Common Stock at less than the Closing Price (determined without regard to
this proviso), and in determining the aggregate offering price of such
shares of Common Stock, there shall be taken into account any consideration
received for such rights or warrants, the value of such consideration, if
other than cash, to be determined in good faith by a resolution of the
Board of Directors of the Company;
(iii) The outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock or a record date for any such
subdivision shall be fixed, then the Closing Price of the Common Stock for
each day in such Measurement Period or such other period which day is prior
to the earlier of (1) the day upon which such subdivision becomes effective
and (2) the date on which ex-dividend trading in the Common Stock with
respect to such subdivision begins shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Closing Price
for each day in such Measurement Period or such other period which day is
prior to the earlier of (1) the date on which such combination becomes
effective and (2) the date on which trading in the Common Stock on a basis
which gives effect to such combination begins, shall be proportionately
increased;
(iv) The Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of capital stock of the
Company (other than any dividends or distributions to which clause (i) of
this proviso applies) or evidences of its indebtedness, cash or other
assets (including securities, but excluding any rights or warrants referred
to in clause (ii) of this proviso and dividends and distributions paid
exclusively in cash and excluding any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation)
(the foregoing hereinafter in this clause (iv) of this proviso called the
"Securities"), or fix a record date for any such distribution, then, in
each such case, the Closing Price for each day in such Measurement Period
or such other period which day is prior to the earlier of (1) the record
date for such distribution and (2) the date on which ex-dividend trading in
the Common Stock with respect to such
8
distribution begins shall be reduced so that the same shall be equal to the
price determined by multiplying the Closing Price (determined without
regard to this proviso) by a fraction, the numerator of which shall be the
Closing Price (determined without regard to this proviso) for such trade
less the fair market value (as determined in good faith by resolution of
the Board of Directors of the Company) on such date of the portion of the
Securities so distributed or to be distributed applicable to one share of
Common Stock and the denominator of which shall be the Closing Price
(determined without regard to this proviso). If the Board of Directors of
the Company determines the fair market value of any distribution for
purposes of this clause (iv) by reference to the actual or when issued
trading market for any securities comprising all or part of such
distribution, it must in doing so consider the prices in such market on the
same day for which an adjustment in the Closing Price is being determined.
For purposes of this clause (iv) and clauses (i) and (ii) of this
proviso, any dividend or distribution to which this clause (iv) is
applicable that also includes shares of Common Stock, or rights or warrants
to subscribe for or purchase shares of Common Stock to which clause (i) or
(ii) of this proviso applies (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets, shares
of capital stock, rights or warrants other than such shares of Common Stock
or rights or warrants to which clause (i) or (ii) of this proviso applies
(and any Closing Price reduction required by this clause (iv) with respect
to such dividend or distribution shall then be made) immediately followed
by (2) a dividend or distribution of such shares of Common Stock or such
rights or warrants (and any further Closing Price reduction required by
clauses (i) and (ii) of this proviso with respect to such dividend or
distribution shall then be made), except that any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding
at the close of business on the date fixed for such determination" within
the meaning of clause (i) of this proviso;
(v) The Company or any subsidiary of the Company shall (x) by dividend
or otherwise, distribute to all holders of its Common Stock cash in (or fix
any record date for any such distribution), or (y) repurchase or reacquire
shares of its Common Stock (other than an Option Share Surrender) for, in
either case, an aggregate amount that, combined with (1) the aggregate
amount of any other such distributions to all holders of its Common Stock
made exclusively in cash after the Closing Date and within the twelve (12)
months preceding the date of payment of
9
such distribution, and in respect of which no adjustment pursuant to this
clause (v) has been made, (2) the aggregate amount of any cash plus the
fair market value (as determined in good faith by a resolution of the Board
of Directors of the Company) of consideration paid in respect of any
repurchase or other reacquisition by the Company or any subsidiary of the
Company of any shares of Common Stock (other than an Option Share
Surrender) made after the Closing Date and within the twelve (12) months
preceding the date of payment of such distribution or making of such
repurchase or reacquisition, as the case may be, and in respect of which no
adjustment pursuant to this clause (v) has been made, and (3) the aggregate
of any cash plus the fair market value (as determined in good faith by a
resolution of the Board of Directors of the Company) of consideration
payable in respect of any Tender Offer by the Company or any of its
subsidiaries for all or any portion of the Common Stock concluded within
the twelve (12) months preceding the date of payment of such distribution
or completion of such repurchase or reacquisition, as the case may be, and
in respect of which no adjustment pursuant to clause (vi) of this proviso
has been made (such aggregate amount combined with the amounts in clauses
(1), (2) and (3) above being the "Combined Amount"), exceeds 10% of the
product of the Closing Price (determined without regard to this proviso)
for any day in such Measurement Period or such other period which day is
prior to the earlier of (A) the record date with respect to such
distribution and (B) the date on which ex-dividend trading in the Common
Stock with respect to such distribution begins or the date of such
repurchase or reacquisition, as the case may be, times the number of shares
of Common Stock outstanding on such date, then, and in each such case, the
Closing Price for each such day shall be reduced so that the same shall
equal the price determined by multiplying the Closing Price (determined
without regard to this proviso) for such day by a fraction (i) the
numerator of which shall be equal to the Closing Price (determined without
regard to this proviso) for such day less an amount equal to the quotient
of (x) the excess of such Combined Amount over such 10% and (y) the number
of shares of Common Stock outstanding on such day and (ii) the denominator
of which shall be equal to the Closing Price (determined without regard to
this proviso) for such day; or
(vi) A Tender Offer made by the Company or any of its subsidiaries for
all or any portion of the Common Stock shall expire and such Tender Offer
(as amended upon the expiration thereof) shall require the payment to
shareholders (based on the acceptance (up to any maximum specified in the
terms of the Tender Offer) of Purchased Shares (as defined below)) of an
aggregate consideration having a fair market value (as determined in good
faith by resolution of the Board
10
of Directors of the Company) that combined together with (1) the aggregate
of the cash plus the fair market value (as determined in good faith by a
resolution of the Board of Directors of the Company), as of the expiration
of such Tender Offer, of consideration payable in respect of any other
Tender Offers, by the Company or any of its subsidiaries for all or any
portion of the Common Stock expiring within the 12 months preceding the
expiration of such Tender Offer and in respect of which no adjustment
pursuant to this clause (vi) has been made, (2) the aggregate amount of any
cash plus the fair market value (as determined in good faith by a
resolution of the Board of Directors of the Company) of consideration paid
in respect of any repurchase or other reacquisition by the Company or any
subsidiary of the Company of any shares of Common Stock (other than an
Option Share Surrender) made after the Closing Date and within the 12
months preceding the expiration of such Tender Offer and in respect of
which no adjustment pursuant to clause (v) of this proviso has been made,
and (3) the aggregate amount of any distributions to all holders of Common
Stock made exclusively in cash within 12 months preceding the expiration of
such Tender Offer and in respect of which no adjustment pursuant to clause
(v) of this proviso has been made, exceeds 10% of the product of the
Closing Price (determined without regard to this proviso) for any day in
such period times the number of shares of Common Stock outstanding on such
day, then, and in each such case, the Closing Price for such day shall be
reduced so that the same shall equal the price determined by multiplying
the Closing Price (determined without regard to this proviso) for such day
by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on such day multiplied by the Closing Price
(determined without regard to this proviso) for such day and the
denominator of which shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
shareholders based on the acceptance (up to any maximum specified in the
terms of the Tender Offer) of all shares validly tendered and not withdrawn
as of the last time tenders could have been made pursuant to such Tender
Offer (the "Expiration Time") (the shares deemed so accepted, up to any
such maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock outstanding (less any
Purchased Shares) on such day times the Closing Price (determined without
regard to this proviso) of the Common Stock on the Trading Day next
succeeding the Expiration Time. If the application of this clause (vi) to
any Tender Offer would result in an increase in the Closing Price
(determined without regard to this proviso) for any trade, no adjustment
shall be made for such Tender Offer under this clause (vi) for such day.
11
"Measurement Period" means, with respect to any Reset Date, the period
of 15 consecutive Trading Days ending on the Trading Day prior to such Reset
Date.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1997 10-K" means the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
"1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
"1933 Act" means the Securities Act of 1933, as amended, or any
successor statute.
"NYSE" means the New York Stock Exchange, Inc.
"Option Closing Date" means the date or dates on which Optional Shares
are issued and sold in accordance with Section 3.
"Option Exercise Notice" means a notice given by the Company to the
Buyer pursuant to Section 3 stating that the Company is exercising one of its
Put Options.
"Option Exercise Period" means the period commencing November 30, 1998
and ending on December 31, 1998.
"Optional Share Amount" means the number of shares of Common Stock
equal to the quotient obtained by dividing (x) $1,000,000 by (y) the Purchase
Price.
"Optional Shares" means shares of Common Stock issued and sold to the
Buyer or its assignee in accordance with Section 3.
"Option Share Surrender" means the surrender of shares of Common Stock
to the Company in payment of the exercise price or tax obligations incurred in
connection with the exercise of a stock option granted by the Company to any of
its employees, directors or consultants.
"Person" means an individual, partnership, corporation, limited
liability
12
company, trust, incorporated organization, unincorporated association or joint
stock company.
"Purchase Price" means the price for one share of Common Stock equal
to 115% of the Closing Date Price (when used after the Closing Date, the
Purchase Price shall be subject to equitable adjustments from time to time on
terms reasonably acceptable to the Buyer for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events occurring
after the Closing Date).
"Put Option" means each of the two options of the Company to require
the Buyer or its assignee to purchase the Optional Share Amount of Optional
Shares in accordance with Section 3.
"Registration Event" shall mean any one of the following: (1) the
Company fails to file the Registration Statement with the SEC on or before
December 31, 1998, (2) the Registration Statement is not effective within 120
days after the Closing Date, (3) the Company fails to submit a request for
acceleration of the effective date of the Registration Statement in accordance
with Section 3(a) of the Registration Rights Agreement, (4) the Registration
Statement shall cease to be available for use by any holder of Shares who is
named therein as a selling shareholder for any reason (including, without
limitation, by reason of an SEC stop order, a material misstatement or omission
in the Registration Statement or the information contained in the Registration
Statement having become outdated) other than as a result of a Blackout Period;
provided, however, that no Registration Event pursuant to this clause (4) shall
be deemed to occur prior to the SEC Effective Date, (5) the Common Stock ceases
to be listed for trading on any of the NYSE, the AMEX, the Nasdaq or the Nasdaq
SmallCap, or (6) the Company fails to deliver any Reset Shares to the Escrow
Agent as and when required by Section 4.
"Registration Rights Agreement" means the Registration Rights
Agreement to be entered into between the Company and the Buyer in the form
attached hereto as ANNEX III.
"Registration Statement" means the Registration Statement required to
be filed by the Company with the SEC pursuant to Section 2(a) of the
Registration Rights Agreement.
"Regulation D" means Regulation D promulgated by the SEC under the
1933 Act.
13
"Release Notice" means the notice from the Buyer to the Escrow Agent
in the form attached to the Escrow Agreement.
"Repurchase Date" means the date of repurchase of Shares pursuant to
Section 12 or Section 13, as the case may be.
"Repurchase Event" means any one of the following events:
(1) For any period of five consecutive Trading Days commencing on or
after the Closing Date there shall be no closing bid price of the Common
Stock on any national securities exchange, the Nasdaq or the Nasdaq
SmallCap;
(2) The Common Stock ceases to be listed for trading on any of the
NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap;
(3) The inability for 30 or more days (whether or not consecutive) of
any holder of Shares to sell such shares pursuant to the Registration
Statement for any reason other than a Blackout Period on each of such 30
days;
(4) The Company shall fail or default in the timely performance of any
obligation (A) to issue Reset Shares as and when required by Section 4 or
(B) any other material obligation, in each case to a holder of Shares under
the terms of this Agreement, the Escrow Agreement, the Registration Rights
Agreement, the Warrants or any other agreements or documents entered into
in connection with the issuance of the Shares, as such instruments may be
amended from time to time, provided, that an event described in clause (B)
above shall be a Repurchase Event only if such failure or default shall
have continued for a period of 15 days after notice thereof is given to the
Company by any holder of Shares;
(5) Any consolidation or merger of the Company with or into another
entity (other than a merger or consolidation of a subsidiary of the Company
into the Company or a wholly-owned subsidiary of the Company) where the
common stock of such surviving company is not listed for trading on the
NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap, or any sale or other
transfer of all or substantially all of the assets of the Company; or
(6) The taking of any action to amend any of the Company's charter
documents, including any amendment to the Company's Articles of
Incorporation,
14
without the consent of the Buyer which materially and adversely affects the
rights of any holder of Shares.
"Repurchase Notice" means a notice from the Buyer to the Company which
states (1) that the Buyer is thereby requiring the Company to repurchase Shares
pursuant to Section 12, (2) in general terms the Repurchase Event giving rise to
such repurchase, and (3) the number of Shares which are to be repurchased.
"Repurchase Price" means:
(1) in the case of any Repurchase Date which is on or prior to Reset
Date No. 1, the Floor Price; and
(2) in the case of any Repurchase Date which is after Reset Date No.
1, the greater of (A) the arithmetic average of the Market Price for the
five consecutive Trading Days ending on the Trading Day prior to such
Repurchase Date and (B) the most recently determined Adjustment Price.
"Repurchase Share Amount" means, for any calendar month, 15% of the
number of Common Shares beneficially owned by the Buyer (including Escrow
Shares) on the last day of such month.
"Repurchase Shares" means the shares of Common Stock issuable to the
Buyer pursuant to Section 12(d).
"Reset Date" means any of Reset Date ▇▇. ▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇. ▇, and each
sequentially numbered Reset Date thereafter which shall occur on August 10,
November 10, February 10, and May 10 of each year commencing on August 10, 1999
(Reset Date No. 3) and ending on the earlier of (x) November 10, 2001 or (y) the
last Reset Date to occur on which there is a positive number of Common Shares
Held.
"Reset Date No. 1" means the first to occur of (x) March 31, 1999, (y)
the later of (1) the SEC Effective Date and (2) the day which is 135 days after
the Closing Date, and (z) the date on which the Company is selling health-
related products (vitamins, herbs, health-food supplements, or other health-
related products) from its Website and issues a press release stating that its
e-commerce site for the sale of such products has been launched in final form
after any prior trials.
15
"Reset Date No. 2" means May 10, 1999.
"Reset Notice" means a notice from the Buyer to the Company and the
Escrow Agent in the form attached hereto as ANNEX V.
"Reset Period" means the period commencing on each Reset Date and
ending three Trading Days after the Escrow Agent receives a Reset Notice.
"Reset Shares" means either (i) additional shares of Common Stock
issuable by the Company to the Buyer or (ii) Escrow Shares due to the Company
out of escrow, in each case in accordance with Section 4.
"Rule 144" means Rule 144 promulgated by the SEC under the 1933 Act or
any other similar rule or regulation of the SEC that may at any time permit a
holder of any securities to sell such securities to the public without
registration under the 1933 Act.
"SEC" means the United States Securities and Exchange Commission.
"SEC Effective Date" means the date the Registration Statement is
first declared effective by the SEC.
"SEC Reports" means (1) the 1997 10-K, (2) the Company's Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1998 and June 30,
1998, and (3) to the extent incorporated by reference in the 1997 10-K, the
Company's definitive proxy statement for its 1998 Annual Meeting of
Stockholders, in each case as filed with the SEC.
"Securities" means the Shares and the Warrants; provided, however, for
purposes of the definition of the term "Market Price" set forth in clause (iv)
of the proviso to the definition of the term "Market Price," Securities shall
have the meaning set forth in such clause (iv).
"Series B Preferred Stock" means the Series B Convertible Preferred
Stock, $.01 par value, of the Company.
"Share Limitation Event" means a time at which the Company is unable
to issue all Reset Shares or Repurchase Shares otherwise required to be issued
by this Agreement by reason of the restrictions set forth in the Shareholder
Approval Rule and the Company has not obtained a waiver thereof.
16
"Share Limitation Repurchase Price" means an amount equal to 115% of
the Repurchase Price determined as of the applicable Reset Date or the date on
which Repurchase Shares were otherwise required to be issued, as the case may
be, for which payment is due pursuant to Section 7(i)(1)(B).
"Shareholder Approval" shall mean the approval by a majority of the
votes cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the shareholders of the Company (duly convened at which a quorum was
present), or a written consent of holders of shares of Common Stock entitled to
such number of votes given without a meeting, of the issuance by the Company of
20% or more of the Common Stock of the Company outstanding on the Closing Date
for less than the greater of the book or market value of such Common Stock, as
and to the extent required under the Shareholder Approval Rule.
"Shareholder Approval Rule" means Rule 4310(c)(25)(H) of the Nasdaq
SmallCap as in effect from time to time or any successor, replacement or similar
provision thereof or of any other market on which the Common Stock is listed for
trading.
"Shares" means the Common Shares, the Repurchase Shares and the
Warrant Shares.
"Specified Securities" means (i) any debt or equity security of the
Company as to which the holder thereof has rights similar in nature to the
rights of the Buyer with respect to the Common Shares under this Agreement and
(ii) any Equity Securities which are Common Stock which are offered or sold, or
which entitle the holder to acquire any Common Stock, at a price below the
market price of the Common Stock on the date of such issuance or acquisition.
"Stock Consideration" means 1,470 shares of Series B Preferred Stock
to be delivered by the Buyer to the Company for cancellation.
"Subsidiary" means the Company's subsidiary listed on Exhibit 21 of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
"Tender Offer" means a tender offer or exchange offer.
"Total Consideration" means the Cash Consideration and the Stock
Consideration.
-17-
"Trading Day" means a day on whichever of (w) the national securities
exchange, (x) the Nasdaq, (y) the Nasdaq SmallCap or (z) such other securities
market, which at the time constitutes the principal securities market for the
Common Stock, is open for general trading of securities.
"Transfer Agent" means American Stock Transfer & Trust Company, or any
successor thereof, serving as transfer agent and registrar for the Common Stock.
"Warrants" means the Common Stock Purchase Warrants to purchase shares
of Common Stock in the form attached hereto as ANNEX I.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
2. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) SUBSCRIPTION. The Buyer hereby agrees to purchase from the
Company the Initial Shares for consideration consisting of (1) the Cash
Consideration and (2) the Stock Consideration. The Cash Consideration shall be
payable in United States Dollars. In connection with the purchase of the Initial
Shares by the Buyer, the Company shall issue to the Buyer, at the closing on the
Closing Date, Warrants in the form attached hereto as ANNEX I to purchase the
number of shares of Common Stock equal to the quotient obtained by dividing (i)
$400,000 by (ii) the Closing Date Price.
(b) FORM OF PAYMENT. At the closing on the Closing Date (1) the
Company shall (i) issue and deliver the Initial Shares to the Escrow Agent for
deposit in escrow for the account of the Buyer or its nominee in accordance with
Section 8 and the Escrow Agreement and (ii) issue and deliver the Warrants to
the Buyer, against payment of the Total Consideration to the Company and (2) the
Buyer shall (i) pay the Cash Consideration to the Company, by wire transfer of
immediately available funds to such account as specified by the Company to the
Buyer at least one Business Day prior to the Closing Date, and (ii) deliver the
Stock Consideration to the Company, against such issuance and delivery to the
Escrow Agent of the Initial Shares and to the Buyer of the Warrants.
3. COMPANY PUT OPTIONS.
(a) OPTION EXERCISE. On not more than two occasions, the Company
-18-
has the option to require the Buyer to purchase the Optional Share Amount of
Optional Shares for the Purchase Price per share. To exercise a Put Option, the
Company must deliver an Option Exercise Notice to the Buyer during the Option
Exercise Period. The Option Closing Date must occur within 15 days of the date
an Option Exercise Notice is delivered to the Buyer, unless otherwise agreed by
the parties. No more than two Option Exercise Notices may be given. The Company
may give both Option Exercise Notices on the same date. Time shall be of the
essence in the giving of Option Exercise Notices during the Option Exercise
Period.
(b) BUYER'S ASSIGNMENT OF RIGHTS AND OBLIGATIONS UNDER SECTION 3. If
the Company delivers an Option Exercise Notice to the Buyer in accordance with
Section 3(a), and the Buyer intends to assign all or any portion of its rights
and obligations to purchase Optional Shares in accordance with Section 14(h)
hereof, then the Buyer shall so notify the Company within ten days after the
Buyer's receipt of the Option Exercise Notice. Each such notice of assignment by
the Buyer shall specify the name(s) of the assignee(s) and the number or
percentage of Optional Shares to be purchased. Each such notice shall be
executed by the assignee(s). From and after the giving of such notice by the
Buyer, the Buyer shall be deemed for all purposes to have assigned to such
assignee(s) the rights and obligations under this Agreement with respect to the
purchase of the number of Optional Shares covered by such notice, and such
assignee(s) shall be deemed a party to this Agreement with respect to the
purchase of such number of Optional Shares upon the terms and subject to the
conditions of this Agreement, and all applicable references hereinafter to the
"Buyer" shall include such assignee(s).
(c) FORM OF PAYMENT. At the closing on each Option Closing Date, (1)
the Company shall issue and deliver the applicable Optional Share Amount of
Optional Shares to the Escrow Agent for deposit in escrow for the account of the
Buyer or its nominee, against payment of the Aggregate Option Purchase Price to
the Company and (2) the Buyer shall pay the Aggregate Option Purchase Price to
the Company by wire transfer of immediately available funds in United States
Dollars to such account as specified by the Company at least one Business Day
prior to such Option Closing Date, against such issuance and delivery of such
Optional Shares to the Escrow Agent.
(d) BUYER'S CONDITIONS PRECEDENT TO PURCHASE OF OPTIONAL SHARES. The
Company understands that the Buyer's obligation to purchase the Optional Shares
on each Option Closing Date is conditioned upon the satisfaction of the
following conditions precedent on or before each Option Closing Date (any or all
of which may be waived by the Buyer in its sole discretion):
-19-
(1) Delivery by the Company of the certificates for the Optional
Shares to the Escrow Agent for the account of the Buyer in accordance with this
Agreement;
(2) The accuracy on the Option Closing Date of the representations and
warranties of the Company contained in this Agreement, the Escrow Agreement and
the Registration Rights Agreement as if made on the Option Closing Date and the
performance by the Company on or before the Option Closing Date of all covenants
and agreements of the Company required to be performed on or before the Option
Closing Date and receipt by the Buyer of a certificate, dated the Option Closing
Date, of the Chief Executive Officer or the Chief Financial Officer of the
Company confirming such matters and the satisfaction of the conditions precedent
set forth in this Section 3(d);
(3) No event which constitutes a Repurchase Event or a Registration
Event or, with the giving of notice or the lapse of time, or both, would
constitute a Repurchase Event or Registration Event, shall have occurred; and
(4) Receipt by the Buyer on the Option Closing Date of an opinion of
▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇ LLP, counsel for the Company, dated the Option Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer, to the
effect set forth in ANNEX IV attached hereto, modified to cover the issuance of
the Optional Shares.
(e) COMPANY'S CONDITIONS PRECEDENT TO SALE AND ISSUANCE OF OPTIONAL
SHARES. The Buyer understands that the Company's obligation to sell and issue
the Optional Shares on each Option Closing Date pursuant to this Agreement is
conditioned upon:
(1) Delivery by the Buyer to the Company of good funds as payment in
full of an amount equal to the Aggregate Option Purchase Price in accordance
with Section 3(c) hereof; and
(2) The accuracy on the Option Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Option
Closing Date and the performance by the Buyer on or before the Option Closing
Date of all covenants and agreements of the Buyer required to be performed on or
before the Option Closing Date.
4. RESET SHARES
(a) RESET DATE NO. 1. On Reset Date No. 1, the following computation
-20-
of Reset Shares shall be made:
[(F / A) x C] - C
where:
F = Floor Price
A = Adjustment Price on Reset Date No. 1
C = Common Shares Held on Reset Date No. 1
If the number of Reset Shares so computed is positive, such number of Reset
Shares shall be issued and delivered by the Company to the Escrow Agent for
deposit in escrow to be held for the account of the Buyer. If the number of
Reset Shares so computed is negative, Escrow Shares held in escrow on Reset Date
No. 1 equal to the number (taken as a positive number) of such Reset Shares (or
such lesser number of Escrow Shares then held) shall be released from escrow to
the Company.
(b) SUBSEQUENT RESET DATES. On each Reset Date after Reset Date No.
1, the following computation of Reset Shares shall be made:
[(1.0125 x C x P) / A] - C
where:
C = Common Shares Held on the Reset Date
P = Adjustment Price determined on the immediately preceding Reset Date
A = Adjustment Price on the Reset Date
If the number of Reset Shares so computed is positive, such number of Reset
Shares shall be issued and delivered by the Company to the Escrow Agent for
deposit in escrow to be held for the account of the Buyer. If the number of
Reset Shares so computed is negative, Escrow Shares held in escrow on such Reset
Date equal to the number (taken as a positive number) of such Reset Shares (or
such lesser number of Escrow Shares then held) shall be released from escrow to
the Company.
(c) RESET NOTICES. On each Reset Date or within three Trading Days
thereafter, the Buyer shall give a Reset Notice in the form attached hereto as
ANNEX V to the Company and the Escrow Agent. If the Buyer fails to give a Reset
Notice within three Trading Days after any Reset Date, the Company may so notify
the Buyer and the Escrow
-21-
Agent of such failure and, if the Buyer does not deliver such Reset Notice
within three Trading Days after receiving such notice of failure, the Company
may deliver such Reset Notice to the Buyer and the Escrow Agent.
(d) DELIVERY OF RESET SHARES TO THE ESCROW AGENT. (1) If the Reset
Notice states that Reset Shares are due to the Buyer, within three Trading Days
after such Reset Notice is given the Company shall issue and deliver
certificates representing such number of Reset Shares to the Escrow Agent for
deposit in escrow for the account of the Buyer. The number of Reset Shares to be
issued or released from escrow in connection with a particular Reset Date is,
absent manifest error, conclusively the number of Reset Shares stated in the
applicable Reset Notice. If in connection with a particular Reset Date the
Company determines that manifest error has been made by virtue of the
computation of Reset Shares or other information set forth in the applicable
Reset Notice, the Company shall have the right within two Trading Days after the
Buyer gives such Reset Notice to notify the Escrow Agent and the Buyer of such
error, which notice shall state the number of Reset Shares in dispute, and,
notwithstanding such notice from the Company, the Company shall issue and
deliver to the Escrow Agent the number of Reset Shares, or the Escrow Agent
shall release to the Company the number of Company Escrow Shares, not in dispute
as and when required by this Agreement and the Escrow Agreement. If the Company
shall have notified the Escrow Agent and the Buyer of any such manifest error,
and the Company and the Buyer do not agree as to a resolution of such manifest
error on or before the date of such notice by the Company of an error in such
Reset Notice, the Company shall on the date such notice is given submit the
dispute to the Auditors for determination and shall instruct the Auditors to
resolve such dispute and to notify the Company, the Escrow Agent and the Buyer
within two Trading Days after such dispute is submitted to the Auditors.
Immediately after receipt of timely notice of the Auditors' determination (but
in any event within four Trading Days after the applicable Reset Notice is given
to the Escrow Agent and the Company), the Company shall deliver to the Escrow
Agent for deposit in escrow for the account of the Buyer any additional Reset
Shares to which the Buyer is entitled based on the determination of the
Auditors. If the Auditors shall fail to notify the Escrow Agent and the Company
of their determination within four Trading Days after the applicable Reset
Notice is given to the Escrow Agent and the Company, then the Company shall,
within four Trading Days after receipt of the applicable Reset Notice, deliver
to the Escrow Agent for deposit in escrow for the account of the Buyer any
additional shares of Common Stock to which the Buyer is entitled based on the
applicable Reset Notice. Such immediate and prompt action shall be taken by all
the parties in order to assure that there shall be full compliance with the
Company's unqualified obligation that all Reset Shares issuable upon each Reset
Date be issued and delivered by the due dates therefor as provided herein.
-22-
(2) If the Reset Notice states that Reset Shares are due to the Buyer,
the Company's obligation to issue and deliver the certificates for Common Stock
representing the Reset Shares shall be absolute and unconditional, irrespective
of any action or inaction by the Buyer to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Company to the Buyer, or any
setoff, counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by the Buyer or any other Person of any obligation to the Company
or any violation or alleged violation of law by the Buyer or any other Person,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Buyer in connection with the issuance of Reset
Shares. If the Company fails to issue and deliver the certificates for the
Common Stock pursuant to this Section 4(d) as and when required to do so
following each Reset Date, in addition to any other liabilities the Company may
have hereunder and under applicable law (1) the Company shall pay or reimburse
the Buyer on demand for all reasonable out-of-pocket expenses including, without
limitation, fees and expenses of legal counsel incurred by the Buyer as a result
of such failure, and (2) the Adjustment Price used to determine the number of
Reset Shares due with respect to such Reset Date shall be reduced by two percent
from the Adjustment Price otherwise used to calculate such number of Reset
Shares for each Trading Day the Company fails to issue and deliver such
certificates and, accordingly, the Buyer shall be entitled to receive the
additional Reset Shares resulting from such reduced Adjustment Price. In lieu
of delivering physical certificates representing the Reset Shares, provided that
the Transfer Agent is participating in the DTC Fast Automated Securities
Transfer program, the Company shall cause the Transfer Agent to electronically
transmit such Reset Shares by crediting the account of the Escrow Agent or the
Escrow Agent's broker with the DTC through its Deposit Withdrawal Agent
Commission system. No fractional shares of Common Stock shall be issued as
Reset Shares but, in lieu of any fraction of a share of Common Stock that would
otherwise be issuable as a Reset Share, the Company shall pay the Buyer in cash
an amount equal to the product of (i) the Reset Price and (ii) such fraction of
a share.
(e) BUYER'S ASSIGNMENT OF RIGHTS TO ACQUIRE RESET SHARES. If a Buyer
intends to assign all or any portion of its rights to acquire any Reset Shares,
then the Buyer shall so notify the Company not less than five Trading Days
before any Reset Date. Each such notice of assignment by a Buyer shall specify
the name(s) of the assignee(s) and the rights to be assigned thereto. Each such
notice shall be executed by the assignee(s). From and after the giving of such
notice by such Buyer, the Buyer shall be deemed for all purposes to have
assigned to such assignee(s) the rights under this
-23-
Agreement with respect to the acquisition of the number of Reset Shares covered
by such notice, and such assignee(s) shall be deemed a party to this Agreement
with respect to the acquisition of such number of Reset Shares upon the terms
and subject to the conditions of this Agreement, and all applicable references
hereinafter to the "Buyer" shall include such assignee(s).
(f) DELIVERY OF RESET SHARES TO THE COMPANY. If the Reset Notice
states that Reset Shares are due to the Company, within six Trading Days after
such Reset Notice is given to the Escrow Agent, the Escrow Agent shall release
the applicable whole number of Company Escrow Shares to the Company by
delivering stock certificates therefor or by means of electronic transmission.
The Company's right to receive Reset Shares under this Agreement with respect to
each Reset Date shall be limited to the number of Escrow Shares, if any, held in
escrow by the Escrow Agent on such Reset Date.
5. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
(a) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Initial
Shares and acquiring the Warrants, and upon issuance and delivery of any
Optional Shares or Reset Shares to or for the account of the Buyer, will acquire
such Optional Shares, Reset Shares or Repurchase Shares, for its own account for
investment only and not with a view towards the public sale or distribution
thereof;
(b) ACCREDITED INVESTOR. The Buyer is an "accredited investor" as
that term is defined in Rule 501 of the General Rules and Regulations under the
1933 Act by reason of Rule 501(a)(3);
(c) REOFFERS AND RESALES. All subsequent offers and sales of the
Shares by the Buyer shall be made pursuant to registration of the Shares being
offered and sold under the 1933 Act or pursuant to an exemption from
registration;
(d) COMPANY RELIANCE. The Buyer understands that the Initial Shares
are being offered and sold, the Warrants are being issued, the Reset Shares, the
Warrant Shares and the Repurchase Shares are being offered, and the Optional
Shares may be offered and sold, in each case to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the
-24-
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Initial Shares, the
Warrants and to receive an offer of the Reset Shares, the Warrant Shares, the
Optional Shares and the Repurchase Shares;
(e) INFORMATION PROVIDED. The Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Initial Shares and the issuance of the Warrants and the offer of the Reset
Shares, the Warrant Shares, the Optional Shares and the Repurchase Shares which
have been requested by the Buyer; the Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
satisfactory answers to any such inquiries; without limiting the generality of
the foregoing, the Buyer has had the opportunity to obtain and to review SEC
Reports; and the Buyer understands that its investment in the Securities
involves a high degree of risk;
(f) ABSENCE OF APPROVALS. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities; and
(g) SUBSCRIPTION AGREEMENT. The Buyer has all requisite power and
authority, corporate or otherwise, to execute, deliver and perform its
obligations under this Agreement and the other agreements executed or to be
executed by the Buyer in connection herewith and to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
6. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with,
the Buyer that:
(a) ORGANIZATION AND AUTHORITY. Each of the Company and the
Subsidiary is a corporation duly organized and validly existing under the laws
of its jurisdiction of incorporation, and has all requisite corporate power and
authority to (i) own, lease and operate its properties and to carry on its
business as described in the SEC Reports and as now being conducted, and (ii) to
execute, deliver and perform its
-25-
obligations under this Agreement, the Warrants, the Registration Rights
Agreement, the Escrow Agreement and the other agreements to be executed and
delivered by the Company in connection herewith, and to consummate the
transactions contemplated hereby and thereby. Each of the Company and the
Subsidiary is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions wherein such qualification is necessary and
where failure so to qualify could have a material adverse effect on the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiary, taken as a whole. The
Company has no equity investment in any Person other than the Subsidiary. The
Subsidiary has no business operations and no material assets or liabilities.
(b) CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 29,000,000 shares of Common Stock of which 10,810,631 shares of
Common Stock were outstanding on October 27, 1998, all of which are fully paid
and nonassessable; and (b) 1,000,000 shares of Preferred Stock, $.01 par value,
of which 5,800 shares are designated as Series B Preferred Stock, of which 2,359
shares are outstanding on October 27, 1998; and on the Closing Date and on each
Option Closing Date (x) there will be no material increase from October 27, 1998
in the number of shares of Common Stock outstanding and (y) no issuances of
preferred stock will have occurred since October 27, 1998 other than shares of
Series B Preferred Stock issued as dividends on outstanding shares of Series B
Preferred Stock. As of October 27, 1998, the Company had outstanding options,
warrants and similar rights entitling the holders to purchase 3,079,156 shares
of Common Stock. Other than as set forth in the preceding sentence, the Company
does not have outstanding any material amount of securities (or obligations to
issue any such securities) convertible into, exchangeable for or otherwise
entitling the holders thereof to acquire shares of Common Stock, except as
disclosed in the SEC Reports. The Company has duly reserved from its authorized
and unissued shares of Common Stock the full number of shares required for (a)
all options, warrants, convertible securities and other rights to acquire shares
of Common Stock which are outstanding and (b) all shares of Common Stock and
options and other rights to acquire shares of Common Stock which may be issued
or granted under the stock option and similar plans which have been adopted by
the Company or the Subsidiary. Each outstanding class or series of securities,
if any, for which any antidilution or similar adjustment arising by reason of
the issuance of the Common Shares or the issuance or exercise of the Warrants is
identified in Section 6(b)-1 of the Company Disclosure Letter, together with the
amount of such antidilution adjustment. The outstanding shares of Common Stock
and outstanding options, warrants and other securities convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock have been duly authorized and validly issued. None of such
outstanding shares of Common Stock, options, warrants
-26-
and other securities has been issued in violation of the preemptive rights of
any securityholder of the Company. The offers and sales of the outstanding
shares of Common Stock and such options, warrants and other securities were at
all relevant times either registered under the 1933 Act and applicable state
securities laws or exempt from such requirements. No holder of any of the
Company's securities has any rights, "demand," "piggy-back" or otherwise, to
have such securities registered by reason of the intention to file, filing or
effectiveness of the Registration Statement.
(c) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have been
duly authorized. The Initial Shares and the Optional Shares, when issued and
paid for in accordance with this Agreement, the Reset Shares and the Repurchase
Shares when issued in accordance with this Agreement, and the Warrant Shares,
when issued upon exercise of the Warrants, as the case may be, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder. There are no
preemptive or similar rights of any shareholder of the Company or any other
Person to acquire any of the Securities. The Company has duly reserved 2,439,732
shares of Common Stock for issuance of the Initial Shares, the Optional Shares,
the Reset Shares and the Repurchase Shares and exercise of the Warrants, and
such shares shall remain so reserved. The Common Stock is listed for trading on
the Nasdaq SmallCap and, except as set forth in Section 6(c) of the Company
Disclosure Letter, (1) the Company and the Common Stock meet the criteria for
continued listing and trading on the Nasdaq SmallCap; (2) the Company has not
been notified since January 1, 1996 by the Nasdaq SmallCap of any failure or
potential failure to meet the criteria for continued listing and trading on the
Nasdaq SmallCap and (3) no suspension of trading in the Common Stock is in
effect. The Company knows of no reason that the Shares will not be eligible for
listing on the Nasdaq SmallCap.
(d) SUBSCRIPTION AGREEMENT; ESCROW AGREEMENT; REGISTRATION RIGHTS
AGREEMENT; WARRANTS. This Agreement, the Escrow Agreement, the Registration
Rights Agreement and the Warrants and the other agreements and instruments
contemplated hereby and thereby have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Escrow Agreement, the Registration Rights Agreement
and the Warrants and such other agreements, when executed and delivered by the
Company, will be, valid and binding obligations of the Company enforceable in
accordance with their respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally.
(e) NON-CONTRAVENTION. The execution and delivery by the Company
-27-
of this Agreement and the other documents contemplated by this Agreement and the
consummation by the Company of the issuance of the Shares and the Warrants as
contemplated by this Agreement, and the other transactions contemplated by this
Agreement, the Escrow Agreement, the Registration Rights Agreement and the
Warrants do not and will not, with or without the giving of notice or the lapse
of time, or both (i) result in any violation of any terms of the Articles of
Incorporation or by-laws of the Company or the Subsidiary, (ii) conflict with or
result in a breach by the Company or the Subsidiary of any of the terms or
provisions of, or constitute a default under, or result in the modification,
amendment, termination or cancellation of, result in the acceleration of any
obligation of the Company or the Subsidiary under, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or the Subsidiary pursuant to, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or the Subsidiary is a party or by which the Company or the Subsidiary
or any of their respective properties or assets is bound or affected, (iii)
violate or contravene any applicable law, rule or regulation or any applicable
decree, judgment or order of any court, United States federal or state
regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or the Subsidiary or any of their respective
properties or assets or (iv) have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company or the Subsidiary to own or lease and operate any of their
respective properties or to conduct any of their respective businesses or the
ability of the Company or the Subsidiary to make use thereof.
(f) APPROVALS. No authorization, approval or consent of, or filing
with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the shareholders of the Company is
required to be obtained or made by the Company for (1) the execution, delivery
and performance by the Company of this Agreement, the Escrow Agreement, the
Registration Rights Agreement, the Warrants and the other agreements and
instruments contemplated hereby and thereby, (2) the issuance and sale of the
Initial Shares and the Optional Shares and the issuance of the Reset Shares, the
Repurchase Shares and the Warrants as contemplated by this Agreement and (3) the
issuance of the Warrant Shares upon the exercise of the Warrants, other than (w)
the listing of the Shares on the Nasdaq SmallCap, (x) registration of the resale
of the Shares under the 1933 Act as contemplated by the Registration Rights
Agreement, (y) as may be required under applicable state securities or "blue
sky" laws and (z) filing of one or more Forms D with respect to the Shares as
required under Regulation D.
(g) INFORMATION PROVIDED. The information provided by or on behalf
-28-
of the Company to the Buyer in connection with the transactions contemplated by
this Agreement, including, without limitation, the information referred to in
Section 5(e) of this Agreement, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, it being understood that, for purposes of this Section 6(g), any
statement contained in such information shall be deemed to be modified or
superseded for purposes of this Section 6(g) to the extent that a statement in
any document included in such information which was prepared or filed with the
SEC on a later date modifies or replaces such statement, whether or not such
later prepared or filed statement so states. The Company has not filed any
reports with the SEC under the 1934 Act since December 31, 1997 other than the
SEC Reports.
(h) ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Reports, since December 31, 1997, there has been no material adverse change and
no material adverse development in the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company and the Subsidiary taken as a whole. Except as and to the extent
disclosed, reflected or reserved against in the financial statements of the
Company and the notes thereto included in the SEC Reports, neither the Company
nor the Subsidiary has any material (individually or in the aggregate)
liabilities, debts or obligations whether accrued, absolute, contingent or
otherwise, and whether due or to become due. Subsequent to December 31, 1997,
neither the Company nor the Subsidiary has incurred any liabilities, debts or
obligations of any nature whatsoever which are individually or in the aggregate
material to the Company and the Subsidiary, taken as a whole, other than those
incurred in the ordinary course of their respective businesses or disclosed in
the SEC Reports.
(i) ABSENCE OF CERTAIN PROCEEDINGS. Except as described in the SEC
Reports, there is no Action pending or, to the knowledge of the Company or the
Subsidiary, threatened against the Company or the Subsidiary, in any such case
wherein an unfavorable decision, ruling or finding would have a material adverse
effect on the business, properties, condition (financial or other), results of
operations or prospects of the Company and the Subsidiary, taken as a whole or
the transactions contemplated by this Agreement or any of the documents
contemplated hereby or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents; neither the
Company or any subsidiary nor any director or officer thereof is or has been the
subject of any Action involving (i) a claim of violation of or liability under
federal or state securities laws or (ii) a claim of breach of fiduciary duty;
the Company does not have pending before the SEC any request for confidential
treatment of information and to the best of the Company's
-29-
knowledge no such request will be made by the Company prior to the time the
Registration Statement relating to the Shares which is contemplated by the
Registration Rights Agreement is first ordered effective by the SEC; and there
has not been, and to the best of the Company's knowledge there is not pending or
contemplated, any investigation by the SEC involving the Company or any current
or former director or officer of the Company.
(j) PROPERTIES. The Company and the Subsidiary have good title to
all property real and personal (tangible and intangible) and other assets owned
by them, free and clear of all security interests, charges, mortgages, liens or
other encumbrances, except such as are described in the SEC Reports or such as
do not materially interfere with the use of such property made, or proposed to
be made, by the Company or the Subsidiary. The leases, licenses or other
contracts or instruments under which the Company and the Subsidiary lease, hold
or are entitled to use any property, real or personal, are valid, subsisting and
enforceable with only such exceptions as do not materially interfere with the
use of such property made, or proposed to be made, by the Company or the
Subsidiary. Neither the Company nor the Subsidiary has received notice of any
material violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties. The Company does not
have any knowledge of, and the Company has not given or received any notice of,
any pending conflicts with or infringement of the rights of others with respect
to any Company Proprietary Rights or with respect to any license of Company
Proprietary Rights. No action, suit, arbitration, or legal, administrative or
other proceeding or investigation is pending, or, to the best knowledge of the
Company, threatened, which involves any Company Proprietary Rights. Neither the
Company nor the Subsidiary is subject to any judgment, order, writ, injunction
or decree of any court or any federal, state, local, foreign or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any arbitrator, or has entered into or is a party to any
contract which restricts or impairs the use of any such Company Proprietary
Rights in a manner which would have a material adverse effect on the use by the
Company or the Subsidiary of any of the Company Proprietary Rights. To the best
knowledge of the
-30-
Company, no Company Proprietary Rights and no services or products sold by the
Company or the Subsidiary, conflict with or infringe upon any proprietary rights
available to any third party. Neither the Company nor the Subsidiary has
received written notice of any pending conflict with or infringement upon such
third-party proprietary rights. Neither the Company nor the Subsidiary has
entered into any consent, indemnification, forbearance to ▇▇▇ or settlement
agreement with respect to Company Proprietary Rights other than in the ordinary
course of business. No claims have been asserted by any Person with respect to
the validity of the Company's or the Subsidiary's ownership or right to use the
Company Proprietary Rights and, to the best knowledge of the Company, there is
no reasonable basis for any such claim to be successful. To the best knowledge
of the Company, the Company Proprietary Rights are valid and enforceable. No
registration relating to the Company Proprietary Rights has lapsed, expired or
been abandoned or canceled or is the subject of cancellation or other
adversarial proceedings, and all applications therefor are pending and are in
good standing, except for such lapses, expirations, abandonments, cancellations,
adversarial proceedings or failures to be in good standing which would not,
singly or in the aggregate, have a material adverse effect on the business,
properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company and the Subsidiary taken as a whole. The
Company and the Subsidiary have complied, in all material respects, with their
respective contractual obligations relating to the protection of the Company
Proprietary Rights used pursuant to licenses. To the best knowledge of the
Company, no Person is infringing on or violating the Company Proprietary Rights.
(k) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company or the Subsidiary, is imminent with respect to any of
the employees of the Company or the Subsidiary.
(l) SEC FILINGS. The Company has timely filed all required forms,
reports and other documents required to be filed with the SEC under the 1934
Act. All of such forms, reports and other documents complied, when filed, in all
material respects, with all applicable requirements of the 1933 Act and the 1934
Act.
(m) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or similar
Person is entitled to any commission, fee or other compensation by reason of the
transactions contemplated by this Agreement and the Company shall pay, and
indemnify and hold harmless the Buyer from, any claim made against the Buyer by
any Person for any such commission, fee or other compensation.
(n) NO SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
Person acting on behalf of the Company, in respect of or in connection with the
offer and sale of the Shares. Neither the Company nor, to its knowledge, any
Person acting on behalf of the Company has, either directly or indirectly, sold
or offered for sale to any Person any of the Shares or the Warrants or, within
the six months prior to the date hereof, any other similar security of the
Company except as contemplated by this Agreement; and neither the Company nor
any person authorized to act on its behalf will sell or offer for sale any
shares of Common Stock or Warrants, or solicit any offers to buy any shares of
Common Stock or Warrants, so as thereby to cause the issuance or sale of any of
the Shares or the issuance of the Warrants to be in violation of Section 5 of
the 1933 Act.
-31-
(o) CERTAIN ISSUANCES OF SECURITIES. Other than the Series B
Preferred Stock, the Company has not issued any shares of Common Stock or shares
of any series of preferred stock or other securities convertible into,
exchangeable for or otherwise entitling the holder to acquire shares of Common
Stock which are subject to the Shareholder Approval Rule and which could be
integrated with the sale of the Initial Shares or the Optional Shares to the
Buyer or the issuance of Reset Shares, Warrant Shares or Repurchase Shares to
the Buyer under any interpretation of the Shareholder Approval Rule.
(p) ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
7. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Company and the Buyer acknowledge and
agree that (1) the Warrants have not been and are not being registered under the
provisions of the 1933 Act and, except as provided in the Registration Rights
Agreement with respect to the resale of the Shares, the Shares have not been and
are not being registered for resale under the 1933 Act, and the Securities may
not be transferred unless (A) subsequently registered for resale thereunder or
(B) the Buyer shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; (2) any resale of the
Securities made in reliance on Rule 144 promulgated under the 1933 Act may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any such resale of Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other Person is under any
obligation to register the Securities (other than registration of the resale of
the Shares pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder (other than
pursuant to Section 7(d) hereof and pursuant to the Registration Rights
Agreement).
(b) RESTRICTIVE LEGEND.
(1) The Buyer acknowledges and agrees that the Warrants shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be
32
placed against transfer of the Warrants):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
(2) The Buyer further acknowledges and agrees that until such time as
the Shares have been registered for resale under the 1933 Act as contemplated by
the Registration Rights Agreement, the certificates for the Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for the Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
(3) Once the Registration Statement required to be filed by the
Company pursuant to Section 2 of the Registration Rights Agreement has been
declared effective, thereafter (1) upon request of the Buyer the Company will
substitute certificates without restrictive legend for certificates for any
Shares issued prior to the date such Registration Statement is declared
effective by the SEC which bear such restrictive legend and remove any stop-
transfer restriction relating thereto promptly, but in no event later than three
Trading Days after surrender of such certificates by the Buyer or the Escrow
Agent acting at the request of the Buyer and (2) the Company shall not place any
restrictive legend on certificates for any Shares issued or impose any stop-
transfer restriction thereon.
(c) ESCROW AGREEMENT; REGISTRATION RIGHTS AGREEMENT. On or before the
Closing Date, the parties hereto agree to enter into (i) the Escrow Agreement in
the form attached hereto as ANNEX II and (ii) the Registration Rights Agreement
in the form attached hereto as ANNEX III.
33
(d) FORM D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing. The Buyer agrees to cooperate with the Company
in connection with such filing and, upon request of the Company, to provide all
information relating to the Buyer reasonably required for such filing.
(e) AUTHORIZATION FOR TRADING; REPORTING STATUS. Within three Trading
Days after the Closing Date, the Company shall file a notification for listing
of additional shares with the Nasdaq SmallCap relating to the Shares and on or
prior to the Closing Date shall provide evidence of such filing to the Buyer. So
long as the Buyer beneficially owns any of the Shares or the Warrants, the
Company shall file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination.
(f) USE OF PROCEEDS. Neither the Company nor the Subsidiary owns or
has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System ("margin stock"). The proceeds of sale of the Initial Shares and the
Optional Shares will be used for general working capital purposes and in the
operation of the Company's business. None of such proceeds will be used,
directly or indirectly (1) to make any loan to or investment in any other Person
(other than financing the Company's subsidiaries in the ordinary course of
business) or (2) for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any margin stock or for the purpose of maintaining,
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any stock that is currently a margin stock or for any other purpose
which might constitute the transactions contemplated by this Agreement a
"purpose credit" within the meaning of such Regulation G. Neither the Company
nor any agent acting on its behalf has taken or will take any action which might
cause this Agreement or the transactions contemplated hereby to violate
Regulation G, Regulation T or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the 1934 Act, in each case as in effect
now or as the same may hereafter be in effect.
(g) BLUE SKY LAWS. On or before the Closing Date, the Company shall
take such action as and to the extent it shall be necessary or required to
qualify, or to obtain an exemption for, the Initial Shares and Optional Shares
for sale to the Buyer and the Warrants for issuance to the Buyer pursuant to
this Agreement, the Reset Shares and the Repurchase Shares for issuance to the
Buyer pursuant to this Agreement, and the
34
Warrant Shares for issuance to the Buyer on exercise of the Warrants under such
of the securities or "blue sky" laws of jurisdictions as shall be applicable to
the sale of the Initial Shares and Optional Shares and the issuance of the
Warrants pursuant to this Agreement, the issuance to the Buyer of the Reset
Shares and the Repurchase Shares pursuant to this Agreement, and the issuance to
the Buyer of Warrant Shares on exercise of the Warrants. The Company shall
furnish copies of all filings, applications, orders and grants or confirmations
of exemptions relating to such securities or "blue sky" laws on or prior to the
Closing Date.
(h) CERTAIN EXPENSES. Whether or not any closing occurs, the Company
shall pay or reimburse the Buyer for all reasonable expenses (including, without
limitation, legal fees and expenses of counsel to the Buyer) incurred by the
Buyer, not in excess of $20,000, in connection with this Agreement and the
transactions contemplated hereby. The Company shall pay on demand all expenses
incurred by the Buyer, including reasonable attorneys' fees and expenses, as a
consequence of, or in connection with (1) the negotiation, preparation or
execution of any amendment, modification or waiver of this Agreement, the Escrow
Agreement, the Registration Rights Agreement, the Warrants and the other
agreements and instruments contemplated hereby and thereby requested by the
Company, (2) any default or breach of any of the Company's obligations set forth
in any of such agreements or instruments and (3) the enforcement or
restructuring of any right of, including the collection of any payments due, the
Buyer under any of such agreements or instruments, including any action or
proceeding relating to such enforcement or any order, injunction or other
process seeking to restrain the Company from paying any amount due the Buyer, in
which the Buyer prevails. The Company shall pay all costs and expenses
associated with the performance of the Escrow Agreement, the fees and expenses
of the Escrow Agent, and the issuance and delivery of the Shares.
(i) CERTAIN ISSUANCES OF SECURITIES. (1) (A) Unless the Company
obtains the Shareholder Approval or a waiver thereof from the Nasdaq SmallCap,
the Company will not issue any shares of Common Stock or shares of any series of
preferred stock or other securities convertible into, exchangeable for, or
otherwise entitling the holder to acquire, shares of Common Stock which would be
subject to the requirements of the Shareholder Approval Rule and which would be
integrated with the sale of the Initial Shares or the Optional Shares or the
issuance of Reset Shares or the Repurchase Shares to the Buyer for purposes of
the Shareholder Approval Rule.
(B) In the event the Company is unable to issue (I) all Reset Shares
required to be issued to the Buyer with respect to any Reset Date or (II) all
Repurchase Shares required to be issued to the Buyer pursuant to Section 12(d),
by reason of the
35
restrictions set forth in the Shareholder Approval Rule, the Buyer shall be
entitled, at its option, by notice to the Company given within 90 days after
such Reset Date or the date on which such Repurchase Shares were otherwise
required to be issued, to require the Company to make a payment to the Buyer in
an amount equal to the product of (x) the number of Reset Shares otherwise
required to be issued to the Buyer on such Reset Date or the number of
Repurchase Shares otherwise required to be issued to the Buyer, as the case may
be, which the Company is unable to issue by reason of the Shareholder Approval
Rule and (y) the Share Limitation Repurchase Price. Promptly and in no event
later than three Business Days after the Company's receipt of such notice, the
Company shall make a cash payment in immediately available funds of the Share
Limitation Repurchase Price to or upon the order of the Buyer. The Company's
obligations to make payments pursuant to this Section 7(i)(1)(B) shall not limit
or otherwise affect its obligations to repurchase Shares pursuant to the other
provisions of this Agreement.
(C) Notwithstanding any other provision of this Agreement, if a Share
Limitation Event occurs by reason of events which are not solely within the
control of the Company, the Company shall have the right to give a Control
Notice to the Buyer at any time after such Share Limitation Event occurs and
prior to the earlier of (1) the date on which the Buyer's right (other than as
limited by this Section 7(i)(1)(C)) to receive a cash payment pursuant to
Section 7(i)(1)(B) by reason of the occurrence of such Share Limitation Event
expires and (2) the date on which the Company is obligated to make a payment to
the Buyer pursuant to Section 7(i)(1)(B). For purposes of this Section
7(i)(1)(C), a Share Limitation Event shall be deemed to have occurred by reason
of events which are not solely within the control of the Company if a
requirement of the Company to repurchase, or a right of the Buyer to require
repurchase of, Shares by reason thereof, or the requirement of the Company to
make a payment pursuant to Section 7(i)(1)(B), would result in the Company being
required to classify the Shares as redeemable common stock on a balance sheet of
the Company prepared in accordance with Generally Accepted Accounting
Principles. If the Company timely gives a Control Notice to the Buyer, then in
lieu of making the payment required by Section 7(i)(1)(B) pursuant to a notice
given by the Buyer by reason of such Share Limitation Event, on the next Reset
Date to occur the Adjustment Price shall be reduced to 80% of the amount such
Adjustment Price would otherwise be. On or after the date the Company gives
such Control Notice, upon notice from the Buyer, the Company promptly shall call
a special meeting of its shareholders, to be held not later than 60 days after
such notice is given, to seek the Shareholder Approval for the issuance of all
shares of Common Stock issuable in accordance with this Agreement without regard
to the Shareholder Approval Rule and shall use its best efforts to obtain the
Shareholder Approval. The Company shall prepare and file with the SEC within 20
days after such notice is given preliminary proxy materials which set forth a
proposal to seek
36
such Shareholder Approval. The Company shall provide the Buyer an opportunity to
consult with the Company regarding the content of such proxy materials insofar
as it relates to the Shareholder Approval by providing copies of such
preliminary proxy materials and any revised preliminary proxy materials to the
Buyer a reasonable period of time prior to their filing with the SEC. The
Company shall furnish to the Buyer a copy of its definitive proxy materials for
such special meeting and any amendments or supplements thereto promptly after
the same are mailed to shareholders or filed with the SEC. Upon the earlier of
(i) the failure to obtain the Shareholder Approval at the special meeting or
(ii) the failure to hold the special meeting within such 60-day period, the
Company shall so notify the Buyer and such of the following as shall be
specified by notice to the Company from the Buyer shall occur: (1) on the next
Reset Date to occur the Adjustment Price shall be reduced to 70% of the amount
such Adjustment Price would otherwise be and (2) the Company shall promptly file
applications and take all other actions necessary to (i) list the Common Stock
for trading and quotation on the OTC Bulletin Board or such other securities
market or exchange which will not restrict the number of shares of Common Stock
issuable under this Agreement and (ii) upon filing such applications, request
the immediate removal of the Common Stock from listing on the securities market
on which it is then listed which restricts the issuance of shares of Common
Stock under this Agreement without the Shareholder Approval.
(2) During the period from the date of this Agreement to the date on
which the Registration Statement shall have been effective with the SEC for 180
consecutive days, without the prior written consent of the Buyer, which shall
not be unreasonably withheld, the Company shall not offer, sell, contract to
sell or issue (or engage any Person to assist the Company in taking any such
action) any Specified Securities; provided, however, that nothing in this
Section 7(i) shall prohibit the Company from issuing securities (v) pursuant to
compensation plans for employees, directors, officers, advisers or consultants
of the Company and in accordance with the terms of such plans as in effect as of
the date of this Agreement, (w) upon exercise of conversion, exchange, purchase
or similar rights issued, granted or given by the Company and outstanding as of
the date of this Agreement and disclosed in the SEC Reports or this Agreement,
(x) pursuant to a public offering underwritten on a firm commitment basis
registered under the 1933 Act, (y) as part of a transaction involving a
strategic alliance, collaboration, joint venture, partnership or other similar
arrangement of the Company with another corporation, partnership or other
business entity which is engaged in a business similar to, complementary to or
related to the business of the Company, so long as in the case of this clause
(y) the Board of Directors by resolution duly adopted (and a copy of which shall
be furnished to the Buyer promptly after adoption) determines that such issuance
is fair to the holders of each class and series of capital stock of the Company
and
37
to the Buyer in respect of its equity interest in the Company that is
represented by the Shares and the Warrants or (z) through an investment banking
or brokerage firm which, in the reasonable judgment of the Buyer, is generally
regarded as being in the top two "tiers" of such firms determined on a national
basis or on the basis of such firms principally involved with the Company's
industry, including, without limitation, BancAmerica ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇; ▇▇▇▇▇▇
Brothers Inc.; NationsBanc ▇▇▇▇▇▇▇▇▇▇ Securities LLC; ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co;
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company, L.L.C.; Credit Suisse First Boston Corporation; ▇▇▇▇▇
▇▇▇▇▇▇ Inc.; Bear, ▇▇▇▇▇▇▇ & Co. Inc.; BT ▇▇▇▇ ▇▇▇▇▇ Co.; ▇▇▇ ▇▇▇▇▇▇ & Company;
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Inc.; Salomon Brothers Inc.; ▇.▇. ▇▇▇▇▇▇▇▇ & Co.; Pacific Crest
Securities Inc.; ▇▇▇▇ ▇▇▇▇▇▇▇▇; ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated; and ▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇ LLC.
(3) Subject to the restrictions in Section 7(i)(2), during the period
from the date of execution and delivery of this Agreement to the date which is
one year after the Closing Date, the Company shall not offer, sell, contract to
sell or issue (or engage any Person to assist the Company in taking any such
action) any Specified Securities without giving the Buyer the first right to
acquire the Specified Securities on the same terms as the Specified Securities
are to be offered to other investors. The Company shall give notice to the
Buyer of the detailed terms of the Specified Securities proposed to be issued
and, promptly after requested by the Buyer, such other information as requested
by the Buyer. The Buyer may, by notice to the Company, exercise such right of
first refusal at any time until the later of (x) ten Business Days after such
notice from the Company to the Buyer and (y) three Business Days after the
Company provides such additional information as shall have been requested by the
Buyer.
(j) CERTAIN TRADING RESTRICTIONS. The Buyer agrees that on the
Closing Date it will have no short position in the Common Stock. So long as the
Company is in compliance in all material respects with its obligations to the
Buyer under this Agreement, the Escrow Agreement and the Registration Rights
Agreement, the Buyer agrees that (1) from the Closing Date until the SEC
Effective Date, it will not sell or contract to sell any Equity Security of the
Company or engage in any short sales or other hedging transactions relating to
the Common Stock, (2) during the period from the SEC Effective Date to the date
on which the Buyer no longer owns any Common Shares, the Buyer shall not engage
in short sales or other hedging transactions relating to the Common Stock;
provided, however, that the Buyer may enter into and maintain such transactions
involving up to 125,000 shares of Common Stock at any one time so long as such
transactions are not entered into during any Measurement Period and (3) the
Buyer will not sell any shares of Common Stock during the five consecutive
Trading Days before each Reset Date.
(k) RESERVATION OF COMMON STOCK. The Company (and any successor
38
corporation) shall take all action necessary so that a number of shares of the
authorized but unissued Common Stock (or common stock in the case of any
successor corporation) sufficient to provide for the issuance of all Reset
Shares, Warrant Shares and Repurchase Shares issuable hereunder are at all times
reserved by the Company (or any successor corporation), free from preemptive
rights. If the Company shall issue any securities or make any change in its
capital structure which would change the number of shares of Common Stock
issuable as Reset Shares, Warrant Shares or Repurchase Shares as herein
provided, the Company shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for issuance of such
Shares on the new basis. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to permit the issuance of all
Reset Shares, Warrant Shares and Repurchase Shares issuable hereunder, the
Company promptly shall seek, and use its best efforts to obtain and complete,
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(l) CONSOLIDATION, MERGER, ETC. In case of any consolidation or
merger of the Company with any other corporation (other than a wholly-owned
subsidiary of the Company) in which the Company is not the surviving
corporation, or in case of any sale or transfer of all or substantially all of
the assets of the Company, or in the case of any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property, the Company shall make appropriate provision or cause
appropriate provision to be made so that each holder of Escrow Shares then
outstanding shall have the right thereafter to receive Reset Shares in the form
of the kind of shares of stock and other securities and property receivable upon
such consolidation, merger, sale, transfer, or share exchange by a holder of
shares of Common Stock immediately prior to the effective date of such
consolidation, merger, sale, transfer, or share exchange and on a basis which
preserves the economic benefits of the rights of the holders of Escrow Shares to
receive Reset Shares on a basis as nearly as practical as such rights exist
hereunder prior thereto. The Company shall not effect any such transaction
unless the provisions of this Section 7(l) have been complied with. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, or share exchanges.
(m) OVERDUE AMOUNTS. Whenever any amount which is due by the Company
to any holder of Shares pursuant to the terms of this Agreement, the
Registration Rights Agreement or the Warrants is not paid to such holder when
due, such amount shall bear interest at the rate of 14% per annum (or such other
rate as shall be the maximum rate allowable by applicable law) until paid in
full.
39
(n) OTHER. So long as any Shares are owned by the Buyer:
(1) Payment of Obligations. The Company will pay and discharge, and
----------------------
will cause each subsidiary of the Company to pay and discharge, when due all
their respective obligations and liabilities which are material to the Company
and its subsidiaries taken as a whole, including, without limitation, tax
liabilities, except where the same may be contested in good faith by appropriate
proceedings.
(2) Maintenance of Property; Insurance. (A) The Company will keep,
----------------------------------
and will cause each subsidiary of the Company to keep, all material property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted.
(B) The Company will maintain, and will cause each subsidiary of the
Company to maintain, with financially sound and responsible insurance companies,
insurance against loss or damage by fire or other casualty and such other
insurance, including but not limited to, product liability insurance, in such
amounts and covering such risks as is reasonably adequate for the conduct of
their businesses and the value of their properties.
(3) Conduct of Business and Maintenance of Existence. The Company
------------------------------------------------
will continue, and will cause each subsidiary of the Company to continue, to
engage in business of substantially the same general type as conducted by the
Company and its operating subsidiaries on the date of this Agreement, and will
preserve, renew and keep in full force and effect, and will cause each
subsidiary of the Company to preserve, renew and keep in full force and effect,
their respective corporate existence and their respective material rights,
privileges and franchises necessary or desirable in the normal conduct of
business.
(4) Compliance with Laws. The Company will comply, and will cause
--------------------
each subsidiary of the Company to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, decisions, orders and
requirements of governmental authorities and courts (including, without
limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company and its subsidiaries taken as a whole.
(5) Investment Company Act. The Company will not be or become an
----------------------
40
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended, or any successor provision.
(6) Transactions with Affiliates. The Company will not, and will
----------------------------
not permit any subsidiary of the Company, directly or indirectly, to pay any
funds to or for the account of, make any investment (whether by acquisition of
stock or indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any
indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of
any assets, tangible or intangible, to, or participate in, or effect any
transaction in connection with, any joint enterprise or other joint arrangement
with, any Affiliate of the Company, except, on terms to the Company or such
subsidiary no less favorable than terms that could be obtained by the Company or
such subsidiary from a Person that is not an Affiliate of the Company, as
determined in good faith by the Board of Directors.
(o) BEST EFFORTS. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Initial Shares set forth in Section 10 or 11, as the case
may be, of this Agreement on or before the Closing Date.
8. ESCROW SHARES.
Prior to the Closing Date, the Company and the Buyer will execute and
deliver the Escrow Agreement in the form attached hereto as ANNEX II. The
Escrow Agent shall receive into and release from escrow the Initial Shares, the
Optional Shares and the Reset Shares as provided in this Agreement and the
Escrow Agreement. Except for the Company Escrow Shares, the Buyer shall be the
sole beneficial owner of and shall have the sole right to vote the Escrow
Shares, and the escrow provisions of this Agreement shall not in any way limit
or affect the ownership or the right to dispose of such Escrow Shares by the
Buyer and shall not in any manner create any lien, pledge, charge, equity,
encumbrance, claim or right of the Company of any nature whatsoever in or with
respect to such Escrow Shares. At any time after the earlier of (i) the SEC
Effective Date or (ii) Reset Date No. 1 which is not during a Reset Period, the
Buyer shall have the sole and exclusive right to direct the Escrow Agent to
release to or upon the order of the Buyer any or all Escrow Shares which are not
Company Escrow Shares by delivering a Release Notice to the Escrow Agent.
Within three Trading Days following receipt of a Release Notice, the Escrow
Agent shall release the Escrow Shares covered by such Release Notice in
accordance with the Buyer's instructions stated therein. The certificates for
any Common Shares so released from escrow prior to the SEC Effective Date shall
bear the restrictive
41
legend specified in Section 7(b). Any remaining Escrow Shares which are not
Company Escrow Shares following the last Reset Date shall be promptly delivered
to or upon the order of the Buyer. Once properly released from escrow in
accordance with this Agreement, Escrow Shares may not be re-deposited into
escrow with the Escrow Agent or again be deemed Common Shares Held.
9. CLOSING DATE.
Subject to the satisfaction or waiver of the conditions set forth in
Sections 10 and 11, the Closing Date shall be 12:00 noon, Seattle, Washington
time, on or before the date which is three Business Days after the date of this
Agreement, or such other mutually agreed to time. The closing of such sale of
the Initial Shares shall occur on the Closing Date at the offices of Genesee
International, Inc., ▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇.
10. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell the
Initial Shares and issue the Warrants to the Buyer pursuant to this Agreement on
the Closing Date is conditioned upon the satisfaction of the following
conditions precedent on or before the Closing Date (any or all of which may be
waived by the Company in its sole discretion):
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
(b) Delivery by the Buyer to the Company of (i) good funds as payment
in full of an amount equal to the Cash Consideration for the Initial Shares and
(ii) certificates for shares of Series B Preferred Stock for cancellation
representing payment in full of the Stock Consideration for the Initial Shares,
in accordance with Section 2(b) hereof;
(c) The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date; and
(d) On the Closing Date, no legal action, suit or proceeding shall be
42
pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
11. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Initial Shares and acquire the Warrants from the Company pursuant to this
Agreement on the Closing Date is conditioned upon the satisfaction of the
following conditions precedent on or before the Closing Date (any or all of
which may be waived by the Buyer in its sole discretion):
(a) Delivery by the Company to the Escrow Agent of the certificates
for the Initial Shares for the account of the Buyer in accordance with this
Agreement;
(b) Delivery by the Company to the Buyer of the Warrants in accordance
with this Agreement;
(c) The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date and receipt by the Buyer of a certificate, dated the Closing
Date, of the Chief Executive Officer or the Chief Financial Officer of the
Company confirming such matters and such other matters as the Buyer may
reasonably request;
(d) The receipt by the Buyer of a certificate, dated the Closing Date,
of the Secretary of the Company certifying (1) the Articles of Incorporation and
By-Laws of the Company as in effect on the Closing Date, (2) all resolutions of
the Board of Directors (and committees thereof) of the Company relating to this
Agreement and the transactions contemplated hereby and (3) such other matters as
reasonably requested by the Buyer;
(e) The Escrow Agent shall have executed and delivered the Escrow
Agreement in the form attached hereto as ANNEX II;
(f) Receipt by the Buyer on the Closing Date of an opinion of ▇▇▇▇▇▇▇
▇▇▇▇▇ & ▇▇▇▇▇ LLP, counsel for the Company, dated the Closing Date, in form,
scope and substance reasonably satisfactory to the Buyer, to the effect set
forth in ANNEX IV attached hereto; and
-43-
(g) On the Closing Date, no legal action, suit or proceeding shall be
pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
12. REPURCHASE AT OPTION OF THE BUYER.
(a) REPURCHASE RIGHT. If a Repurchase Event occurs, then, in addition
to any other right or remedy of the Buyer, the Buyer shall have the right, at
the Buyer's option, to require the Company to repurchase all of the Buyer's
Shares (which for purposes of this Section 12 include any Reset Shares due to
the Buyer which have not been delivered to the Escrow Agent), or any portion
thereof, on the date that is three Business Days after the date the Buyer gives
the Company a Repurchase Notice with respect to such Repurchase Event at any
time while any of the Buyer's Shares are outstanding, at a price equal to the
Repurchase Price.
(b) NOTICES; METHOD OF EXERCISING OPTIONAL REPURCHASE RIGHTS, ETC.
(1) On or before the fifth Business Day after the occurrence of a Repurchase
Event, The Company shall give to the Buyer a notice of the occurrence of such
Repurchase Event and of the repurchase right set forth herein arising as a
result thereof. Such notice from the Company shall set forth:
(i) the date by which the optional repurchase right must be exercised,
and
(ii) a description of the procedure (set forth below) which the Buyer
must follow to exercise the Buyer's optional repurchase right.
No failure of the Company to give such notice or defect therein shall limit the
right of the Buyer to exercise the optional redemption right or affect the
validity of the proceedings for the repurchase of the Buyer's Shares.
(2) To exercise its optional repurchase right, the Buyer shall deliver
to the Company on or before the 30th day after the notice required by Section
12(b)(1) is given to the Buyer (or if no such notice has been given by the
Company to the Buyer, within 40 days after the Buyer first learns of such
Repurchase Event) a Repurchase Notice to the Company. A Repurchase Notice may
be revoked by the Buyer giving such Repurchase Notice by giving notice of such
revocation to the Company at any time prior to the time the
-44-
Company pays the Repurchase Price to the Buyer.
(3) If the Buyer shall have given a Repurchase Notice, on the date
which is three Business Days after the date such Repurchase Notice is given (or
such later date as the Buyer or the Escrow Agent, at the request of the Buyer,
surrenders the Buyer's certificates for the Shares redeemed) the Company shall
make payment in immediately available funds of the applicable Repurchase Price
to such account as specified by the Buyer in writing to the Company at least one
Business Day prior to the applicable Repurchase Date.
(c) OTHER. (1) In connection with a repurchase pursuant to this
Section 12 of less than all of the Shares evidenced by a particular certificate,
promptly, but in no event later than three Business Days after surrender of such
certificate to the Company, the Company shall issue and deliver to the Buyer a
replacement certificate for the Shares evidenced by such certificate which have
not been repurchased.
(2) A Repurchase Notice given by the Buyer shall be deemed for all
purposes to be in proper form unless the Company notifies the Buyer in writing
within three Business Days after such Repurchase Notice has been given (which
notice shall specify all defects in such Repurchase Notice), and any Repurchase
Notice containing any such defect shall nonetheless be effective on the date
given if the Buyer promptly undertakes to correct all such defects. No such
claim of error shall limit or delay performance of the Company's obligation to
repurchase all Shares not in dispute whether or not the Buyer makes such
undertaking.
(d) SPECIAL REPURCHASE EVENTS. Notwithstanding any other provision of
this Agreement, if a Repurchase Event occurs by reason of the occurrence of (x)
an event described in clause (1), (2), (3) or (5) of the definition of the term
Repurchase Event or (y) an Amendment Event, and such occurrence is by reason of
events which are not solely within the control of the Company, the Company shall
have the right to give a Control Notice to the Buyer at any time after such
Repurchase Event occurs and prior to the earlier of (1) the date on which the
Buyer's right (other than as limited by this Section 12(d)) to require
repurchase of its Shares by reason of the occurrence of such Repurchase Event
expires and (2) the applicable Repurchase Date by reason of the Repurchase
Notice given by the Buyer by reason of such Repurchase Event. If the Company
timely gives such Control Notice to the Buyer, then, in lieu of payment of the
Repurchase Price by reason of any such Repurchase Event, on or before the third
Business Day of each calendar month after the occurrence and during the
continuance of such Repurchase Event, the Company shall issue and deliver to the
Buyer a number of shares of Common Stock equal to the
-45-
Repurchase Share Amount for the immediately preceding calendar month. The
Repurchase Share Amount shall be prorated for any partial month in which such
Repurchase Event continues.
For purposes of this Section 12(d), a Repurchase Event described in
clause (1), (2), (3) or (5) of the definition of the term Repurchase Event or an
Amendment Event shall be deemed to have occurred by reason of events which are
not solely within the control of the Company if a requirement of the Company to
repurchase, or a right of the Buyer to require repurchase of, Shares by reason
thereof would result in the Company being required to classify the Shares as
redeemable common stock on a balance sheet of the Company prepared in accordance
with Generally Accepted Accounting Principles, and, in the case of an Repurchase
Event described in clause (5) of the definition of the term Repurchase Event,
the Board or the shareholders of the Company do not have the right to approve or
disapprove the transactions resulting in such event.
13. REPURCHASE AT OPTION OF THE COMPANY.
If (i) the Company shall be in compliance in all material respects
with its obligations to the Buyer (including, without limitation, its
obligations under this Agreement, the Escrow Agreement and the Registration
Rights Agreement), (ii) on the date the Company Repurchase Notice is given and
at all times until the Repurchase Date, the Registration Statement is effective
and available for use by the Buyer for the resale of its Shares and (iii) no
Repurchase Event shall have occurred with respect to which, on the date a
Company Repurchase Notice is to be given or on the Redemption Date, the Buyer
(A) shall be entitled to exercise optional repurchase rights under Section 12 by
reason of such Repurchase Event or (B) shall have exercised optional repurchase
rights under Section 12 by reason of such Repurchase Event and the Company shall
not have paid the Repurchase Price to the Buyer, then the Company shall have the
right, exercisable by giving a Company Repurchase Notice not less than 30
Trading Days or more than 60 Trading Days prior to the Repurchase Date to the
Buyer, at any time to repurchase all or from time to time to repurchase any part
of the Escrow Shares in accordance with this Section 13. On the Repurchase Date
(or such later date as the Escrow Agent, at the request of the Buyer, surrenders
to the Company the certificate(s) for the Escrow Shares to be repurchased
pursuant to this Section 13), the Company shall make payment of the applicable
Company Repurchase Price to the Buyer in immediately available funds to such
account as specified by the Buyer in writing to the Company at least one
Business Day prior to the Repurchase Date. The Buyer may remove from escrow in
accordance with Section 8 any Escrow Shares to be repurchased pursuant to this
Section 13 (1) through the day prior to the Repurchase Date and (2) if the
Company shall fail to pay the Company
-46-
Repurchase Price of any Escrow Shares when due, at any time after the due date
thereof until such date as the Company pays the Company Repurchase Price of such
Escrow Shares. No Escrow Shares which the Buyer removes from escrow pursuant to
Section 8 or exercises the optional repurchase right pursuant to Section 12 may
be repurchased by the Company pursuant to this Section 13 on or after the date
of exercise of such removal right or optional repurchase right, as the case may
be, regardless of whether the Company Repurchase Notice shall have been given
prior to, or on or after, the date of exercise of such removal right or optional
redemption right, as the case may be.
14. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Washington.
(b) COUNTERPARTS. This Agreement may be executed in counterparts and
by the parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A facsimile transmission of this
Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party. Although this Agreement is dated as of the date first set
forth above, the actual date of execution and delivery of this Agreement by each
party is the date set forth below such party's signature on the signature page
hereof. Any reference in this Agreement or in any of the documents executed and
delivered by the parties hereto in connection herewith to (1) the date of
execution and delivery of this Agreement by the Buyer shall be deemed a
reference to the date set forth below the Buyer's signature on the signature
page hereof, (2) the date of execution and delivery of this Agreement by the
Company shall be deemed a reference to the date set forth below the Company's
signature on the signature page hereof and (3) the date of execution and
delivery of this Agreement or the date of execution and delivery of this
Agreement by the Buyer and the Company shall be deemed a reference to the later
of the dates set forth below the signatures of the parties on the signature page
hereof.
(c) HEADINGS, ETC. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
-47-
(e) AMENDMENTS. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No course of dealing between the parties hereto shall operate
as an amendment of this Agreement.
(f) WAIVERS. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
exercise of any other right or power.
(g) NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be delivered personally (which shall include
telephone line facsimile transmission with answer back confirmation) or by
courier and shall be effective upon receipt, if delivered personally or by
courier, in the case of the Company addressed to the Company at its address
shown in the introductory paragraph of this Agreement, Attention: Chief
Financial Officer (telephone line facsimile transmission number (▇▇▇) ▇▇▇-▇▇▇▇),
or, in the case of the Buyer, at its address or telephone line facsimile
transmission number shown on the signature page of this Agreement, with a copy
to Genesee International, Inc., ▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (telephone line facsimile transmission number (425) 462-
4645) or such other address or telephone line facsimile transmission number as a
party shall have provided by notice to the other party in accordance with this
provision.
(h) ASSIGNMENT. Prior to the Closing Date, the Buyer shall have the
right to assign its rights and obligations under this Agreement with respect to
the purchase of all or any portion of the Initial Shares or the Optional Shares
and the issuance of the Warrants to any affiliate of the Buyer, provided any
such assignee, by written instrument duly executed by such assignee, assumes all
obligations of the Buyer hereunder with respect to the purchase of the portion
of the Initial Shares or the Optional Shares or the acquisition of the Warrants
so assigned and makes the same representations and warranties with respect
thereto as the Buyer makes in this Agreement, whereupon the Buyer shall be
relieved of any further obligations, responsibilities and liabilities with
respect to the purchase of all or the portion of the Initial Shares or the
Optional Shares and acquisition of the Warrants the obligation for the purchase
or acquisition of which has been so assigned. In the case of any such
assignment, the Company shall agree in writing with
-48-
such assignee to make available to such assignee the benefits of the
Registration Rights Agreement with respect to the Initial Shares, the Optional
Shares and the other Shares issuable in connection with this Agreement and the
Warrants with respect to which the purchase under this Agreement has been so
assigned. Any transfer of the Shares or the Warrants by the Buyer after the
Closing Date shall be made in accordance with Section 7(a). After the Closing
Date, the Buyer shall have the right to assign its rights and obligations under
this Agreement (1) in connection with any transfer of the Buyer's rights under
the Registration Rights Agreement by compliance with the provisions of Section 9
of the Registration Rights Agreement and (2) as provided in Section 3(b).
(i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations, warranties, covenants and agreements of the Buyer and the
Company contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall survive the delivery of payment
for the Initial Shares and any Optional Shares and shall remain in full force
and effect regardless of any investigation made by or on behalf of them or any
Person controlling or advising any of them.
(j) ENTIRE AGREEMENT. This Agreement and its Annexes set forth the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, whether written or
oral, with respect thereto.
(k) TERMINATION. The Buyer shall have the right to terminate this
Agreement by giving notice to the Company at any time at or prior to the Closing
Date if:
(1) the Company shall have failed, refused, or been unable at or prior
to the date of such termination of this Agreement to perform any of its
obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder is not
fulfilled; or
(3) the closing of the sale of the Initial Shares shall not have
occurred on a Closing Date on or before November 6, 1998, other than solely
by reason of a breach of this Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer shall have no further obligation to the
Company
-49-
hereunder and the Company shall remain liable for any breach of this Agreement
or the other documents contemplated hereby which occurred on or prior to the
date of such termination.
(l) FURTHER ASSURANCES. Each party to this Agreement will perform any
and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
(m) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and the Buyer
shall have the right to approve before issuance any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law and regulations
(although the Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release and shall be
provided with a copy thereof).
(n) CONSTRUCTION. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
-50-
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer and
the Company by their respective officers or other representatives thereunto duly
authorized on the respective dates set forth below.
ADVANTAGE FUND II LTD.
By:
▇.▇. ▇▇▇▇▇
President
Date:
Address: c\o ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Fasimile No.: 011-599-9732-2008
ONHEALTH NETWORK COMPANY
BY:
Name:
Title:
Date:
-51-