NOTE PURCHASE AGREEMENT
dated as of June 19, 2001
by and among
VERTEX INTERACTIVE, INC.
and
MIDMARK CAPITAL II, L.P.
TABLE OF CONTENTS
Page
No.
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ARTICLE I NOTE PURCHASE..........................................................................................1
1.01 Purchase........................................................................................1
1.02 Closing.........................................................................................1
1.03 Restrictive Legend..............................................................................1
1.04 Opinion of Counsel..............................................................................2
1.05 Use of Proceeds.................................................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................................2
2.01 Organization and Qualification..................................................................2
2.02 Authority.......................................................................................2
2.03 Capital Stock...................................................................................3
2.04 No Conflicts; Approvals and Consents............................................................4
2.05 Governmental Approvals and Filings..............................................................4
2.06 SEC Reports and Financial Statements............................................................5
2.07 Absence of Certain Changes or Events............................................................5
2.08 Legal Proceedings...............................................................................5
2.09 Compliance with Laws and Orders.................................................................6
2.10 Compliance with Agreements; Certain Agreements..................................................6
2.11 Affiliate Transactions..........................................................................7
2.12 No Disclosure of Material Non-public Information................................................7
2.13 Brokers.........................................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................................................7
3.01 Organization....................................................................................7
3.02 Authority.......................................................................................7
3.03 No Conflicts; Approvals and Consents............................................................7
3.04 Legal Proceedings...............................................................................8
3.05 Purchase of Shares Upon Conversion of the Note..................................................8
3.06 Brokers.........................................................................................9
ARTICLE IV DEFINITIONS............................................................................................9
4.01 Definitions.....................................................................................9
ARTICLE V MISCELLANEOUS..........................................................................................12
5.01 Survival of Representations, Warranties, Covenants and Agreements..............................12
5.02 Notices........................................................................................12
5.03 Entire Agreement...............................................................................13
5.04 Expenses.......................................................................................13
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No.
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5.05 Public Announcements...........................................................................13
5.06 Confidentiality................................................................................13
5.07 Waiver.........................................................................................14
5.08 Amendment......................................................................................14
5.09 No Third Party Beneficiary.....................................................................14
5.10 No Assignment; Binding Effect..................................................................14
5.11 Headings.......................................................................................14
5.12 Invalid Provisions.............................................................................15
5.13 Governing Law..................................................................................15
5.14 Arbitration....................................................................................15
5.15 Counterparts...................................................................................15
ARTICLE VI COVENANTS.............................................................................................15
6.01 Meetings with Management.......................................................................15
6.02 Management Reports.............................................................................16
6.03 Group Management Structure.....................................................................16
6.04 Management Fees................................................................................16
6.05 Right to Attend Quarterly Management Meetings..................................................16
6.06 Shareholder Approval...........................................................................16
Exhibit A Form of Note
Exhibit B Legal Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇, P.C.
ii
This NOTE PURCHASE AGREEMENT, dated as of June 19, 2001, is
made and entered into by and between VERTEX INTERACTIVE, INC., a New Jersey
corporation (the "Company"), and Midmark Capital II, L.P. ( the "Purchaser").
Capitalized terms not otherwise defined herein have the meanings set forth in
Section 4.01.
WHEREAS, the Purchaser desires to lend $5,000,000.00 to the
Company and the Company desires to issue to the Purchaser a promissory note
substantially in the form of Note attached hereto as Exhibit A (the "Note") and
convertible into 3,478,260 shares (the "Shares") of common stock, par value
$.005 per share of the Company (the "Common Stock") upon the Company obtaining
the requisite shareholder approval for the issuance of such Shares;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
NOTE PURCHASE
1.01 Purchase. The Purchaser hereby agrees to lend
$5,000,000.00 to the Company and the Company hereby agrees to issue to Purchaser
the Note on the Closing Date, on the terms and subject to the conditions set
forth in this Agreement.
1.02 Closing. The Closing is taking place concurrently with
the execution and delivery of this Agreement at the offices of Milbank, Tweed,
▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, One Chase Manhattan Plaza, New York, New York, at 10:00
A.M. local time, on June 19 , 2001 (the "Closing Date"). At the Closing,
Purchaser will wire transfer $5,000,000.00 of immediately available funds to
such account as the Company may reasonably direct by written notice delivered to
Purchaser by the Company before the Closing Date. Simultaneously, the Company
will issue to Purchaser the Note.
1.03 Restrictive Legend. Each certificate evidencing the
Shares issued in accordance with the terms of the Note will bear a legend in the
following terms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE OR FOREIGN SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL, STATE AND FOREIGN SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM."
All of the restrictions imposed by this Section 1.03 upon the transferability of
the Shares shall cease and terminate as to any particular Share when such Share
shall have been effectively registered under the Securities Act and applicable
state securities laws and sold by the holder thereof in accordance with such
registration or sold under and pursuant to Rule 144 or is eligible
to be sold under and pursuant to paragraph (k) of Rule 144. Whenever the
restrictions imposed by this Section 1.03 shall terminate as to any Share as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, without expense, a new certificate evidencing such Share not bearing
the restrictive legend otherwise required to be borne by a certificate
evidencing such Share; provided that the Company may require an opinion of
counsel reasonably satisfactory to it to the effect that no legend is required
under the Securities Act and applicable state securities laws or foreign
securities laws.
1.04 Opinion of Counsel. The Purchaser shall receive an
opinion, in the form attached hereto as Exhibit B, from the Law Offices of
▇▇▇▇▇▇▇ ▇▇▇▇▇, P.C., counsel to the Company, dated as of the Closing Date.
1.05 Use of Proceeds. The Company shall use the funds received
from the issuance of the Note for working capital purposes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser on the
date hereof as follows:
2.01 Organization and Qualification. Each of the Company and
its Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the Laws of its jurisdiction of incorporation, and has all
requisite corporate power and authority to conduct its business as and to the
extent now conducted and to own, use and lease its Assets and Properties, except
for such failures to be in good standing or to have such power and authority
which, individually or in the aggregate, are not having and could not be
reasonably expected to have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole. Each of the Company and its Subsidiaries is duly
qualified, licensed or admitted to do business and is in good standing in each
jurisdiction in which the ownership, use or leasing of its Assets and
Properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for such failures to be so qualified,
licensed or admitted and in good standing which, individually or in the
aggregate, are not having and could not be reasonably expected to have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
Except for interests in the Subsidiaries of the Company as disclosed on Schedule
21 of the Company's Annual Report on Form 10-K filed with the SEC on December
19, 2000 or Section 2.01 of the Company Disclosure Schedule, the Company does
not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
2.02 Authority. The Company has the requisite corporate power
and authority to execute and deliver this Agreement, the Registration Rights
Agreement and the Note and to
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perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Company of this Agreement, the Registration Rights Agreement
and the Note and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly and validly approved by the Board
of Directors of the Company. No other corporate proceedings on the part of the
Company or its stockholders are necessary to authorize the execution, delivery
and performance by the Company of this Agreement, the Registration Rights
Agreement and the Note and the consummation by the Company of the transactions
contemplated hereby and thereby. This Agreement, the Registration Rights
Agreement and the Note have been duly and validly executed and delivered by the
Company and constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar Laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at Law). The Shares, when issued in
accordance with the Note, will be duly authorized, validly issued, fully paid
and non-assessable. The Company has reserved for issuance out of its authorized
but unissued shares the number of shares of Common Stock issuable pursuant to
the Note.
2.03 Capital Stock. (a) The authorized capital stock of the
Company consists solely of 75,000,000 shares of Common Stock and 2,000,000
shares of Preferred Stock, par value $.005 per share ("Preferred Stock"). As of
June 11, 2001, 34,056,375 shares of Common Stock were issued and outstanding, of
which 10,000 shares were held in the treasury of the Company and 8,822,146
shares were reserved for issuance of outstanding stock options and warrants. As
of the date hereof, 1,356,852 shares of Preferred Stock are issued and
outstanding. Except for the exercise of options in the ordinary course, since
June 11, 2001, there has been no change in the number of issued and outstanding
shares of Common Stock or shares of Common Stock held in treasury. All of the
issued and outstanding shares of Common Stock and all shares of Common Stock
reserved for issuance will be, upon issuance in accordance with the terms
specified in the instruments or agreements pursuant to which they are issuable,
duly authorized, validly issued, fully paid and nonassessable. Except pursuant
to this Agreement or in the Company SEC Reports filed prior to the date of this
Agreement, there are no outstanding subscriptions, options, warrants, rights
(including "phantom" stock rights), preemptive rights or other contracts,
commitments, understandings or arrangements, including any right of conversion
or exchange under any outstanding security, instrument or agreement (together,
"Options"), obligating the Company or any of its Subsidiaries to issue or sell
any shares of capital stock of the Company or of any Subsidiary or to grant,
extend or enter into any Option with respect thereto.
(b) Except as disclosed in Section 2.03(b) of the Company
Disclosure Schedule, all of the outstanding shares of capital stock of each
Subsidiary of the Company are duly authorized, validly issued, fully paid and
nonassessable and are owned, beneficially and of record, by the Company or a
Subsidiary wholly owned, directly or indirectly, by the Company, free and clear
of any Liens. Except as disclosed in Section 2.03(b) of the Company Disclosure
Schedule, there are no (i) outstanding Options obligating the Company or any of
its Subsidiaries to issue or sell any shares of capital stock of any Subsidiary
of the Company or to grant, extend or enter into any such Option or (ii) voting
trusts, proxies or other commitments, understandings,
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restrictions or arrangements in favor of any person other than the Company or a
Subsidiary wholly owned, directly or indirectly, by the Company with respect to
the voting of or the right to participate in dividends or other earnings on any
capital stock of any Subsidiary of the Company.
(c) Except as disclosed in Section 2.03(c) of the Company
Disclosure Schedule, there are no outstanding contractual obligations of the
Company or any Subsidiary of the Company to repurchase, redeem or otherwise
acquire any shares of Common Stock or any capital stock of any Subsidiary of the
Company or to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any Subsidiary of the Company or any
other person.
2.04 No Conflicts; Approvals and Consents. The execution and
delivery by the Company of this Agreement, the Registration Rights Agreement and
the Note, and the performance by the Company of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and
thereby will not:
(a) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate of incorporation or
by-laws (or other comparable corporate charter document) of the Company;
(b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in Section 2.04(b)of the
Company Disclosure Schedule, conflict with or result in a violation or breach of
any terms or provision of any Law or Order applicable to the Company or its
Assets and Properties; or
(c) except as disclosed in Section 2.04(c) of the Company
Disclosure Schedule, (i) conflict with or result in a violation or breach of,
(ii) constitute (with or without notice or lapse of time or both) a default
under, (iii) require the Company to obtain any consent, approval or action of,
make any filing with or give any notice to any Person as a result or under the
terms of, or (iv) result in the creation or imposition of any Lien upon the
Company or any of its Assets or Properties under, any contract or License to
which the Company is a party or by which any of its Assets and Properties is
bound.
2.05 Governmental Approvals and Filings. Except as disclosed
in Section 2.05 of the Company Disclosure Schedule, no consent, approval or
action of, filing with or notice to any Governmental or Regulatory Authority or
other public or private third party is necessary or required under any of the
terms, conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any contract to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
any of their respective Assets or Properties is bound for the execution and
delivery of this Agreement or the Registration Rights Agreement or the Note by
the Company, the performance by the Company of its obligations hereunder or
thereunder or the consummation of the transactions contemplated hereby or
thereby, other than such consents, approvals, actions, filings and notices which
the failure to make or obtain, as the case may be, individually or in the
aggregate, could not be reasonably expected to have a Material Adverse Effect on
the Company and its Subsidiaries taken as a whole or on the ability of the
Company to consummate the transactions contemplated hereby.
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2.06 SEC Reports and Financial Statements. The Company has
delivered to the Purchaser, prior to the execution of this Agreement a true and
complete copy of each form, report, schedule, registration statement, definitive
proxy statement and other document (together with all amendments thereof and
supplements thereto) filed by the Company or any of its Subsidiaries with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act") since December 31, 1998 (as such
documents have since the time of their filing been amended or supplemented, the
"Company SEC Reports"), which are all the documents (other than preliminary
material) that the Company and its Subsidiaries were required to file with the
SEC since such date. As of their respective dates, the Company SEC Reports (i)
complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited interim
consolidated financial statements (including, in each case, the notes, if any,
thereto) included in the Company SEC Reports (the "Company Financial
Statements") complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with GAAP, except as may be indicated therein or in the notes thereto
and except with respect to unaudited statements as permitted by Form 10-Q of the
SEC, and, as of the respective dates thereof, fairly presented (subject, in the
case of the unaudited interim financial statements, to year-end audit
adjustments) the consolidated financial position of the Company and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended. Except for the filing of a report on Form 8-K with respect
to the Company's December 29, 2000 acquisition of Applied Tactical Systems,
Inc., the Company has timely filed all required reports under the Exchange Act
during the past 12 months.
2.07 Absence of Certain Changes or Events. Except as disclosed
in the Company SEC Reports filed prior to the date of this Agreement (a) since
September 30, 2000 there has not been any change, event or development having,
or that could be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company and its Subsidiaries taken as a whole,
and (b) between September 30, 2000 and the date hereof the Company and its
Subsidiaries have conducted their respective businesses only in the ordinary
course consistent with past practice.
2.08 Legal Proceedings. Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement or in Section 2.08 of the
Company Disclosure Schedule, (i) there are no Actions or Proceedings pending or,
to the Knowledge of the Company, threatened against, relating to or affecting,
nor to the Knowledge of the Company are there any Governmental or Regulatory
Authority investigations or audits pending or threatened against, relating to or
affecting, the Company or any of its Subsidiaries or any of their respective
Assets and Properties which, individually or in the aggregate, could be
reasonably expected to have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole or on the ability of the Company to consummate the
transactions contemplated by this Agreement, the Registration Rights Agreement
or the Note, and (ii) neither the Company nor any of its
5
Subsidiaries is subject to any continuing Order of any Governmental or
Regulatory Authority which, individually or in the aggregate, could be
reasonably expected to have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole or on the ability of the Company to consummate the
transactions contemplated by this Agreement, the Registration Rights Agreement
or the Note.
2.09 Compliance with Laws and Orders. The Company and its
Subsidiaries hold all Licenses for the lawful conduct of their respective
businesses, except for failures to hold such Licenses which, individually or in
the aggregate, are not having and could not be reasonably expected to have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
The Company and its Subsidiaries are in compliance with the terms of such
Licenses, except failures so to comply which, individually or in the aggregate,
are not having and could not be reasonably expected to have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole. Except as disclosed
in the Company SEC Reports filed prior to the date of this Agreement, the
Company and its Subsidiaries are not in violation of or default under any Law or
Order of any Governmental or Regulatory Authority, except for such violations or
defaults which, individually or in the aggregate, are not having and could not
be reasonably expected to have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole.
2.10 Compliance with Agreements; Certain Agreements. (a)
Except as disclosed in the Company SEC Reports filed prior to the date of this
Agreement or Section 2.10(a) of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Company, any
other party thereto is in breach or violation of, or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with notice or lapse of time or both, could be reasonably expected to
result in a default under, (i) the certificate of incorporation or bylaws (or
other comparable charter documents) of the Company or any of its Subsidiaries or
(ii) any contract to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries or any of their respective
assets or properties is bound, except in the case of clause (ii) for breaches,
violations and defaults which, individually or in the aggregate, are not having
and could not be reasonably expected to have a Material Adverse Effect on the
Company and its Subsidiaries taken as a whole.
(b) Except as disclosed in Section 2.10(b) of the Company
Disclosure Schedule or in the Company SEC Reports filed prior to the date of
this Agreement or as provided for in this Agreement, as of the date hereof,
neither the Company nor any of its Subsidiaries is a party to any oral or
written (i) consulting agreement not terminable on thirty (30) days' or less
notice, (ii) union or collective bargaining agreement, (iii) agreement with any
executive officer or other key employee of the Company or any of its
Subsidiaries the benefits of which are contingent or vest, or the terms of which
are materially altered, upon the occurrence of a transaction involving the
Company or any of its Subsidiaries of the nature contemplated by this Agreement,
(iv) agreement with respect to any executive officer or other key employee of
the Company or any of its Subsidiaries providing any term of employment or
compensation guarantee, or (v) agreement or plan, including any stock option,
stock appreciation right, restricted stock or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or
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the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement.
2.11 Affiliate Transactions. Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement or in Section 2.11
of the Company Disclosure Schedule, no officer, director or shareholder of the
Company has any interest (other than as a shareholder of the Company) in any
property, real or personal, tangible or intangible, including without limitation
intellectual property, used in or pertaining to the business of the Company.
2.12 No Disclosure of Material Non-public Information. None of
the representations or warranties contained herein include any material
non-public information regarding the Company, nor has any such information been
provided to Purchaser or its representatives in any other written or oral
communication by the Company.
2.13 Brokers. All negotiations relative to this Agreement and
the Note and the transactions contemplated hereby and thereby have been carried
out by the Company directly with the Purchaser without the intervention of any
Person on behalf of the Company in such manner as to give rise to any valid
claim by any Person against the Purchaser for a finder's fee, brokerage
commission or similar payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company as
follows:
3.01 Organization. Purchaser is duly organized, validly
existing and in good standing under the Laws of its jurisdiction of its
organization. Purchaser has the requisite power and authority to execute and
deliver this Agreement and the Note, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
3.02 Authority. The execution, delivery and performance by
Purchaser of this Agreement and the Note, and the consummation by Purchaser of
the transactions contemplated hereby and thereby, have been duly and validly
approved by Purchaser, no other action on the part of Purchaser or its
equityholders being necessary for Purchaser to execute, deliver and perform its
obligations hereunder or thereunder. This Agreement and the Note have been duly
and validly executed and delivered by Purchaser and constitute legal, valid and
binding obligations of Purchaser enforceable against Purchaser in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar Laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at Law).
3.03 No Conflicts; Approvals and Consents. (a) The execution
and delivery of this Agreement and the Note by Purchaser do not, and the
performance by Purchaser of its
7
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby will not:
(i) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate of incorporation,
by-laws, limited liability agreement or trust agreement (or other comparable
corporate charter document) of Purchaser;
(ii) conflict with or result in a violation or breach of any
term or provision of any Law or Order applicable to Purchaser or any of its
Assets and Properties; or
(iii) (x) conflict with or result in a violation or breach of,
(y) constitute (with or without notice or lapse of time or both) a default
under, (z) require Purchaser to obtain any consent, approval or action of, make
any filing with or give any notice to any Person as a result or under the terms
of, or (iv) result in the creation or imposition of any Lien upon Purchaser or
any of its Assets or Properties under, any contract or License to which
Purchaser is a party or by which any of its Assets and Properties is bound.
(b) No consent, approval or action of, filing with (except for
any filing required pursuant to Section 13(d) of the Exchange Act) or notice to
any Governmental or Regulatory Authority on the part of Purchaser is required in
connection with the execution, delivery and performance of Purchaser's
obligations hereunder or the consummation of the transactions contemplated
hereby.
3.04 Legal Proceedings. There are no Actions or Proceedings
pending or, to the knowledge of Purchaser, threatened against, relating to or
affecting Purchaser or any of its Assets and Properties which could reasonably
be expected to result in the issuance of an Order restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement or the Note.
3.05 Purchase of Shares Upon Conversion of the Note. (a)
Purchaser acknowledges that this Agreement is made with Purchaser and the Note
is being issued to Purchaser in reliance upon Purchaser's representation to the
Company, which by Purchaser's execution of this Agreement, Purchaser hereby
confirms, that (i) the Shares will be acquired by Purchaser and will be acquired
for investment for Purchaser's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same and (ii) that Purchaser is an "accredited
investor" within the meaning of Rule 501 under the Securities Act. By executing
this Agreement, the Purchaser further represents that it does not presently have
any contract, undertaking, agreement or arrangement with any Person to sell,
transfer or grant participations to such Person or to any third Person, with
respect to any of the Shares. Purchaser represents that either (i) Purchaser has
not been formed for the specific purpose of acquiring the Shares or (ii) if
Purchaser has been formed for the specific purpose of acquiring the Shares, each
Person that has an interest in Purchaser is an "accredited investor" within the
meaning of Rule 501 under the Securities Act.
(b) Purchaser has had an opportunity to discuss the Company's
business, management, financial affairs and the terms and conditions of this
Agreement and the Note with
8
the Company's management. Purchaser understands that such discussions, as well
as the written information issued by the Company, were intended to describe the
aspects of the Company's business which it believes to be material.
(c) Purchaser understands that none of the Shares, when
issued, will have been, and none of them will be, registered under the
Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of Purchaser's
representations and warranties as expressed in this Article III. Purchaser
understands that the Shares will be "restricted securities" under applicable
United States federal and state securities laws and that, pursuant to these
laws, Purchaser must hold the Shares indefinitely unless they are registered
with the SEC, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale except as expressly
provided under the Registration Rights Agreement. Purchaser further acknowledges
that if an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time and
manner of sale, the holding period for the Shares, and on requirements relating
to the Company which are outside of Purchaser's control, and which the Company
is under no obligation and may not be able to satisfy.
(d) Purchaser has such knowledge and experience in financial
and business matters that Purchaser is capable of evaluating the merits and
risks of the transactions contemplated hereby, including the acquisition of the
Shares.
(e) Purchaser is able to bear the economic risk of acquiring
the Shares and to hold the Shares acquired by Purchaser pursuant to this
Agreement and the Note for a substantial period of time.
3.06 Brokers. All negotiations relative to this Agreement and
the Note and the transactions contemplated hereby and thereby have been carried
out by the Purchaser directly with the Company without the intervention of any
Person on behalf of the Purchaser in such manner as to give rise to any valid
claim by any Person against the Company for a finder's fee, brokerage commission
or similar payment.
ARTICLE IV
DEFINITIONS
4.01 Definitions. (a) Defined Terms. As used in this
Agreement, the following defined terms have the meanings indicated below:
"AAA" has the meaning ascribed to it in Section 5.14.
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation.
9
"Affiliate" means any Person that directly, or indirectly
through one of more intermediaries, controls or is controlled by or is under
common control with the Person specified. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such Person whether by contract or
otherwise and, in any event and without limitation of the previous sentence, any
Person owning ten percent (10%) or more of the voting securities of another
Person shall be deemed to control that Person.
"Agreement" means this Agreement and the company disclosure
schedule, as the same shall be amended from time to time.
"Assets and Properties" of any Person means all assets and
properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, and wherever situated),
including the goodwill related thereto, operated, owned or leased by such
Person.
"Board of Arbitration" has the meaning ascribed to it in
Section 5.14.
"Common Stock" has the meaning ascribed to it in the forepart
of this Agreement.
"Company" has the meaning ascribed to it in the forepart of
this Agreement.
"Company Financial Statements" has the meaning ascribed to it
in Section 2.06.
"Company SEC Reports" has the meaning ascribed to it in
Section 2.06.
"Exchange Act" has the meaning ascribed to it in Section 2.06.
"Closing Date" has the meaning ascribed to it in Section 1.02.
"GAAP" means generally accepted accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period.
"Governmental or Regulatory Authority" means any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any domestic or
foreign state, county, city or other political subdivision.
"Knowledge of the Company" means the actual knowledge of any
officer or director of the Company or any Subsidiary of the Company.
"Laws" means all laws, statutes, rules, regulations,
ordinances and other pronouncements having the effect of law of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision or of any Governmental or Regulatory Authority.
"Licenses" means all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory Authority.
10
"Liens" means any mortgage, pledge, assessment, security
interest, lease, lien, adverse claim, levy, charge or other encumbrance of any
kind, or any conditional sale contract, title retention contract or other
contract to give any of the foregoing.
"Material Adverse Effect" with respect to an entity means any
event, change or effect which is materially adverse to the business, financial
condition or results of operations of such entity (or of such group of entities
taken as a whole).
"Note" has the meaning ascribed to it in the forepart of this
Agreement.
"Option" has the meaning ascribed to it in Section 2.03.
"Order" means any writ, judgment, decree, injunction or
similar order of any Governmental or Regulatory Authority (in each such case
whether preliminary or final).
"Person" means any natural person, corporation, limited
liability company, general partnership, limited partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Preferred Stock" has the meaning ascribed to it in Section
2.03.
"Purchaser" has the meaning ascribed to it in the forepart of
this Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, between the Company and the Purchaser.
"Rule 144" shall mean Rule 144 promulgated by the SEC under
the Securities Act (or any successor or similar rule then in force).
"SEC" has the meaning ascribed to it in Section 2.06.
"Securities Act" has the meaning ascribed to it in Section
2.06.
"Shares" has the meaning ascribed to it in the forepart of
this Agreement.
"Subsidiary" means any Person in which the Company, directly
or indirectly through Subsidiaries or otherwise, beneficially owns more than
fifty percent (50%) of either the equity interests in, or the voting control of,
such Person.
(b) Construction of Certain Terms and Phrases. Unless the
context of this Agreement otherwise requires, (i) words of any gender include
each other gender; (ii) words using the singular or plural number also include
the plural or singular number, respectively; (iii) the terms "hereof," "herein,"
"hereby" and derivative or similar words refer to this entire Agreement; (iv)
the terms "Article" or "Section" refer to the specified Article or Section of
this Agreement; and (v) the phrase "ordinary course of business" refers to the
business of the Company or a Subsidiary. Whenever this Agreement refers to a
number of days, such number shall refer to calendar days unless business days
are specified. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them under GAAP. Any
11
representation or warranty contained herein as to the enforceability of a
contract shall be subject to the effect of any bankruptcy, insolvency,
reorganization, moratorium or other similar law affecting the enforcement of
creditors' rights generally and to general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at Law).
ARTICLE V
MISCELLANEOUS
5.01 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements contained
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Closing Date for a period of two years.
5.02 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Purchaser:
MidMark Capital II, L.P.
c/o MidMark Investments, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & English, LLP
Four Gateway Center
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
If to the Company, to:
Vertex Interactive, Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: 973-808-1776
Attn: ▇▇▇▇▇▇▇▇ ▇.▇. ▇▇▇▇
with a copy to:
12
Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇'▇▇▇▇▇▇, Esq.
and to:
Law Offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto.
5.03 Entire Agreement. This Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter hereof and contains the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
5.04 Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated hereby are consummated,
each party will pay its own costs and expenses incurred in connection with the
negotiation, execution and closing of this Agreement and the transactions
contemplated hereby.
5.05 Public Announcements. Except as otherwise required by Law
or the rules of any applicable securities exchange or national market system, so
long as this Agreement is in effect, the Purchaser and the Company will not, and
will not permit any of their respective representatives to, issue or cause the
publication of any press release or make any other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld. Purchaser
and the Company will cooperate with each other in the development and
distribution of all press releases and other public announcements with respect
to this Agreement and the transactions contemplated hereby, and will furnish the
other with drafts of any such releases and announcements as far in advance as
practicable.
5.06 Confidentiality. Each party hereto will hold, and will
use its best efforts to cause its Affiliates, and in the case of the Purchaser,
any Person who has provided, or who is considering providing, financing to the
Purchaser to finance all or any portion of the
13
$5,000,000.00 payable on the Closing Date, and their respective representatives
to hold, in strict confidence from any Person (other than any such Affiliate, or
any Person who has provided, or who is considering providing, financing or
representative), unless (i) compelled to disclose by judicial or administrative
process (including without limitation in connection with obtaining the necessary
approvals of this Agreement and the transactions contemplated hereby of
Governmental or Regulatory Authorities) or by other requirements of Law or (ii)
disclosed in an Action or Proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder, all documents and
information concerning the other party or any of its Affiliates furnished to it
by the other party or such other party's representatives in connection with this
Agreement or the transactions contemplated hereby, except to the extent that
such documents or information can be shown to have been (a) previously known by
the party receiving such documents or information, (b) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of such receiving party or (c) later acquired by the
receiving party from another source if the receiving party is not aware that
such source is under an obligation to another party hereto to keep such
documents and information confidential.
5.07 Waiver. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by any party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by Law or otherwise afforded, will be cumulative
and not alternative.
5.08 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
5.09 No Third Party Beneficiary. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the intention of
the parties to confer third-party beneficiary rights upon any other Person.
5.10 No Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except (a) for assignments and transfers by operation of Law
and (b) that Purchaser may assign any or all of its rights, interests and
obligations hereunder to a wholly-owned subsidiary, provided that any such
subsidiary agrees in writing to be bound by all of the terms, conditions and
provisions contained herein, but no such assignment referred to in clause (b)
shall relieve Purchaser of its obligations hereunder. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
5.11 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
14
5.12 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
and (c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
5.13 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of New York applicable to a
contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
5.14 Arbitration. The parties to this Agreement agree that any
disputes arising out of, or in connection with, the execution, interpretation,
performance or non-performance of this Agreement (including the validity, scope
and enforceability of this arbitration provision) shall be settled by
arbitration, which shall be conducted in New York, New York pursuant to the then
prevailing rules of the American Arbitration Association ("AAA") by a panel of
three arbitrators of the AAA (the "Board of Arbitration") acceptable to the
Company, on the one hand, and the Purchaser, on the other hand. Each of the
Company, on the one hand, and the Purchaser, on the other hand, shall select one
(1) member and the third member shall be selected by mutual agreement of the
other members. If the other members fail to reach agreement on a third member
within thirty (30) days after their selection, the parties shall jointly request
the AAA to designate, in accordance with AAA rules, a third member experienced
in industries in which the Company does business. The parties agree to
facilitate the arbitration by (a) making available to one another and to the
Board of Arbitration for inspection and extraction all documents, books,
records, and personnel under their control or under the control of a person
controlling or controlled by such party if determined by the Board of
Arbitration to be relevant to the dispute, (b) conducting arbitration hearings
to the greatest extent possible on successive business days and (c) using their
best efforts to observe the time periods established by the rules of the AAA or
by the Board of Arbitration for the submission of evidence and briefs. The
decision of the Board of Arbitration shall be final, binding and not subject to
further review, and judgment on the award of the Board of Arbitration may be
entered in and enforced by any court having jurisdiction over the parties or
their assets. Any costs incurred in conducting the arbitration shall be borne by
the non-prevailing (as determined by the Board of Arbitration) party.
5.15 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
ARTICLE VI
COVENANTS
6.01 Meetings with Management. The Company agrees that either
its Chief Executive Officer or Chairman of the Board, or both, will meet with
representatives of the Purchaser, at a mutually agreeable time and location on a
basis that does not interfere with the
15
Company's conduct of its business, no less frequently than every two weeks in
order to discuss the Company's operations and management. The Company also
agrees to deliver to the Purchaser management accounts.
6.02 Management Accounts. The Company agrees to use its
reasonable best efforts to provide the Purchaser with monthly management
accounts for the preceeding month in as much detail as the Purchaser may
reasonably request within thirty days following the end of each month and
quarterly management accounts (including a breakdown by division) within thirty
days following the end of each quarter.
6.03 Group Management Structure. The Company agrees use its
reasonable best efforts to institute a streamlined group management structure in
accordance with discussions prior to the date hereof between the Company and the
Purchaser. The Company will use its reasonable best efforts to put such
management structure into effect no later than July 1, 2001.
6.04 Management Fees. The Company agrees to promptly pay all
accrued but unpaid management fees owed to the Purchaser with respect to the
Company's fiscal year 2001 and to promptly prepay any remaining management fees
that shall become due and payable during the remainder of the Company's fiscal
year 2001.
6.05 Right to Attend Quarterly Management Meetings. The
Company shall give notice to the Purchaser as to the time and location of each
quarterly management meeting and the Purchaser shall be entitled to attend such
meetings at its discretion. Although Purchaser may elect not to attend such
meetings, Purchaser will be entitled to receive upon request any printed
materials that were distributed at such meetings.
6.06 Shareholder Approval. The Company agrees to use its
reasonable best efforts to (i) obtain Shareholder Approval (as defined in the
Note) within 120 days of the date hereof and (ii) file a Registration Statement
on the terms provided in the Registration Rights Agreement.
16
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by or on behalf of each of the parties hereto as of the date first
above written.
VERTEX INTERACTIVE, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇
Title: Joint Chairman/Joint CEO
MIDMARK CAPITAL II, L.P.
By MidMark Associates II, LLC, its General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Managing Director
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of June 19, 2001,
between Vertex Interactive, Inc., a New Jersey corporation (the "Company"), and
Midmark Capital II, L.P. (the "Purchaser"). Capitalized terms used herein but
not otherwise defined shall have the meaning ascribed to them in the Note
Purchase Agreement (defined below).
W I T N E S S E T H:
WHEREAS, the Company and Purchaser have entered into a Note
Purchase Agreement, dated as of the date hereof (the "Note Purchase Agreement"),
pursuant to which the Purchaser shall purchase a note dated June 19, 2001 issued
to the Purchaser by the Company in the amount of $5,000,000.00 (the "Note")
convertible into 3,478,260 shares of Common Stock, upon Shareholder Approval (as
defined in the Note). The Shares and any additional shares issued pursuant to
the Section 1(a) of this Agreement are hereinafter referred to as "Registrable
Stock";
NOW, THEREFORE, in consideration of the respective covenants
and conditions of the parties set forth herein and in the Note Purchase
Agreement, and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Registration of Registrable Stock.
(a) Filing of Registration Statement. Provided that
Shareholder Approval has been obtained, the Company shall use its reasonable
best efforts to prepare and file within 120 days hereof, a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (collectively, the "Securities
Act") covering the offering and sale of the Registrable Stock by the Purchaser
in privately negotiated transactions, "brokers' transactions" or in transactions
directly with a "market maker," as such terms are defined in paragraphs (f) and
(g) of Rule 144 under the Securities Act ("Brokers' Transactions").
If the Registration Statement has not been filed within 120
days hereof, the Company shall promptly issue to the Purchaser, upon obtaining
Shareholder Approval for such issuance, 347,826 additional shares (the
"Additional Shares") of Common Stock (as adjusted for any stock splits, stock
dividends, stock combinations or recapitalizations or reclassifications having
similar effect, or a merger, consolidation or sale of all or substantially all
of the assets of the Company in which all shares of Common Stock are converted
into the right to receive cash, property or other securities, each occurring
after the date hereof. Fractional shares shall be rounded to the nearest whole
share. The Company agrees to include the Additional Shares in the Registration
Statement. The issuance of Additional Shares pursuant to this Section 1(a) shall
not relieve the Company of its obligation to file the Registration Statement.
2
(b) Effectiveness; Amendments. The Company will use its
reasonable best efforts to cause to be declared effective as soon as possible
after filing and, except as set forth below, to remain effective under the
Securities Act, the Registration Statement and will prepare and file with the
SEC any amendments or post-effective amendments as may be necessary to keep the
Registration Statement effective under the Securities Act. The Company will
promptly notify the Purchaser in writing of the date on which the Registration
Statement is declared effective. Notwithstanding the foregoing, (i) the Company
shall not be required to keep the Registration Statement effective for purposes
of the sale of Registrable Stock thereunder at any time after the earlier of (A)
the date on which all shares of Registrable Stock have been sold or are no
longer outstanding, and (B) the date which is two years (plus any time for
delays arising from events described in clause (ii) below or Section 3(g) )
following the acquisition from the Company of the Registrable Stock, or such
earlier date as of which the Purchaser shall be able to make use of the
safe-harbor provisions of Rule 144(k) under the Act (or any successor rule) with
respect to sales of Registrable Stock, and (ii) the Company shall not be
obligated to keep the Registration Statement or the prospectus included therein
(the "Prospectus") current during any period (A) of up to 60 days per calendar
year if the Company's chief executive officer advises the Purchaser that he has
determined in good faith that valid business reasons concerning a potential
corporate transaction make doing so inadvisable, or (B) when financial
statements do not satisfy the requirements of the last sentence of paragraph (b)
of Rule 3-12 of Regulation S-X (or any successor rule) to the extent, and only
to the extent, that the SEC interprets such sentence as being applicable to the
continued effectiveness of the Registration Statement.
(c) Copies of Documents. During the period that the Company
has agreed to use its reasonable best efforts to cause the Registration
Statement to remain effective (the "Effectiveness Period"), the Company shall
furnish to Purchaser such number of copies of the Registration Statement, the
Prospectus and any amendments and supplements thereto and any documents
incorporated by reference in the Registration Statement as Purchaser shall
reasonably request.
(d) Blue Sky Compliance. The Company shall register or qualify
or cooperate with the Purchaser in connection with the notification,
coordination, registration or qualification (or obtain exemption from such
registration or qualification) of the Registrable Stock under such other
securities or blue sky laws of such jurisdictions in the United States as the
Purchaser reasonably shall request and do any and all other acts and things
which may be reasonably necessary to enable the Purchaser to consummate the
disposition of the Registrable Stock by them under the Registration Statement in
such jurisdictions during the Effectiveness Period; provided, however, that in
no event shall the Company be required to qualify to do business as a foreign
corporation in any jurisdiction where it is not so qualified, to subject itself
to taxation in any jurisdiction where it has not theretofore done so or to take
any action which would subject it to general service of process in any such
jurisdiction where it is not then so subject.
(e) Notification. During the Effectiveness Period, the Company
shall notify the Purchaser promptly, and (if requested by Purchaser) confirm
such notice in writing, (i) of any request by the SEC or any other regulatory
authority for amendments or supplements to the Registration Statement or the
Prospectus or for additional information relating thereto, (ii) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statement
3
or the initiation of any proceedings for that purpose, (iii) of the receipt by
the Company of any notification or stop order with respect to the suspension of
the registration, qualification or exemption from registration or qualification
of any of the shares of Registrable Stock covered by the Registration Statement
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose and (iv) of the happening of any event which makes any
statement made in such Registration Statement or in the Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or which requires the making of any changes in such
Registration Statement or Prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(f) Supplements and Post-Effective Amendments. Subject to the
provisions of clause (ii) of the third sentence of Section 1(b) above, during
the Effectiveness Period, upon the occurrence of any event contemplated by
clause (i) or (iv) of paragraph (e) above, the Company will prepare a supplement
or post-effective amendment to the Registration Statement or a supplement to the
Prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Stock being sold thereunder, the Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) Listing. The Company shall cause the Registrable Stock
covered by the Registration Statement to be listed on each securities exchange
or securities quotation system, if any, on which similar securities issued by
the Company are then listed.
(h) Correspondence with the SEC. The Company shall, upon
request from Purchaser, deliver promptly to Purchaser copies of all
correspondence between the SEC and the Company, its counsel or auditors.
(i) Stock Certificates. The Company will cooperate with the
Purchaser to facilitate the timely preparation and delivery of certificates
representing Registrable Stock sold under the Registration Statement, which
certificates shall not have any restrictive legends.
2. Piggyback Registration. If at any time prior to the second
anniversary of the date hereof the Company proposes to file a registration
statement under the Securities Act with respect to an offering of Common Stock
(except on Form S-4 or Form S-8 or any successor forms thereto), for its own
account, then the Company shall give written notice of such proposed filing to
the holders of Registrable Stock as far in advance of the anticipated filing
date as is practicable (the "Piggyback Notice"). The Piggyback Notice shall
offer such holders the opportunity to register such amount of Registrable Stock
as each such holder may request (a "Piggyback Registration"); subject in all
events to the agreement of the underwriter or underwriters of the offering
contemplated by such registration statement that such shares of Registrable
Stock can be included in such registration statement without adversely affecting
such offering. Any reduction in the number of securities to be so offered shall
be (i) first, pro-rata among all security holders who are exercising "piggyback"
registration rights, based on the
4
number of registrable securities originally proposed to be sold by each of them,
and (ii) second, pro-rata among all security holders who are exercising "demand"
registration rights pursuant to a registration rights agreement with the
Company, based on the number of registrable securities originally proposed to be
sold by each of them.
3. Obligations of the Purchaser. Following the filing of the
Registration Statement and during any period that the Registration Statement is
effective, the Purchaser shall:
(a) not effect any stabilization transactions or engage in any
stabilization activity in connection with the Company common shares in
contravention of Regulation M under the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(b) furnish each broker through whom the Purchaser offers
Registrable Stock such number of copies of the Prospectus as the broker may
require and otherwise comply with prospectus delivery requirements under the
Securities Act;
(c) not (and shall not permit any Affiliated Purchaser (as
defined in Rule 10b-6 under the Exchange Act) to) bid for or purchase for any
account in which any Purchaser has a beneficial interest, or attempt to induce
any other person to purchase, any Company common shares in contravention of
Regulation M under the Exchange Act;
(d) cooperate with the Company as the Company fulfills its
obligations under Section 1(d) hereof;
(e) furnish such information concerning the Purchaser as the
Company may from time to time reasonably request;
(f) sell Registrable Stock only in privately negotiated
transactions or Brokers' Transactions; and
(g) not sell under the Registration Statement during any
period after the Company has provided notice to the Purchaser pursuant to
Section 1(e)(iv) above and until the Company provides to the Purchaser notice
that the Registration Statement no longer fails to state a material fact
required to be stated therein, misstates a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
made not misleading.
4. Expenses. The Company shall be responsible for the payment
of (x) all registration and filing fees relating to registration of the offering
by the Purchaser of the Registrable Stock, including, without limitation,
registration and filing fees (A) with respect to filings required to be made
with the SEC or the National Association of Securities Dealers and (B) with
respect to registrations and filings made under state securities or blue sky
laws and (y) any expenses incurred by the Company in connection with the
preparation of the Registration Statement and the Prospectus. The Purchaser
shall be responsible for the payment of fees and disbursements of counsel to the
Purchaser in connection with the preparation of the Registration
5
Statement and the Prospectus and fees paid to brokers in connection with the
sale of any of the Registrable Stock.
5. Indemnification.
(a) Indemnity by the Company. The Company shall (i) indemnify
and hold harmless the Purchaser and each person who controls the Purchaser,
within the meaning of Section 15 of the Securities Act, against any losses,
claims, damages or liabilities ("Losses"), to which each such indemnified party
may become subject, under the Securities Act or otherwise, insofar as such
Losses (or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or Prospectus, as amended or supplemented if the Company
has furnished any supplements or amendments thereto (if used during the period
the Company is required to keep the Registration Statement and Prospectus
current), or any document filed under a state securities or blue sky law
(collectively, "Registration Documents") or insofar as any Losses (or actions in
respect thereof) arise out of or are based upon the omission or alleged omission
to state in any Registration Document a material fact required to be stated
therein or necessary to make the statements made therein (in the case of a
prospectus, in the light of the circumstances under which they were made), not
misleading, and (ii) reimburse each indemnified party for all legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such Losses or actions, including any amounts paid in settlement of any
litigation, commenced or threatened, if such settlement is effected with the
prior written consent of the Company; provided, however, that the Company shall
not be liable for any Losses arising out of or based upon any untrue statement
or omission made in any Registration Document in reliance upon and in conformity
with written information furnished to the Company by or on behalf of any
Purchaser expressly for use in the preparation of the Registration Document; and
provided, further, that the Company shall not be liable to a particular
indemnified party under the indemnity agreement in this Section 5(a) with
respect to the Prospectus, as amended or supplemented, to the extent that the
Loss arises from the sale of any shares of Registrable Stock by such indemnified
party to the person asserting Loss and to which there was not sent or given,
within the time required by the Securities Act, a copy of the Prospectus as then
amended or supplemented, if the Company has previously furnished copies thereof
to such indemnified party and such Prospectus as then amended or supplemented
has corrected the misstatement or omission at issue.
(b) Indemnity by Purchaser. The Purchaser shall, severally and
not jointly, (i) indemnify and hold harmless the Company, any officer, director,
employee or agent of the Company, and each other person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act against any
Losses to which each such indemnified party may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Document, or arise
out of or are based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated therein or necessary
to make the statements made therein (in the case of a prospectus, in the light
of the circumstances under which they were made,) not misleading, and (ii)
reimburse each indemnified party for all legal or other expenses reasonably
incurred by it in
6
connection with investigating or defending any such Losses or action, including
any amounts paid in settlement of any litigation, commenced or threatened, if
such settlement is effected with the prior written consent of the Purchaser;
provided, however, that such indemnification or reimbursement shall be payable
only if, and to the extent that, any Losses arise out of or are based upon an
untrue statement or omission made in any Registration Document in reliance upon
and in conformity with written information furnished to the Company by the
Purchaser expressly for use in the preparation thereof.
(c) Procedure for Indemnification. Promptly after receipt by
an indemnified party, under Section 5(a) or 5(b), of notice of the commencement
of any action, the indemnified party shall notify the indemnifying party in
writing of the commencement thereof, if a claim in respect thereof is to be made
against an indemnifying party under any of these Sections; but the omission of
such notice shall not relieve the indemnifying party from liability which it may
have to the indemnified party under this Section 5, except to the extent that
the indemnifying party is actually prejudiced in any material respect by such
failure to give notice, and shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under this
Section 5. In the event that an action is brought against the indemnified party
and such indemnified party notifies the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in, and to the
extent that it chooses, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party that it so chooses, the indemnifying party shall
not be liable for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof; provided however, that
(i) if the indemnifying party fails to take reasonable steps necessary to defend
diligently the claim within 20 days after receiving notice from the indemnified
party that the indemnified party believes it has failed to do so, or (ii) if the
indemnified party who is a defendant in any action or proceeding which is also
brought against the indemnifying party reasonably shall have concluded that
there are legal defenses available to the indemnified party which are not
available to the indemnifying party, or (iii) if representation of both parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct, the indemnified party shall have the right to assume or
continue its own defense as set forth above. In no event shall the indemnifying
party be responsible for more than one firm of counsel for all indemnified
parties.
(d) Non-Exclusive Indemnity. Any indemnity agreements
contained herein shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party.
(e) Contribution. If for any reason the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and the indemnified party on the other
(determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or the
indemnified party and the parties' relative intent, knowledge,
7
access to information and opportunity to correct or prevent such untrue
statement or omission), or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative fault of the indemnifying party and
the indemnified party, but also the relative benefits received by the
indemnifying party on the one hand (taking into consideration the fact that the
provision of the registration rights hereunder served as an inducement to the
Purchaser to enter into the Subscription Agreement) and the indemnified party on
the other, as well as any other relevant equitable considerations. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the ▇▇▇▇ ▇▇▇) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
6. Miscellaneous.
(a) Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York without giving
effect to the choice of law principles thereof.
(b) Entire Agreement; Amendment; Waiver. This Agreement: (i)
contains the entire agreement among the parties hereto with respect to the
subject matter hereof, (ii) supersedes all prior written agreements and
negotiations and oral understandings, if any, with respect thereto, and (iii)
may not be amended or supplemented except by an instrument or counterparts
thereof in writing signed by the Company and the Purchaser. No waiver of any
term or provision of this Agreement shall be effective unless in writing signed
by the party to be charged. The waiver by any party of a breach of any term or
provision of this Agreement shall not be construed as a waiver of any subsequent
breach.
(c) Binding Effect. This Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns; provided, however, that no party hereto
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the prior written consent of the other parties
hereto.
(d) Invalidity of Provision. The invalidity or
unenforceability of any provision of this Agreement in any jurisdiction shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of this Agreement, including
that provision, in any other jurisdiction.
8
(e) Notices. All notices, requests, consents and other
communications to any party hereunder shall be in writing and shall be given
either by personal service, certified mail, return receipt requested, overnight
courier or telecopy, addressed as follows:
if to the Company, to:
Vertex Interactive, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇.▇. ▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇'▇▇▇▇▇▇, Esq.
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
and to:
Law Offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
if to Purchaser, to:
MidMark Capital II, L.P.
c/o MidMark Investments, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & English, LLP
Four Gateway Center
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
9
or to such other address as any party may hereafter specify to the other parties
hereto by notice sent in accordance with this Section 6(e). Each such notice,
request or other communication shall be effective when delivered at the address
specified in this Section 6(e).
(f) Headings; Execution in Counterparts. The headings and
captions contained herein are for convenience of reference only and shall not
control or affect the meaning or construction of any provision hereof. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original and all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by or on
behalf of each of the parties hereto as of the date first above written.
VERTEX INTERACTIVE, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇
Title: Joint Chairman/Joint CEO
MIDMARK CAPITAL II, L.P.
By MidMark Associates II, LLC, its General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Managing Director
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE
LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
VERTEX INTERACTIVE, INC.
CONVERTIBLE PROMISSORY NOTE
$5,000,000.00 Fairfield, New Jersey
June 19, 2001
VERTEX INTERACTIVE, INC., a New Jersey corporation (the "Company"), for
value received hereby promises to pay to the order of Midmark Capital II, L.P.,
("Midmark"), in lawful money of the United States, the principal sum of FIVE
MILLION DOLLARS ($5,000,000.00), plus any unpaid accrued interest thereon as
determined in accordance with Section 2 below, within 120 days from the date
hereof ("the "Maturity Date") in the event that Shareholder Approval (as defined
in Section 1 below) has not been obtained by the Company on or before the
Maturity Date. This Convertible Promissory Note (this "Note") is issued in
connection with the transactions described in Article I of the Note Purchase
Agreement, dated as of June 19, 2001, between the Company and Midmark, as the
same may from time to time be amended, modified or supplemented (the
"Agreement"). All capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Agreement.
1. Conversion. This Note shall automatically be converted into
3,478,260 Shares at the close of business on the day the Company obtains the
requisite shareholder approval as determined in accordance with the Laws of the
State of New Jersey and the Nasdaq National Market ("Shareholder Approval") for
the issuance of the Shares to Midmark. Upon surrender of this Note to the
Company for cancellation the Company shall promptly issue to Midmark a share
certificate or certificates representing the Shares bearing the legend described
in Section 1.04 of the Agreement.
2. Interest. Unless earlier converted in accordance with the provisions
hereof, the original principal amount of this Note ($5,000,000.00) plus any
unpaid accrued interest hereon shall be paid on the Maturity Date. Interest
shall accrue at the prime borrowing rate as quoted in the Wall Street Journal
and shall be computed on the basis of a 360-day year applied to actual days
elapsed. Promptly following payment in full of the principal and any accrued
interest
payable in accordance with the terms of this Note, Midmark shall surrender this
Note to the Company for cancellation.
3. Prepayment. This Note shall not be prepaid without the prior written
consent of Midmark.
4. Payments. All payments to be made by the Company in respect of this
Note shall be made by wire transfer to an account designated by Midmark by
written notice to the Company. If the due date of any payment in respect of this
Note would otherwise fall on a day that is not a business day, such due date
shall be extended to the next succeeding business day. All amounts payable under
this Note shall be paid free and clear of, and without reduction by reason of,
any deduction, setoff, or counterclaim.
5. Assignment. Neither this Note nor any right, interest or obligation
hereunder may be assigned by any party hereto without the prior written consent
of the other party hereto and any attempt to do so will be void, except for
assignments and transfers by operation of Law. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
6. Amendment. This Agreement may be amended, supplemented or modified
only by a written instrument duly executed by or on behalf of each party hereto.
7. Transfer of This Note or Securities Issuable upon Conversion. With
respect to any offer, sale or other disposition of this Note or securities into
which such Note may be converted, Midmark shall give written notice to the
Company prior to such offer, sale or other disposition, describing briefly the
manner thereof, together with a written opinion reasonably satisfactory to the
Company of Midmark's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect). Promptly upon receiving such written
notice and reasonably satisfactory opinion, if so requested, the Company, as
promptly as practicable, shall notify Midmark that it may sell or otherwise
dispose of this Note or such securities, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made pursuant to
this Section 7 that the opinion of counsel for Midmark is not reasonably
satisfactory to the Company, the Company shall so notify Midmark promptly after
such determination has been made. Each Note thus transferred and each
certificate representing the securities thus transferred shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for the Company such
legend is not required. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
8. Notices. Any notice, request or other communication required or
permitted hereunder shall be made in accordance with Section 5.02 of the
Agreement.
9. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Midmark or any other person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company; and no
2
dividends or interest shall be payable or accrued in respect of this Note or the
interest represented hereby or the Shares obtainable hereunder until, and only
to the extent that, this Note shall have been converted.
10. Governing Law. This Note shall be governed by and construed in
accordance with the Laws of the State of New York applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
11. Headings. The headings used in this Note have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
12. Invalid Provisions. If any provision of this Note is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Note will not be materially
and adversely affected thereby, (a) such provision will be fully severable, (b)
this Note will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, and (c) the remaining
provisions of this Note will remain in full force and effect and will not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom.
IN WITNESS WHEREOF, the Company has caused this Note to be issued this
19th day of June, 2001.
VERTEX INTERACTIVE, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇
Title: Joint Chairman/Joint CEO
Name of Holder:
Address:
3