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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of March 30,
1998, by and among YieldUP International Corporation, a Delaware corporation,
with headquarters located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(the "COMPANY"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the following new series of its Preferred
Stock, par value $0.001 per share (the "PREFERRED STOCK"): the Company's Series
A Convertible Preferred Stock (the "PREFERRED SHARES"), which shall be
convertible into shares of the Company's Common Stock, par value $0.001 per
share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in
accordance with the terms of the Company's Certificate of Designations,
Preferences and Rights of the Preferred Shares, substantially in the form
attached hereto as Exhibit A (the "CERTIFICATE OF DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially an aggregate of up to 600 of the Preferred Shares (the
"INITIAL PREFERRED SHARES") in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers;
D. Subject to the terms and conditions set forth in this Agreement, each
Buyer may have the right to purchase a number of additional Preferred Shares
equal to up to the sum of (i) the number of Initial Preferred Shares held by
such Buyer on the date which is 210 days after the Initial Closing Date (as
defined in Section 1(b)), (ii) the number of Initial Preferred Shares converted
by such Buyer at a Conversion Price equal to the Fixed Conversion Price of such
Initial Preferred Shares (each as defined in the Certificate of Designations)
prior to the date which is 210 days after the Initial Closing Date, (iii) the
number of Put Preferred Shares (as defined below) held by such Buyer on the date
which is 210 days after the Put Closing Date (as defined in Section 1(d)) and
(iv) the number of Put Preferred Shares converted by such Buyer at a Conversion
Price equal to the Fixed Conversion Price of such Put Preferred Shares prior to
the date which is 210 days after the Put Closing Date (the "ADDITIONAL PREFERRED
SHARES"). In addition, the Company may have the
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right to cause the Buyers to purchase up to an aggregate of 600 Preferred Shares
(pro rata based on the number of Initial Preferred Shares each Buyer purchased
in relation to the total number of Initial Preferred Shares) (the "PUT PREFERRED
SHARES") (the Initial Preferred Shares, the Additional Preferred Shares and the
Put Preferred Shares collectively are referred to in this Agreement as the
"PREFERRED SHARES"); and
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6(a) and 7(a), the Company shall
issue and sell to the Buyers and the Buyers severally shall purchase from the
Company an aggregate of up to 600 Initial Preferred Shares, in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers (the
"INITIAL CLOSING"). Subject to satisfaction (or waiver) of the conditions set
forth in Sections 1(c), 6(b) and 7(b), at the option of each Buyer, the Company
shall issue and sell to each such Buyer and each such Buyer shall purchase from
the Company at multiple closings, if applicable, an aggregate of up to that
number of Additional Preferred Shares, equal to the sum of (i) the number of
Initial Preferred Shares held by such Buyer on the date which is 210 days after
the Initial Closing Date, (ii) the number of Initial Preferred Shares converted
by such Buyer at a Conversion Price equal to the Fixed Conversion Price prior to
the date which is 210 days after the Initial Closing Date, (iii) the number of
Put Preferred Shares held by such Buyer on the date which is 210 days after the
Put Closing Date and (iv) the number of Put Preferred Shares converted by such
Buyer at a Conversion Price equal to the Fixed Conversion Price prior to the
date which is 210 days after the Put Closing Date (the "ADDITIONAL CLOSINGS");
provided, however, that each Buyer, including any assignees of such Buyer, may
only exercise its right to purchase Additional Preferred Shares at an aggregate
of two Additional Closings. Subject to satisfaction (or waiver) of the
conditions set forth in Sections 1(d), 1(e), 6(c) and 7(c), the Company may
require that each Buyer purchase that number of additional Preferred Shares
equal to such Buyer's pro rata portion of up to 600 Preferred Shares (based on
the number of Initial Preferred Shares each Buyer purchased in relation to the
total number of Initial Preferred Shares purchased by the Buyers) (the "PUT
CLOSING"). The Initial Closing, the Additional Closings and the Put Closing
collectively are referred to in this Agreement
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as the "CLOSINGS." The purchase price (the "PURCHASE PRICE") of each Preferred
Share at each of the Closings shall be $10,000.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Central Time, within
three (3) business days following the date hereof, subject to satisfaction (or
waiver) of the conditions to the Initial Closing set forth in Sections 6(a) and
7(a) (or such later date as is mutually agreed to by the Company and the
Buyers). The Initial Closing shall occur on the Initial Closing Date at the
offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
c. The Additional Closing Dates. The date and time of each of the
Additional Closings (the "ADDITIONAL CLOSING DATES") shall be 10:00 a.m. Central
Time, on the date specified in an Additional Share Notice (as defined below),
subject to satisfaction (or waiver) of the conditions to the Additional Closing
set forth in Sections 6(b) and 7(b) and the conditions set forth in this
paragraph (or such later date as is mutually agreed to by the Company and the
Buyers). During the period (the "BUYER CALL RIGHT PERIOD") beginning on and
including the date which is the earlier of (i) 210 days after the Initial
Closing Date and (ii) the first date on which such Buyer converts any Initial
Preferred Shares at a Conversion Price equal to the Fixed Conversion Price for
such Initial Preferred Shares, and ending on and including the date which is the
Mandatory Conversion Date (as defined in Section 2(g) of the Certificate of
Designations) of the Initial Preferred Shares, but subject to the requirements
of Sections 6(b) and 7(b), each Buyer may purchase Additional Preferred Shares
by delivering written notice to the Company (an "ADDITIONAL SHARE NOTICE") at
least three business days but not more than 20 business days prior (an
"ADDITIONAL SHARE NOTICE DATE") to the Additional Closing Date set forth in such
Buyer's Additional Share Notice. Each Additional Share Notice shall set forth
(i) the number of Additional Preferred Shares to be purchased by such Buyer at
the Additional Closing, (ii) the aggregate Purchase Price for such Additional
Preferred Shares, and (iii) the date selected by the Buyer for the Additional
Closing Date. Notwithstanding the foregoing, no Buyer shall be entitled to
deliver an Additional Share Notice unless on the date of the delivery of the
Additional Share Notice the Closing Bid Price (as defined in the Certificate of
Designations) of the Common Stock is greater than the Closing Bid Price on the
Initial Closing Date and each Buyer, including any assignees of such Buyer, may
only exercise its right to purchase Additional Preferred Shares at an aggregate
of two Additional Closings. Each Additional Closing shall occur on the
applicable Additional Closing Date at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
d. The Put Closing Date. The date and time of the Put Closing
(the "PUT CLOSING DATE") shall be 10:00 a.m. Central Time, on the date specified
in the Company's Put Share Notice (as defined below), subject to satisfaction
(or waiver) of the conditions to the Put
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Closing set forth in Sections 6(c) and 7(c) and the conditions set forth in
Section 1(e), (or such later date as is mutually agreed to by the Company and
the Buyers). During the period (the "COMPANY PUT RIGHT PERIOD") beginning on and
including the date which is 180 days after the earlier of (x) the date the
Registration Statement (as defined below) is declared effective by the SEC and
(y) the date which is 120 days after the Initial Closing Date (the "ANTICIPATED
EFFECTIVE DATE") and ending on the date which is 360 days after the Anticipated
Effective Date, but subject to the requirements of Sections 6(c) and 7(c) and
satisfaction of the Put Notice Conditions (as defined in Section 1(e)), the
Company may require each Buyer to purchase Put Preferred Shares by delivering
written notice to each of the Buyers (a "PUT SHARE NOTICE") at least 15 business
days but not more than 20 business days (the "PUT SHARE NOTICE DATE") prior to
the Put Closing Date set forth in the Put Share Notice. The Put Share Notice
shall set forth (i) each Buyer's pro rata portion (based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares purchased by the Buyers) of the aggregate number of Put
Preferred Shares (which aggregate number shall not exceed 600 Preferred Shares)
which the Company is requiring each Buyer to purchase at the Put Closing, (ii)
the aggregate Purchase Price for each such Buyer's Put Preferred Shares and
(iii) the date selected by the Company for the Put Closing Date, which Put
Closing Date shall be not later than the date which is 360 days after the
Anticipated Effective Date. The Put Closing shall occur on the Put Closing Date
at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇. The Initial Closing Date, the Additional Closing
Dates and the Put Closing Date collectively are referred to in this Agreement as
the "CLOSING DATES."
e. The Put Notice Conditions. Notwithstanding anything in this
agreement to the contrary, the Company shall not be entitled to deliver a Put
Share Notice and require the Buyers to purchase the Put Preferred Shares unless,
in addition to the satisfaction of the requirements of Sections 6(c) and 7(c),
all of the following conditions (the "PUT NOTICE CONDITIONS") are satisfied: (i)
the Company's stockholders shall have approved the issuance of the Securities
(as defined in Section 2(a)) on or prior to the Put Share Notice Date; (ii)
during the period beginning 60 business days prior to the Put Closing Date and
ending on and including the Put Closing Date, the registration statement (the
"REGISTRATION STATEMENT") covering the resale of the Conversion Shares has been
declared effective by the SEC and at all times has been effective and available
for the sale of no less than 125% of the sum of (A) the number of Conversion
Shares then issuable upon the conversion of all outstanding Preferred Shares and
the Put Preferred Shares to be issued by the Company and (B) the number of
Conversion Shares that are then held by the Buyers; (iii) during the period
beginning on the Initial Closing Date and ending on and including the Put
Closing Date, the Common Stock is listed on The Nasdaq SmallCap Market or the
Nasdaq National Market and has not been suspended from trading at any time
during such period, has not been involuntarily delisted at any time during such
period, nor is there any pending or threatened delisting or suspension; (iv) no
event constituting a Major Transaction (as defined in Section 3(c) of the
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Certificate of Designations), including an agreement to consummate a Major
Transaction, or a Triggering Event (as defined in Section 3(d) of the
Certificate of Designations) shall have occurred nor shall any still pending
event which would constitute a Major Transaction have been publicly disclosed
from the period beginning on and including the Initial Issuance Date and ending
on and including the Put Closing Date; (v) on each day during the period
beginning 20 business days prior to the Put Closing Date and ending on the Put
Closing Date, the Market Price of the Common Stock is not less than 120% of the
Fixed Conversion Price for the Initial Preferred Shares on the Initial Closing
Date; (vi) on each trading day during the period beginning on the Put Share
Notice Date and ending on and including the Put Closing Date, the Market Price
of the Common Stock is not less than 90% of the Market Price of the Common Stock
on the Put Share Notice Date; (vii) during the period beginning on the Initial
Closing Date and ending on and including the Put Closing Date, the Company shall
have delivered Conversion Shares upon conversion of the Preferred Shares to the
Buyers on a timely basis as set forth in Section 2(f)(ii) of the Certificate of
Designations; and (viii) a Put Closing Date shall not have occurred previously.
f. Form of Payment. On each of the Closing Dates, (i) each Buyer
shall pay the Purchase Price to the Company for the Preferred Shares to be
issued and sold to such Buyer at the respective Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "STOCK
CERTIFICATES") representing such number of the Preferred Shares which such Buyer
is then purchasing (as indicated opposite such Buyer's name on the Schedule of
Buyers), duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the Preferred
Shares and (ii) upon conversion of the Preferred Shares, will acquire the
Conversion Shares then issuable (the Preferred Shares and the Conversion Shares
collectively are referred to herein as the "SECURITIES"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
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b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold 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 in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
d. Information. Such 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 Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such 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 or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto)("RULE 144"); (ii) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an
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underwriter (as that term is defined in the ▇▇▇▇ ▇▇▇) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
g. Legends. Such Buyer understands that the certificates or other
instruments representing the Preferred Shares and, until such time as the sale
of the Conversion Shares have been registered under the 1933 Act as contemplated
by the Registration Rights Agreement, the stock certificates representing the
Conversion Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of such Securities may be made without registration
under the 1933 Act, or (iii) such holder provides the Company with reasonable
assurances that such Securities can be sold without restriction pursuant to Rule
144(k). Each Buyer acknowledges, covenants and agrees to sell the Securities
represented by a certificate(s) from which the legend has been removed, only
pursuant to (i) a registration statement effective under the 1933 Act, or (ii)
advice of counsel that such sale is exempt from registration required by Section
5 of the 1933 Act. Notwithstanding anything to the contrary contained herein, if
the legend is removed from any certificate representing any of the Securities
due to the availability of an effective registration statement relating to the
resale thereof, and such registration statement is no longer effective, upon the
request of the Company, each Buyer who is a holder of such Securities agrees to
return certificates representing
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the affected Securities, provided such Securities have not been sold pursuant to
such registration statement, to the Company's transfer agent in order that the
legend set forth above may be re-imposed on such Securities.
h. Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country or
jurisdiction specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest of 20% or more) (a complete list of which is set forth in
Schedule 3(a)) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power and authorization to own their properties and
to carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below) or the Certificate of Designations.
b. Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, and the
Irrevocable Transfer Agent Instructions (as defined in Section 5) and each of
the other agreements entered into by the parties hereto in connection with the
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transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and to issue the Securities in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents and the
Certificate of Designations by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation the
issuance of the Preferred Shares and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion thereof, have been
duly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders (except to the extent that stockholder approval may be required
pursuant to the rules of the Nasdaq SmallCap Market or the Nasdaq National
Market, as applicable, for the issuance of a number of Conversion Shares greater
than 19.99% of the number of shares of Common Stock outstanding immediately
prior to the Initial Issuance Date), (iii) the Transaction Documents have been
duly executed and delivered by the Company, (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to each of the Closing Dates, the Certificate of Designations will have
been filed with the Secretary of State of the State of Delaware and will be in
full force and effect, enforceable against the Company in accordance with its
terms.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 22,229,927 shares of Common Stock
(including 2,229,927 shares of Class A Common Stock), of which as of the date
hereof, 5,763,614 shares were issued and outstanding (including 1,413,653 shares
of Class A Common Stock), 1,066,385 shares are issuable and reserved for
issuance pursuant to the Company's stock option and purchase plans and no shares
are issuable and reserved for issuance pursuant to securities (other than the
Preferred Shares) exercisable or exchangeable for, or convertible into, shares
of Common Stock; (ii) 5,000,000 shares of Preferred Stock, of which as of the
date hereof, no shares were issued and outstanding. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding debt securities; (iii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are
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no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (v) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vi) except as disclosed in Schedule 3(c), there are no securities
or instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement; and
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement. The Company has furnished
to the Buyers true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the "CERTIFICATE
OF INCORPORATION"), and the Company's By-laws, as in effect on the date hereof
(the "BY-LAWS"), and the terms of all securities convertible into or exercisable
for Common Stock and the material rights of the holders thereof in respect
thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Designations. 923,000 shares of
Common Stock (subject to adjustment pursuant to the Company's covenant set forth
in Section 4(f) below) have been duly authorized and reserved for issuance upon
conversion of the Preferred Shares. Upon conversion in accordance with the
Certificate of Designations, the Conversion Shares will be validly issued, duly
listed, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. Based upon the representations of the
Buyers set forth in Section 2 hereof, the issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares) will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of Preferred Stock of the
Company or the By-laws; (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party; or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state
11
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
term of or in default under (i) its Certificate of Incorporation, any
Certificate of Designation, Preferences and Rights of any outstanding series of
Preferred Stock or By-laws or their organizational charter or by-laws,
respectively, or (ii) any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except to the extent
that any such violation or default would not have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted, and shall
not be conducted, in violation of any law, ordinance or regulation of any
governmental entity, except to the extent that any such violation would not have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or the Certificate of Designations in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e) and except to the extent that stockholder approval may be required pursuant
to the rules of the Nasdaq SmallCap Market or the Nasdaq National Market, as
applicable, for the issuance of a number of Conversion Shares greater than
19.99% of the number of shares of Common Stock outstanding immediately prior to
the Initial Issuance Date, all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing. The Company is not in violation of the
listing requirements of The Nasdaq SmallCap Market or the Nasdaq National
Market, as the case may be, as in effect on the date hereof and on each of the
Closing Dates and is not aware of any facts which would reasonably lead to
delisting or suspension of the Common Stock by The Nasdaq SmallCap Market or the
Nasdaq National Market, as the case may be, in the foreseeable future.
f. SEC Documents; Financial Statements. Since December 31, 1995,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof, and the draft, dated March
25, 1998, of the Company's Form 10-K for the year ended December 31, 1997 which
has been provided to each of the Buyers (the "DRAFT 1997 10-K") and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Buyers or their respective
representatives true and complete copies of the SEC Documents. As of
12
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No information
provided by the Company in the representations or warranties set forth in this
Section 3 or the schedules thereto and which is not included in the SEC
Documents, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
Neither the Company nor any of its Subsidiaries or any of their officers,
directors, employees or agents have provided the Buyers with any material,
nonpublic information.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g) and in the SEC Documents filed, except in the case of the Draft 1997 10-K,
at least 10 days prior to the date hereof, since December 31, 1996 there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, liabilities, results of
operations or prospects of the Company or its Subsidiaries. The Company has not
taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or any of its
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
except as expressly set forth in Schedule 3(h).
13
i. Acknowledgment Regarding Buyers' Purchase of Preferred Shares.
The Company acknowledges and agrees that each of the Buyers is acting solely in
the capacity of arm's length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
each Buyer is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the
Certificate of Designations and the transactions contemplated thereby and any
advice given by any of the Buyers or any of their respective representatives or
agents in connection with the Transaction Documents and the Certificate of
Designations and the transactions contemplated thereby is merely incidental to
such Buyer's purchase of the Securities. The Company further represents to each
Buyer that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to the issuance and sale by the Company of its Common Stock and which
has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of The Nasdaq Stock Market, Inc., nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
14
1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
n. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted, except to the extent that the failure to possess
such rights would not have a Material Adverse Effect. Except as set forth on
Schedule 3(n), none of the Company's trademarks, trade names, service marks,
service ▇▇▇▇ registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademarks, trade name rights, patents,
patent rights, copyrights, inventions, licenses, service names, service marks,
service ▇▇▇▇ registrations, trade secret or other similar rights of others, and,
except as set forth on Schedule 3(n), there is no claim, action or proceeding
being made or brought against, or to the Company's knowledge, being threatened
against, the Company or its Subsidiaries regarding trademarks, trade name
rights, patents, patent rights, inventions, copyrights, licenses, service names,
service marks, service ▇▇▇▇ registrations, trade secrets or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
o. Environmental Laws. The Company and its Subsidiaries (i) are
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except to the extent that
the failure to comply with Environmental Laws or the terms of such permits,
licenses or approvals or the failure to obtain such permits, licenses or
approvals would not have a Material Adverse Effect.
p. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to
15
be made of such property by the Company or any of its Subsidiaries. Any real
property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
q. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except to the extent that the failure to possess such certificates,
authorizations or permits would not have a Material Adverse Effect, and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit.
s. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
16
u. Tax Status. Except as set forth on Schedule 3(u), the Company
and each of its Subsidiaries has made or filed all federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
v. Certain Transactions. Except as set forth on Schedule 3(v) and
in the SEC Documents filed, except in the case of the Draft 1997 10-K, at least
ten days prior to the date hereof and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed on Schedule 3(c), none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
w. Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Preferred Shares
will increase in certain circumstances. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
x. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
4. COVENANTS.
17
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. 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
each Buyer promptly after such filing. The Company shall, on or before each of
the Closing Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at each of the Closings pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or "Blue
Sky" laws of the states of the United States following each of the Closing
Dates.
c. Reporting Status. Until the earlier of (i) the date which is
one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Investors shall have sold all the
Conversion Shares and (B) none of the Preferred Shares is outstanding (the
"REGISTRATION PERIOD"), the Company shall file all reports required to be filed
with the SEC pursuant to 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 otherwise permit such
termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares for general working capital purposes.
e. Financial Information. The Company agrees to use its
reasonable commercial efforts to send the following to each Investor (as that
term is defined in the Registration Rights Agreement) during the Registration
Period: (i) within five days after the filing thereof with the SEC, a copy of
its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K and any registration statements or amendments (other than on
Form S-8) filed pursuant to the 1933 Act; (ii) on the same day as the release
thereof, facsimile copies of all press releases issued by the Company or any of
its Subsidiaries and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the number
18
of shares of Common Stock needed to provide for the issuance of the Conversion
Shares (without regard to any limitations on conversions).
g. Additional Issuances; Right of First Refusal. Subject to the
exceptions described below, the Company agrees that during the period beginning
on the date hereof and ending on the date that the Registration Statement is
declared effective by the SEC (the "LOCK-UP PERIOD"), neither the Company nor
its Subsidiaries will, without the prior written consent of the holders of the
Preferred Shares representing at least two-thirds (2/3) of the Preferred Shares
then outstanding, negotiate or contract with any party for any equity financing
(including any debt financing with an equity component) or issue any equity
securities of the Company or any Subsidiary or securities convertible or
exchangeable into or for equity securities of the Company or any Subsidiary
(including debt securities with an equity component) in any form. In addition,
subject to the exceptions described below, the Company and its Subsidiaries
shall not negotiate or contract with any party for any equity financing
(including any debt financing with an equity component) or issue any equity
securities of the Company or any Subsidiary or securities convertible or
exchangeable into or for equity securities of the Company or any Subsidiary
(including debt securities with an equity component) in any form ("FUTURE
OFFERINGS") during the period beginning on the last day of the Lock-Up Period
and ending on the date which is 270 days after the Initial Closing Date (or, if
there has been a Put Closing, then 270 days after the Put Closing Date), unless
it shall have first delivered to each Buyer or a designee appointed by such
Buyer written notice (the "FUTURE OFFERING NOTICE") describing the proposed
Future Offering, including the terms and conditions thereof, and providing each
Buyer an option to purchase up to its Aggregate Percentage (as defined below),
as of the date of delivery of the Future Offering Notice, in the Future Offering
(the limitations referred to in this and the preceding sentence are collectively
referred to as the "CAPITAL RAISING LIMITATION"). For purposes of this Section
4(g), "AGGREGATE PERCENTAGE" at any time with respect to any Buyer shall mean
the percentage obtained by dividing (i) the aggregate number of Preferred Shares
purchased by such Buyer at the Closings by (ii) the aggregate number of
Preferred Shares purchased by all Buyers at the Closings. A Buyer can exercise
its option to participate in a Future Offering by delivering written notice
thereof to participate to the Company within ten (10) business days of receipt
of a Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers fail to
elect to purchase up to each such Buyer's Aggregate Percentage then each Buyer
which has indicated that it is willing to purchase a number of securities in
excess of its Aggregate Percentage shall be entitled to purchase its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the periods described in this Section 4(g), the
Company shall have 45 days thereafter to sell the
19
securities of the Future Offering respecting which such Buyer's rights were not
exercised, upon terms and conditions, no more favorable to the purchasers
thereof than specified in the Future Offering Notice. In the event the Company
has not sold such securities of the Future Offering within such 45 day period,
the Company shall not thereafter issue or sell such securities without first
offering such securities to the Buyers in the manner provided in this Section
4(g). The Capital Raising Limitation shall not apply to (i) a loan from a
commercial bank, (ii) any transaction involving the Company's issuances of
securities (A) as consideration in a merger or consolidation, (B) in connection
with any strategic partnership or joint venture (the primary purpose of which is
not to raise equity capital), or (C) as consideration for the acquisition of a
business, product or license or other assets by the Company, (iii) the issuance
of Common Stock in a firm commitment, underwritten public offering with net
proceeds of at least $10,000,000, (iv) the issuance of securities upon exercise
or conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, or (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan, stock purchase plan or other plan or written
compensation contract for the benefit of the Company's employees or directors.
The Buyers shall not be required to participate or exercise their right of first
refusal with respect to a particular Future Offering in order to exercise their
right of first refusal with respect to later Future Offerings.
h. Listing. Promptly following the Initial Closing Date, but in
no event later than 20 days after the Initial Closing Date, the Company shall
secure the listing of all of the Registrable Securities (as defined in the
Registration Rights Agreement) upon each national securities exchange and
automated quotation system (including The Nasdaq SmallCap Market and the Nasdaq
National Market), if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents and the Certificate of Designations. The Company shall maintain the
Common Stock's authorization for listing on The Nasdaq SmallCap Market, the
Nasdaq National Market, or The New York Stock Exchange, Inc. ("NYSE"). Neither
the Company nor any of its Subsidiaries shall take any action which may result
in the delisting or suspension of the Common Stock on The Nasdaq SmallCap
Market, the Nasdaq National Market or NYSE (other than to switch listings from
The Nasdaq SmallCap Market to the Nasdaq National Market or NYSE or from the
Nasdaq National Market to NYSE). The Company shall promptly provide to each
Buyer copies of any notices it receives from The Nasdaq SmallCap Market, the
Nasdaq National Market or NYSE regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(h).
20
i. Expenses. Subject to Section 9(l) below, at the Initial
Closing, the Company shall pay a non accountable expense allowance of $50,000.
j. Intentionally omitted.
k. Filing of Form 8-K. On or before the fifth (5th) business day
following each of the Closing Dates, the Company shall file a Form 8-K with the
SEC describing the terms of the transaction contemplated by the Transaction
Documents and consummated at such Closing, in each case in the form required by
the ▇▇▇▇ ▇▇▇.
l. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which shall
be not later than 120 days after the Initial Closing Date (the "Stockholder
Meeting Deadline"), a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such stockholder meeting for approval of the Company's
issuance of all of the Securities as described in this Agreement, and the
Company shall use its best efforts to solicit its stockholders' approval of such
issuance of the Securities and cause the Board of Directors of the Company to
recommend to the stockholders that they approve such proposal.
m. Underwriting Lock-Up Agreement. At any time during the period
beginning on and including the Initial Closing Date and ending on the date which
is two years after the Initial Closing Date, while at least 150 Preferred Shares
remain outstanding the Company may require that all, but not less than all, of
the holders of the Preferred Shares enter into a "lock-up" agreement with the
underwriters of a public offering of the Common Stock pursuant to which the
holders would agree not to sell any Conversion Shares issued with respect to
Preferred Shares converted on Conversion Dates (as defined in the Certificate of
Designations) during the period beginning on the date designated by the Company
(which may be specified as the date that the registration statement for such
public offering is declared effective by the SEC), which date shall be not less
than 10 business days after the holders' receipt of such notice, and ending on
the date which is 90 days after the beginning of the lock-up period as
designated by the Company (the "UNDERWRITING LOCK-UP PERIOD"). The Company shall
exercise this right by delivering written notice (the "LOCK-UP REQUEST NOTICE")
of such request to all of the holders of the Preferred Shares then outstanding
at least 10 business days prior to the date on which the Underwriting Lock-Up
Period will begin, but in no event prior to the filing of the registration
statement for such proposed offering. The Lock-up Request Notice shall state (i)
that the underwriters of such offering have requested that the holders of the
Preferred Shares enter into a "lock-up" agreement, (ii) the date on which the
Underwriting Lock-Up Period will begin, and (iii) the name of the managing
underwriters of the proposed offering. Notwithstanding the foregoing, the
Company shall not be entitled to require the holders to enter into a "lock-up"
agreement unless (A) the Underwriting
21
Lock-Up Period is not more than 90 days, (B) the Underwriting Lock-Up Period
shall terminate immediately upon (I) the termination or abandonment or
indefinite delay of the underwritten offering, (II) the announcement of a
pending or consummated Major Transaction or (III) the occurrence of a Triggering
Event, (C) all officers and directors of the Company enter into substantially
similar "lock-up" agreements, (D) such underwritten public offering is completed
at a price per share to the public of not less than $10 per share (subject to
adjustment as a result of any stock split, stock dividend, recapitalization,
reverse stock split, consolidation, exchange or similar event) and generates
aggregate gross proceeds to the Company of at least $15,000,000, (E) there has
been no other Underwriting Lock-Up Period, (F) during the period beginning on
and including the date which is 20 business days prior to the filing of the
registration statement for the proposed offering and ending on and including the
first day of the Underwriting Lock-Up Period, the Registration Statement has
been effective and there has been no stop order or other regulatory prohibition
on trading of the Common Stock, (G) the offering shall be underwritten by one or
more of the underwriters included on the Schedule of Underwriters attached to
this Agreement and (H) on the date of the Company's delivery of the Lock-Up
Request Notice there are at least 150 Preferred Shares outstanding. In the event
the Company requires an Underwriting Lock-Up Period, the Mandatory Conversion
Date (as defined in the Certificate of Designations) shall be extended one and
one-half (1-1/2) days for each day in the Underwriting Lock-Up Period as
provided in Section 2(g) of the Certificate of Designations.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and stop transfer instructions to give effect to Section 2(f) hereof (in the
case of the Conversion Shares, prior to registration of the Conversion Shares
under the ▇▇▇▇ ▇▇▇) will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 5 shall affect in any way
each Buyer's obligations and agreements set forth in Section 2(g) to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel, in
generally acceptable form, that registration of a resale by such Buyer of any of
such Securities is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue
22
one or more certificates in such name and in such denominations as specified by
such Buyer and without any restrictive legends. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company hereunder
to issue and sell the Initial Preferred Shares to each Buyer at the Initial
Closing is subject to the satisfaction, at or before the Initial Closing Date,
of each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
(ii) The Certificate of Designations shall have been filed with
the Secretary of State of the State of Delaware.
(iii) Such Buyer shall have delivered to the Company the Purchase
Price for the Preferred Shares being purchased by such Buyer at the
Initial Closing by wire transfer of immediately available funds pursuant
to the wire instructions provided by the Company.
(iv) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Initial Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Initial
Closing Date.
b. Additional Closing Dates. The obligation of the Company
hereunder to issue and sell the Additional Preferred Shares to each Buyer at
each of the Additional Closings is subject to the satisfaction, at or before the
respective Additional Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
23
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have complied with the requirements of
Section 1(c).
(ii) Such Buyer shall have delivered to the Company the Purchase
Price for the Additional Preferred Shares being purchased by such Buyer
at the Additional Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and
as of the Additional Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date),
and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with
by such Buyer at or prior to the Additional Closing Date.
c. Put Closing Date. The obligation of the Company hereunder to
issue and sell the Put Preferred Shares to each Buyer at the Put Closing is
subject to the satisfaction, at or before the Put Closing Date, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the Purchase
Price for the Put Preferred Shares being purchased by such Buyer at the
Put Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and
as of the Put Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Transaction Documents to be performed, satisfied or complied with by
such Buyer at or prior to the Put Closing Date.
24
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer hereunder
to purchase the Initial Preferred Shares at the Initial Closing is subject to
the satisfaction, at or before the Initial Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Certificate of Designations, shall have been filed with
the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such
Buyer.
(iii) The Common Stock shall be authorized for quotation on The
Nasdaq SmallCap Market or the Nasdaq National Market or listing on NYSE,
trading in the Common Stock issuable upon conversion of the Initial
Preferred Shares to be traded on The Nasdaq SmallCap Market, the Nasdaq
National Market or NYSE shall not have been suspended by the SEC, The
Nasdaq Stock Market, Inc. or NYSE.
(iv) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Initial Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents or Certificate of
Designations to be performed, satisfied or complied with by the Company
at or prior to the Initial Closing Date. Such Buyer shall have received
a certificate, executed by the Chief Executive Officer or Chief
Financial Officer of the Company, dated as of the Initial Closing Date,
to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer including, without limitation, an
update as of the Initial Closing Date regarding the representation
contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
& Freidenrich dated as of the Initial Closing Date in substantially the
form of Exhibit C attached hereto.
(vi) The Company shall have executed and delivered to such Buyer
the Stock Certificates (in such denominations as such Buyer shall
request) for the Initial Preferred Shares being purchased by such Buyer
at the Initial Closing.
25
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "RESOLUTIONS").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, at least
923,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10
days of the Initial Closing.
(xi) The Company shall have delivered to such Buyer a secretary's
certificate certifying as to (A) the Resolutions, (B) certified copies
of its Certificate of Incorporation and (C) By-laws, each as in effect
at the Initial Closing.
(xii) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Initial Closing
Date.
(xiii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by the Transaction
Documents as such Buyer or its counsel may reasonably request.
b. Additional Closing Dates. The obligation of each Buyer
hereunder to purchase the Additional Preferred Shares at each of the Additional
Closings is subject to the satisfaction, at or before the Additional Closing
Dates, of each of the following conditions, provided that these conditions are
for each Buyer's sole benefit and may be waived by such Buyer at any time in its
sole discretion:
(i) The Certificate of Designations shall be in full force and
effect and shall not have been amended since the Initial Closing Date,
and a copy thereof certified by the Secretary of State of the State of
Delaware shall have been delivered to such Buyer.
26
(ii) The Common Stock shall be authorized for quotation on The
Nasdaq SmallCap Market or the Nasdaq National Market or listing on NYSE,
trading in the Common Stock issuable upon conversion of the Additional
Preferred Shares to be traded on The Nasdaq SmallCap Market, the Nasdaq
National Market or NYSE shall not have been suspended by the SEC, The
Nasdaq Stock Market, Inc. or NYSE and all of the Conversion Shares
issuable upon conversion of the Additional Preferred Shares to be sold
at the Additional Closing shall be listed upon The Nasdaq SmallCap
Market, the Nasdaq National Market or NYSE.
(iii) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the respective
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents or the
Certificate of Designations to be performed, satisfied or complied with
by the Company at or prior to the respective Additional Closing Date.
Such Buyer shall have received a certificate, executed by the Chief
Executive Officer or Chief Financial Officer of the Company, dated as of
such Additional Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including,
without limitation, an update as of such Additional Closing Date
regarding the representation contained in Section 3(c) above.
(iv) Such Buyer shall have received the opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
& Freidenrich dated as of such Additional Closing Date, in substantially
the form of Exhibit C attached hereto.
(v) The Company shall have executed and delivered to such Buyer
the Stock Certificates (in such denominations as such Buyer shall
request) for the Additional Preferred Shares being purchased by such
Buyer at the Additional Closing.
(vi) The Board of Directors of the Company shall have adopted,
and shall not have amended, the Resolutions.
(vii) As of such Additional Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, a number of
shares of Common Stock equal to at least 150% of the number of shares of
Common Stock which would be issuable upon conversion in full of the then
outstanding Preferred Shares, including for such purposes the Additional
Preferred Shares to be issued at such Additional Closing.
27
(viii) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(ix) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in the state of such corporation's state of incorporation
issued by the Secretary of State of such state of incorporation as of a
date within 10 days of such Additional Closing.
(x) The Company shall have delivered to such Buyer a secretary's
certificate certifying as to (A) the Resolutions, (B) certified copies
of its Certificate of Incorporation and (C) By-laws, each as in effect
at the Additional Closing.
(xi) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Additional
Closing Date.
(xii) During the period beginning on the Additional Share Notice
Date and ending on and including the Additional Closing Date, the
Company shall have delivered Conversion Shares upon conversion of the
Preferred Shares to the Buyers on a timely basis as set forth in Section
2(f)(ii) of the Certificate of Designations.
(xiii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
c. Put Closing Date. The obligation of each Buyer hereunder to
purchase the Put Preferred Shares at the Put Closing is subject to the
satisfaction, at or before the Put Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have complied with the requirements of
Section 1(d) and all of the Put Notice Conditions set forth in Section
1(e) shall have been satisfied.
(ii) The Certificate of Designations, shall be in full force and
effect and shall not have been amended since the Put Closing Date, and a
copy thereof certified by the Secretary of State of the State of
Delaware shall have been delivered to such Buyer.
28
(iii) The Common Stock shall be authorized for quotation on The
Nasdaq SmallCap Market or the Nasdaq National Market or listing on NYSE,
trading in the Common Stock issuable upon conversion of the Put
Preferred Shares to be traded on The Nasdaq SmallCap Market, the Nasdaq
National Market or NYSE shall not have been suspended by the SEC, The
Nasdaq SmallCap Market, The Nasdaq Stock Market, Inc. or NYSE and all of
the Conversion Shares issuable upon conversion of the Put Preferred
Shares to be sold at the Put Closing shall be listed upon The Nasdaq
SmallCap Market, the Nasdaq National Market or NYSE.
(iv) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Put Closing Date
as though made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents or the Certificate of Designations
to be performed, satisfied or complied with by the Company at or prior
to the Put Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer of
the Company, dated as of the Put Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such
Buyer including, without limitation, an update as of the Put Closing
Date regarding the representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
& Freidenrich dated as of the Put Closing Date, in substantially the
form of Exhibit C attached hereto.
(vi) The Company shall have executed and delivered to such Buyer
the Stock Certificates (in such denominations as such Buyer shall
request) for the Put Preferred Shares being purchased by such Buyer at
the Put Closing.
(vii) The Board of Directors of the Company shall have adopted,
and shall not have amended, the Resolutions.
(viii) As of the Put Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, a number of
shares of Common Stock equal to at least 150% of the number of shares of
Common Stock which would be issuable upon conversion in full of the then
outstanding Preferred Shares, including for such purposes the Put
Preferred Shares to be issued at such Put Closing.
29
(ix) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in the state of such corporation's state of incorporation
issued by the Secretary of State of such state of incorporation as of a
date within 10 days of the Put Closing Date.
(xi) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Put Closing
Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B)
certified copies of its Certificate of Incorporation and (C) By-laws,
each as in effect at the Put Closing.
(xiii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the forgoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or the Certificate of Designations or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Company contained in
the Transaction Documents or the Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the
30
execution, delivery, performance, breach or enforcement of the Transaction
Documents or the Certificate of Designations by the Company, (d) any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities or (e) the status of such Buyer or
holder of the Securities as an investor in the Company to the extent such status
arises from actions or inaction by the Company in violation of law. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting in the
City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. 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 in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
31
c. Headings. The headings 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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares and
the Conversion Shares held by holders or former holders of the Preferred Shares
(determined on an as converted to Common Stock basis at the time of such
determination) then outstanding, and no provision hereof may be waived other
than by an instrument in writing signed by the party against whom enforcement is
sought. No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Preferred Shares then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents or
the Certificate of Designations unless the same consideration also is offered to
all of the parties to the Transaction Documents or holders of the Preferred
Shares, as the case may be.
32
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically generated and kept on
file by the sending party); or (iii) upon receipt, when delivered by a delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
YieldUP International Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: President
With a copy to:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
33
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of two-thirds (2/3) of the Preferred Shares then
outstanding, provided that the assignee shall agree in writing to be bound by
the terms hereof. A Buyer may assign some or all of its rights hereunder without
the consent of the Company; provided, however, that any such assignment shall
not release such Buyer from its obligations hereunder unless such obligations
are assumed by such assignee and the Company has consented to such assignment
and assumption. Notwithstanding anything to the contrary contained in the
Transaction Documents, each Buyer shall be entitled to pledge the Securities in
connection with a bona fide margin account.
h. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive each
of the Closings. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each 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 any 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 Company shall use its
best efforts to consult with the Buyers in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
34
l. Termination. In the event that the Initial Closing shall not
have occurred with respect to a Buyer on or before three (3) business days from
the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l) by the Buyers, the Company shall remain obligated to reimburse
the non-breaching Buyers for reasonable expenses actually incurred up to the
amount described in Section 4(i) above.
m. Placement Agent. The Company represents and warrants that it
has not engaged a placement agent in connection with the sale of the Preferred
Shares. Each Buyer, severally and not jointly, represents and warrants that to
its knowledge no fee is payable by the Company to any placement agent in
connection with the sale of the Preferred Shares. The Company shall be
responsible for the payment of any placement agent's fees or brokers commissions
relating to or arising out of the transactions contemplated hereby and which
relate to any obligation undertaken by the Company. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, attorneys' fees and out of pocket expenses) arising in
connection with any such claim.
n. No Strict 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.
o. Remedies. Each Buyer and each holder of Preferred Shares or
Conversion Shares shall have all rights and remedies set forth in the
Transaction Documents and the Certificate of Designations and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Certificate of
Designations or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common
35
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
36
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
YIELDUP INTERNATIONAL CORPORATION THEMIS PARTNERS L.P.
By: Promethean Investment Group
L.L.C.
Its: General Partner
By:______________________________
Name:
Its: By:________________________________________
Name: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
Its: President
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By:________________________________________
Name: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
Its: President
▇▇▇▇▇▇▇▇, L.P.
By: ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., L.P.
Its: General Partner
By:________________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Chief Operating Officer
RAPHAEL, L.P.
37
By:______________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Chief Operating Officer
38
[signature page to Securities Purchase Agreement - p. 2 of 2]
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:_______________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Managing Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., L.P.
Its: Investment Advisor
By:__________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., L.P.
Its: General Partner
By:__________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Chief Operating Officer
39
SCHEDULE OF BUYERS
NUMBER OF
INITIAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
---------------------- ----------------------------------- ---------- ------------------------------------
Themis Partners L.P. _Promethean Investment Group, L.L.C. 125 Promethean Investment Group, L.L.C.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ 10019 ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇. Attn: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: 312-902-1061
Heracles Fund Bank of Bermuda (Cayman) Limited 175 Promethean Investment Group, L.L.C.
▇.▇. ▇▇▇ ▇▇▇ 40 West 57th Street, Suite 1520
3rd Floor British American ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Center Attn: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
▇▇. ▇▇▇'▇ Drive ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Georgetown, Grand Cayman Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Cayman Island, BWI
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
Esq.
Facsimile: 312-902-1061
▇▇▇▇▇▇▇▇, L.P. _Angelo, ▇▇▇▇▇▇ & Co., L.P. 200 ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - 26th Floor ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇ Attn: ▇▇▇▇ ▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Raphael, L.P. _Angelo, ▇▇▇▇▇▇ & Co., ▇.▇. ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - 26th Floor ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇ Attn: ▇▇▇▇ ▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Ramius Fund, Ltd. _Angelo, ▇▇▇▇▇▇ & Co., ▇.▇. ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - 26th Floor ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇ Attn: ▇▇▇▇ ▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
GAM Arbitrage _Angelo, ▇▇▇▇▇▇ & Co., L.P. 10 ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., L.P.
Investments, Inc. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - 26th Floor ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇ Attn: ▇▇▇▇ ▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
AG Super Fund _Angelo, ▇▇▇▇▇▇ & Co., L.P. 10 ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., L.P.
International ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - 26th Floor 245 Park Avenue - 26th Floor
Partners, L.P. New York, New York 10167 ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇ Attn: ▇▇▇▇ ▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
40
NUMBER OF
INITIAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
---------------------- ----------------------------------- ---------- ------------------------------------
Themis Partners L.P. _Promethean Investment Group, L.L.C. 125 Promethean Investment Group, L.L.C.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ 10019 ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇. Attn: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: 312-902-1061
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
41
SCHEDULE OF UNDERWRITERS
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated
Deutsche ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Inc.
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLC
▇.▇. ▇▇▇▇▇▇▇ & Sons, Inc.
▇▇▇▇▇▇▇ & Company, Inc.
PaineWebber Incorporated
Soundview Financial Group, Inc.
UBS Securities LLC
BankAmerica ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Bear, ▇▇▇▇▇▇▇ & Co. Inc.
BT ▇▇▇▇ ▇▇▇▇▇ Incorporated
▇▇▇▇▇ & Company
▇.▇. ▇▇▇▇▇▇ Securities Inc.
NationsBanc ▇▇▇▇▇▇▇▇▇▇ Securities, Inc.
CIBC ▇▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
▇▇▇▇▇▇▇▇▇ Lufkin ▇▇▇▇▇▇▇▇
Prudential Securities
Piper ▇▇▇▇▇▇
▇▇▇▇▇▇ Brothers
Solomon ▇▇▇▇▇ ▇▇▇▇▇▇
or any successor to any of the above
42
SCHEDULE 3(a)
SUBSIDIARIES
43
SCHEDULE 3(c)
CAPITALIZATION
44
SCHEDULE 3(e)
CONFLICTS
45
SCHEDULE 3(g)
MATERIAL CHANGES
46
SCHEDULE 3(h)
LITIGATION
47
SCHEDULE 3(n)
INTELLECTUAL PROPERTY
48
SCHEDULE 3(p)
LIENS
49
SCHEDULE 3(u)
TAX STATUS
50
SCHEDULE 3(v)
CERTAIN TRANSACTIONS
51
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF THE PREFERRED SHARES
Attached hereto.
52
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
Attached hereto.
53
EXHIBIT C
FORM OF COMPANY COUNSEL OPINION
Attached hereto.
54
EXHIBIT D
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
Attached hereto.
