EXHIBIT 10.18
THE SCORE BOARD, INC.
SECURITIES PURCHASE AGREEMENT
TABLE OF CONTENTS
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SECTION 1. SALE AND PURCHASE OF COMMON STOCK AND WARRANTS;
CLOSING.......................................................1
1.1 Sale of Common Stock and Warrants.............................1
1.2 Purchase Price................................................2
1.3 Closing.......................................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................3
2.1 Organization and Good Standing................................3
2.2 Authorization.................................................4
2.3 No Conflict with Law or Documents.............................4
2.4 Capital Stock of Company......................................4
2.5 The Common Shares, Warrants and Warrant Shares................5
2.6 Consents and Approvals........................................5
2.7 Private Offering..............................................5
2.8 Certificate of Incorporation and By-Laws......................6
2.9 Subsidiaries..................................................6
2.10 SEC Filings...................................................6
2.11 Litigation....................................................6
2.12 Compliance with Laws..........................................7
2.13 Financial Statements..........................................7
2.14 Assets........................................................7
2.15 Dividends and Other Distributions.............................8
2.16 Tax Matters...................................................8
2.17 Agreements Affecting the Company's Capital Stock..............9
2.18 Patents, Trademarks, Proprietary Rights.......................9
2.19 Insurance....................................................11
2.20 Employee Benefit Plans.......................................11
2.21 Contracts and Agreements.....................................14
2.22 Absence of Certain Developments..............................14
2.23 Contracts with Insiders......................................15
2.24 Environmental Matters........................................15
2.25 Certain Agreements...........................................17
2.26 Accounts Receivable..........................................17
2.27 Inventory....................................................17
2.28 Books and Records............................................18
2.29 Certain Payments.............................................18
2.30 U.S. Real Property Holding Company...........................18
2.31 Minute Books.................................................18
2.32 Labor Agreements and Actions.................................19
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2.33 Entire Business; Etc.........................................19
2.34 Conditions Affecting Company and Subsidiaries................19
2.35 Projections..................................................19
2.36 Information..................................................20
SECTION 3. PURCHASERS' REPRESENTATIONS AND WARRANTIES...................20
3.1 Pre-Existing Entity..........................................20
3.2 Principal Place of Business..................................20
3.3 Purchase Without View to Distribute..........................20
3.4 Restrictions on Transfer.....................................21
3.5 Access to Information........................................21
3.6 Additional Representations of the Purchaser..................21
SECTION 4. CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS..............22
4.1 Representations and Warranties...............................22
4.2 Performance..................................................22
4.3 Approvals and Consents.......................................22
4.4 Delivery of Common Stock Certificates and Warrants...........22
4.5 Opinion of Counsel to the Company............................22
4.6 Proceedings; Certified Copies................................22
4.7 Investigation................................................23
4.8 No Proceeding or Litigation..................................23
4.9 No Material Adverse Change...................................23
4.10 Environmental Obligations....................................23
4.11 NNM..........................................................23
4.12 Executive Officer Agreements.................................23
4.13 Cancellation of Options......................................23
4.14 Waiver by ▇▇▇▇▇▇▇............................................23
4.15 Waiver by Holders of Registration Rights.....................24
4.16 Waiver by Congress Financial Corporation.....................24
4.17 Lock-up Agreements...........................................24
4.18 Other Documents..............................................24
SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS............24
5.1 Representations and Warranties...............................24
5.2 Performance..................................................25
5.3 No Proceeding or Litigation..................................25
SECTION 6. COVENANTS OF THE COMPANY PRIOR TO CLOSING....................25
6.1 Payment of Expenses..........................................25
6.2 Operation of Business in Ordinary Course.....................25
6.3 Conditions Precedent.........................................25
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SECTION 7. COVENANTS OF THE COMPANY AFTER CLOSING.......................25
7.1 Rule 144.....................................................25
7.2 Financial Statements; SEC Reports............................26
7.3 Maintenance of Existence; Insurance..........................27
7.4 Compliance with Laws.........................................27
7.5 Board Representative.........................................27
7.6 Right to Acquire Additional Voting Securities................28
7.7 Press Releases...............................................30
7.8 NNM Listing..................................................30
7.12 Waivers, Consents, Etc.......................................31
SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON TRANSFERABILITY OF
COMMON SHARES, WARRANTS AND WARRANT SHARES...................31
8.1 Compliance with 1933 Act.....................................31
8.2 Restrictive Legend...........................................31
8.3 Restrictions on Transferability..............................31
8.4 Termination of Restrictions on Transferability...............32
SECTION 9. DISPUTE RESOLUTION...........................................32
9.1 Good-Faith Negotiations......................................32
SECTION 10.SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.........
SECTION 11.MISCELLANEOUS................................................34
11.1 Owner of Common Shares, Warrants and Warrant Shares..........34
11.2 Successors...................................................34
11.3 Broker or Finder.............................................34
11.4 Governing Law................................................35
11.5 Notice.......................................................35
11.6 Full Agreement...............................................35
11.7 Headings.....................................................35
11.8 No Waiver; Cumulative Remedies...............................35
11.9 Amendments, Waivers and Consents.............................35
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SECURITIES PURCHASE AGREEMENT (the "Agreement") made as of this 5th
day of November, 1996 by and among THE SCORE BOARD, INC. (the "Company") and
each of the persons listed on Schedule 1 hereto (each, a "Purchaser" and
collectively, the "Purchasers").
BACKGROUND:
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The Company is issuing an aggregate of 1,600,000 shares of its
Common Stock, $.01 par value per share ("Common Stock") and Warrants (as defined
in Section 1.1 hereof) to purchase up to 2,720,000 shares, subject to adjustment
as provided in the Warrants, of its Common Stock.
Each Purchaser, desiring to purchase Common Stock and Warrants,
hereby subscribes for the number of shares of Common Stock set forth on Schedule
1 hereto and Warrants to purchase the number of shares, subject to adjustment as
provided therein, of Common Stock as set forth on Schedule 1 hereto.
Intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION 1. SALE AND PURCHASE OF COMMON STOCK AND WARRANTS; CLOSING
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1.1 Sale of Common Stock and Warrants.
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(a) The Company shall authorize the issuance of an aggregate of
1,600,000 shares of Common Stock (the "Common Shares").
(b) The Company shall authorize the issuance of warrants having
the terms and provisions provided herein and in the form of warrant attached
hereto as Exhibit A to purchase an aggregate of 1,925,000 shares of Common
Stock, subject to adjustment as provided in such warrants, at a purchase price
of $3.07 per share (individually, a "Series A Warrant" and collectively, the
"Series A Warrants").
(c) The Company shall authorize the issuance of warrants having
the terms and provisions provided herein and in the form of warrant attached
hereto as Exhibit B to purchase an aggregate of 233,333 shares of Common Stock,
subject to adjustment as provided in such warrants, at a purchase price of $3.07
per share (individually, a "Series B Warrant" and collectively, the "Series B
Warrants").
(d) The Company shall authorize the issuance of warrants having
the terms and provisions provided herein and in the form of warrant attached
hereto as Exhibit C to purchase an aggregate of 233,333 shares of Common Stock,
subject to adjustment as provided in such warrants, at a purchase price of $3.07
per share (individually, a "Series C Warrant" and collectively, the "Series C
Warrants").
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(e) The Company shall authorize the issuance of warrants having
the terms and provisions provided herein and in the form of warrant attached
hereto as Exhibit D to purchase an aggregate of 128,334 shares of Common Stock,
subject to adjustment as provided in such warrant, at a purchase price of $3.07
per share (individually, a "Series D Warrant" and collectively, the "Series D
Warrants").
(f) The Company shall authorize the issuance of warrants having
the terms and provisions provided herein and in the form of warrant attached
hereto as Exhibit E to purchase an aggregate of 200,000 shares of Common Stock,
subject to adjustment as provided in such warrant, at a purchase price of $3.07
per share (individually, a "Series E Warrant" and collectively, the "Series E
Warrants").
The Series A Warrants, the Series B Warrants, the Series C Warrants,
the Series D Warrants and the Series E Warrants are hereinafter referred to as
the Warrants. The shares of Common Stock purchasable upon exercise of the
Warrants are hereinafter referred to as the "Warrant Shares". The Common Shares
and Warrant Shares are hereinafter referred to as the "Shares".
(g) Subject to the terms and conditions herein set forth, on the
Closing Date (as defined in Section 1.3), the Company agrees to sell, issue and
deliver to each Purchaser, for the purchase price provided for in Section 1.2,
such number of Common Shares set forth on Schedule 1, and Warrants of such
series and to purchase the number of shares of Common Stock, subject to
adjustment as provided in the Warrants, set forth on Schedule 1, and each
Purchaser severally agrees to purchase such number of Common Shares and such
Warrants at such Purchase Price.
(h) The stock certificates representing the Common Shares to be
delivered to each Purchaser on the Closing Date shall be duly executed by the
Company, registered in such Purchaser's name (or the name of its nominee), free
of all restrictive and other legends (other than the legend specified in Section
8.2 or other legends reasonably acceptable to the Purchasers) and otherwise in
form for good delivery. The certificates evidencing the Series A Warrants,
Series B Warrants, Series C Warrants, Series D Warrants and Series E Warrants
shall be in substantially the form of Exhibits A, B, C, D and E, as the case may
be, with blanks appropriately completed, for the number of shares of Common
Stock applicable to such Purchaser, duly executed by the Company, registered in
such Purchaser's name (or the name of such nominee), free of all restrictive and
other legends (other than the legend specified in Section 8.2 or other legends
reasonably acceptable to the Purchasers) and otherwise in form for good
delivery. The Company will bear all of its own expenses in connection with the
preparation and issuance to the Purchasers of the certificates representing the
Common Shares and the Warrants.
1.2 Purchase Price.
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(a) The aggregate purchase price of the Common Shares and
Warrants to be issued and sold to the Purchasers on the Closing Date shall
aggregate $4,000,000 (the "Purchase Price").
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(b) The portion of the Purchase Price for the Common Shares
and Warrants payable by each Purchaser shall be as set forth on Schedule 1 and
shall be paid to the Company by wire transfer of immediately available funds to
an account designated by the Company. Each Purchaser shall only be responsible
for such portion of the Purchase Price attributable to the Common Stock and
Warrants being purchased by such Purchaser.
(c) The Company and the Purchasers agree to allocate the
Purchase Price between the Common Shares and Warrants as follows:
(i) to the Common Shares, an amount equal to
$3,972,800, and
(ii) to the Warrants, an amount equal to $27,200 or
$.01 per each Warrant Share issuable under such Warrants.
(d) Each Purchaser and the Company shall prepare and file
their respective Federal income tax returns in a manner which is consistent with
the allocation of the Purchase Price to the Common Shares and the Warrants as
provided in clause (c) above and consistent with the treatment on the Federal
income tax return of each other party of matters related to such allocation.
1.3 Closing. The closing of the issuance and sale of the Common
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Shares and Warrants to the Purchasers hereunder shall be held at the offices of
Klehr, Harrison, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇ as soon as practicable following the satisfaction or waiver of all
the closing conditions set forth in Section 4, but no later than November
10, 1996. As used herein "Closing" shall mean the closing of the issuance and
sale of the Common Shares and Warrants to the Purchasers hereunder and the
"Closing Date" shall mean the date on which such Closing takes place.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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Other than as set forth on the Disclosure Letter (as hereinafter defined)
attached hereto as Exhibit B, the Company represents and warrants to each
Purchaser as follows (which representations shall be true and correct as of the
date hereof and on the Closing Date as if made on each of such dates):
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2.1 Organization and Good Standing. Each of the Company and each
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of its Subsidiaries (as defined herein) is a corporation duly organized, validly
existing and in good standing under the laws of its incorporation and has all
requisite power and authority, and all necessary licenses and permits, to own
and lease its properties and assets and to conduct its business as now
conducted. Each of the Company and each of its Subsidiaries is qualified to do
business as a foreign corporation and is in good standing in all states where
the conduct of its business or its ownership or leasing of property requires
such qualification, except where the failure to so qualify may have a material
adverse effect on the business, properties, assets, prospects, operations or
condition (financial or otherwise) of the Company or any Subsidiary (a "Material
Adverse Effect").
2.2 Authorization. The Company has all requisite power and
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authority to execute and deliver this Agreement and the other agreements and
documents required to be executed and delivered by the Company to the Purchasers
prior to or at the Closing and to carry out the transactions contemplated hereby
and thereby. The execution, delivery and performance by the Company of this
Agreement has been duly authorized by all requisite corporate action, and this
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms.
2.3 No Conflict with Law or Documents. The execution, delivery
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and performance of this Agreement by the Company will not violate any provision
of law, any rule or regulation of any governmental authority, or any judgment,
decree or order of any court binding on the Company or any of its Subsidiaries
and will not conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties, assets or outstanding stock of the Company or any of its
Subsidiaries under their respective certificates or articles of incorporation,
by-laws or other organizational documents or any indenture, mortgage, lease,
agreement or other instrument to which the Company or any of its Subsidiaries is
a party or by which any of them or any of their properties are bound.
2.4 Capital Stock of Company. The authorized capital stock of
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the Company consists of: (i) 30,000,000 shares of Common Stock, $.01 par value
per share, of which, prior to the issuance of any of the Common Shares and
Warrants pursuant to the Agreement, (A) 13,089,148 shares have been duly and
validly issued and are currently outstanding, fully paid and nonassessable, (B)
921,400 shares have been reserved for issuance upon the awarding of stock grants
or the exercise of options granted and to be granted by the Company (the
"Options" and "Option Shares") under the Company's 1987 Stock Option Plan, the
Company's 1992 Stock Incentive Plan, the Company's 1992 Directors Stock Option
Plan or the Company's 1993 Non-employee Stock Option Plan (collectively, the
"Existing Stock Plans") and (c) 418,410 shares have been reserved of issuance
upon the exercise or conversion of outstanding securities issued by the Company
(the "Convertible Securities" and "Conversion Shares") and (ii) 10,000,000
shares of preferred stock, $.01 par value per share, none of which shares are
presently issued and outstanding. The number of shares of Common Stock issuable
as Option Shares or upon the exercise of Options under the Existing Stock Plans
or as
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Conversion Shares is not subject to adjustment by reason of the issuance
and sale of the Common Shares or Warrants hereunder, or the Warrant Shares upon
exercise of the Warrants, and no other shares of Common Stock have been reserved
by the Company for issuance. There are no preemptive or similar rights to
purchase or otherwise acquire shares of capital stock of the Company pursuant to
any provision of law or the Certificate of Incorporation or By-Laws of the
Company or by agreement or otherwise. Except as set forth in this Section 2.4
and the disclosure letter from the Company to the Purchasers of even date
herewith (the "Disclosure Letter"), there are no outstanding subscriptions,
warrants, options or other rights or commitments of any character to subscribe
for or purchase from the Company, or obligating the Company to issue, any shares
of capital stock of the Company or any securities convertible into or
exchangeable for such shares.
2.5 The Common Shares, Warrants and Warrant Shares. The Common
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Shares, when issued and delivered against payment therefor in accordance with
this Agreement, will be duly authorized, validly issued, fully paid and non-
assessable, and free from all taxes, liens (imposed through the actions or
failure to act of the Company) and charges with respect to the issue thereof.
The Warrants, when issued and delivered against payment therefor in accordance
with this Agreement, will be duly authorized and executed by the Company and
will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms. The requisite number of shares of
duly authorized and unissued Common Stock of the Company have been duly
authorized and reserved for issuance upon the exercise of the Warrants, and no
further corporate action is required for the valid issuance of the Warrant
Shares upon the exercise of the Warrants. The Warrant Shares will, at the time
of the Closing and thereafter, not be subject to preemptive or similar rights of
any person, and when issued against payment therefor in accordance with the
terms of the Warrants, will be duly and validly issued, fully paid and
nonassessable, and free from all taxes, liens (imposed through the actions or
failure to act of the Company) and charges with respect to the issue thereof.
2.6 Consents and Approvals. Except for filings under Federal and
----------------------
applicable state securities laws with respect to the Warrant Shares, no permit,
consent, approval or authorization of, or declaration to or filing with, any
federal, state, local or foreign governmental or regulatory authority or other
person, not made or obtained, other than the notification of the National
Association of Securities Dealers, Inc. (the "NASD") with respect to the listing
of the Shares on The Nasdaq National Market System (the "NMS"), is required in
connection with the execution or delivery of this Agreement by the Company, the
offer, issuance, sale or delivery of the Common Shares, Warrants or Warrant
Shares, or the carrying out by the Company of the other transactions
contemplated hereby. Neither the issuance and sale by the Company of the Common
Shares and Warrants as contemplated hereby nor the issuance of the Warrant
Shares upon exercise of the Warrants shall require compliance with the
notification or other requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (collectively, "the HSR Act"), or require any action by or in respect
of, or filing with, any governmental body, agency or official, nor any consent
or approval of shareholders as such or of any other individual or entity (except
that if either Technology Leaders II L.P. ("TLLP") or Technology
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Leaders II C.V. ("TLCV", and together with TTLP, "Tech Leaders") exercises all
or a portion of its Warrants and such exercise would result in TLLP or TLCV
owning in the aggregate 15 percent (15%) or more of the Company's Common Stock,
then prior compliance with the HSR Act would be required before the exercise of
such Warrants).
2.7 Private Offering. Assuming the accuracy of the Purchasers'
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representations and warranties contained in Section 3 herein, the offer,
issuance and delivery to the Purchasers pursuant to the terms of this Agreement
of the Common Shares and Warrants and, assuming compliance by the Purchasers
with the terms of this Agreement and applicable law, the Warrant Shares, are
exempt from registration under the Securities Act of 1933, as amended (the "1933
Act"). Based on the representations of the Purchasers contained in Section 3, it
is not necessary, under the circumstances contemplated by this Agreement, to
register the Common Shares, Warrants or Warrant Shares under the 1933 Act or
under any applicable state securities or blue sky laws.
2.8 Certificate of Incorporation and By-Laws. The copies of the
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Company's Certificate of Incorporation and By-Laws previously delivered to the
Purchasers are true and correct and are copies of such documents as in full
force and effect as of the date hereof.
2.9 Subsidiaries. The Disclosure Letter states the name
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of each of the Company's subsidiaries (each, a "Subsidiary" and collectively,
the "Subsidiaries"). The Disclosure Letter also states each Subsidiary's
jurisdiction of incorporation and the percentage of its voting stock owned by
the Company and each other Subsidiary. Other than the Subsidiaries, the Company
has no corporate or joint venture affiliates. The Company and each Subsidiary
has good and marketable title to all of the shares it purports to own of the
stock of each Subsidiary, free and clear in each case of any mortgage, lien,
security interest, charge or encumbrance. All such shares have been duly issued
and are fully paid and nonassessable. There are no outstanding warrants, options
or other rights or commitments of any character to subscribe for or purchase
from the Company or a Subsidiary, or obligating such Subsidiary to issue, any
shares of capital stock of such Subsidiary or any securities convertible into or
exchangeable for such shares.
2.10 SEC Filings. The Company has delivered to the Purchasers
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prior to the date hereof true and correct copies of (i) its Annual Report on
Form 10-K for the fiscal year ended January 31, 1996 as amended by Form 10-K/A
dated ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇) its Quarterly Report on Form 10-Q for the quarter
ended July 31, 1996 and (iii) its Current Reports on Form 8-K and any other
reports and documents filed with the Securities and Exchange Commission since
January 31, 1996. All documents described in this Section are hereinafter
referred to as the "SEC Reports."
2.11 Litigation. The Disclosure Letter lists all material pending
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or, to the Company's knowledge, threatened litigation involving the Company
and/or its Subsidiaries. For purposes of this Section 2.11, any one litigation
will not be deemed "material" and need not be disclosed unless the amount at
issue is greater than $50,000, provided, however, that if the amount at issue
with respect to all immaterial litigation is, in the aggregate, greater than
$300,000, then all
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such litigation must be disclosed. By separate letter the Company has provided
the Purchasers with a summary of the current status of each litigation set forth
on the Disclosure Letter which summary is true and correct. Except as so
disclosed, there is no pending or, to the knowledge of the Company, threatened
suit, action or litigation, or administrative, arbitration or other proceeding
or governmental inquiry or investigation questioning the validity of this
Agreement or the transactions contemplated hereby, or which may have a Material
Adverse Effect, nor is there, to the knowledge of the Company, any basis for any
such suit, action, litigation, proceeding, inquiry or investigation.
2.12 Compliance with Laws. The Company and each Subsidiary is in
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compliance with all laws, ordinances, rules and regulations of governmental
authorities applicable to or affecting it, its properties or its business except
where non-compliance would not have a Material Adverse Effect, and neither the
Company nor any Subsidiary has received notice of any claimed default with
respect to such laws, ordinances, rules and regulations.
2.13 Financial Statements.
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(a) (i) The audited consolidated balance sheets and related
audited statements of consolidated income, cash flow and stockholders' equity of
the Company and its Subsidiaries as at and for each of the three fiscal years of
the Company in the three fiscal year period ended January 31, 1996, and (ii) the
unaudited consolidated balance sheet and related unaudited consolidated
statements of income, cash flow and stockholders' equity of the Company and its
Subsidiaries, as at and for the six months ended July 31, 1996, together with
the notes thereto, copies of all of which have heretofore been furnished to the
Purchasers, in each case, present fairly in all material respects the
consolidated financial position of the Company and its Subsidiaries at such
dates and the consolidated results of their operations and their consolidated
cash flows for the periods then ended, in conformity with generally accepted
accounting principles, consistently applied ("GAAP").
(b) Since July 31, 1996 ("the Balance Sheet Date") there has been
no material adverse change in the business, properties, assets, operations or
condition (financial or otherwise) of the Company and its Subsidiaries taken as
a whole.
(c) The consolidated balance sheet of the Company and its
Subsidiaries at the Balance Sheet Date (the "Balance Sheet") reflects all
liabilities and obligations of the Company and of each Subsidiary, whether
accrued, contingent or otherwise as of the date thereof, that are of a nature
required to be set forth as a liability on a consolidated balance sheet under
GAAP.
(d) As of the date hereof and at the time of the issuance and sale
of the Common Shares and Warrants to the Purchasers hereunder, neither the
Company nor any of its Subsidiaries will have any liabilities or obligations,
whether absolute, accrued, contingent, or otherwise, other than (i) current
liabilities reflected on the Balance Sheet not paid since the date of the
Balance Sheet, (ii) current liabilities incurred after the Balance Sheet Date in
the ordinary course
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of business and (iii) the other indebtedness of the Company or of its
Subsidiaries described in the Disclosure Letter.
2.14 Assets. Neither the Company nor any Subsidiary owns any
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real property. The Company and each Subsidiary has good and marketable title to
all of the real and personal properties and assets reflected on the Balance
Sheet as being owned by the Company or such Subsidiary at the Balance Sheet
Date, except for properties and assets sold or otherwise disposed of in the
ordinary course of business since the Balance Sheet Date or that are not
material to its business, subject to no liens, mortgages, security interests,
pledges, encumbrances, or charges of any kind except: (1) liens for taxes or
assessments or other government charges or levies if not yet due and payable or
if due and payable if they are being contested in good faith by appropriate
proceedings and for which appropriate reserves are maintained; (2) liens imposed
by law, such as mechanic's, materialmen's, warehousemen's and carrier's liens,
and other similar liens, securing obligations incurred in the ordinary course of
business which are not past due for more than 30 days, or which are being
contested in good faith by appropriate proceedings and for which appropriate
reserves have been established; (3) liens under workmen's compensation,
unemployment insurance, social security or similar legislation; (4) liens,
deposits or pledges to secure the performance of bids, tenders, contracts (other
than contracts for the payment of money), leases, public or statutory
obligations, surety, stay, appeal, indemnity, performance or other similar
bonds, or other similar obligations arising in the ordinary course of business;
and (5) the liens securing other indebtedness of the Company or its Subsidiaries
described in the Disclosure Letter, or liens which do not and could not
individually or in the aggregate, have a material adverse effect on the
business, properties or assets of the Company and its Subsidiaries taken as a
whole, provided that any such one lien does not secure an individual obligation
of the Company and its Subsidiaries in excess of $25,000, and all such liens in
the aggregate do not secure obligations of the Company and its Subsidiaries in
the aggregate in excess of $100,000 ("Permitted Liens").
2.15 Dividends and Other Distributions. Since the Balance Sheet Date,
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neither the Company nor any Subsidiary has declared, set aside, or made any
payment of a dividend or made any other distribution in respect of the Company's
capital stock, repurchased or redeemed any of the Company's capital stock, or
except as disclosed in the SEC Reports, made any other payments to any holder of
5% or more of the Company's outstanding Common Stock other than salary paid to
such stockholder for bona fide services to the Company or a Subsidiary as an
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officer or employee and in accordance with the historical employment arrangement
between the Company and such stockholder or reimbursement of reasonable expenses
incurred in the ordinary course of business.
2.16 Tax Matters. The Company and each Subsidiary has timely filed (and,
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through and including the Closing Date, will timely file) with the appropriate
governmental entities all Federal, state, local, foreign and other tax returns
required to be filed on or before the Closing Date and has timely paid (and
through and including the Closing Date, will timely pay) all taxes which have
become due and payable. All such reports and returns (copies of which have been
made available to the Purchasers) were (or, with respect to returns and reports
not filed as of the date hereof, will be)
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materially accurate and complete when filed and reflect all taxes required to be
paid by the Company and its Subsidiaries for the periods reported therein. The
provision for taxes made on the Balance Sheet at the Balance Sheet Date was
sufficient for the payment of all accrued and unpaid taxes of the Company and
its Subsidiaries with respect to the periods then ended. No additional material
assessments, deficiencies or penalties in respect of taxes have been made or
claimed in writing against the Company or any Subsidiary which remain unpaid.
Except as otherwise set forth in the Disclosure Letter, no tax returns or
reports of the Company or any Subsidiary are or ever have been under audit. No
issue has been raised by any governmental authority with respect to any tax
returns of the Company or any Subsidiary which could result in the assertion of
a tax deficiency for any taxable year. As of July 31, 1996, the Company's
aggregate net operating loss carryovers and capital loss carryovers for federal
income tax purposes was $30,080,106, which amount arose in the years reflected
in the notes included in the Company's audited financial statements. The amount
of such carryover is true and accurate, not subject to adjustment other than
immaterial adjustments as a result of audits of the Company or in connection
with the preparation of tax returns, and was properly reported to all applicable
regulatory and taxing authorities. There currently are no limitations on the
utilization of the net operating losses or capital losses under any section of
the Code, including Section 382, or of the Treasury regulations. There will not
be any limitation on the utilization of the net operating losses or capital
losses solely by reason of transactions contemplated by this Agreement. Neither
the Company nor any Subsidiary is a party to, bound by, or obligated under any
tax sharing, indemnification or similar agreement or arrangement.
2.17 Agreements Affecting the Company's Capital Stock. Except as disclosed
------------------------------------------------
in the Disclosure Letter, there are no agreements, written or oral, between the
Company and any holder of its capital stock or, to the knowledge of the Company,
among any holders of its capital stock, relating to the acquisition, disposition
or voting of the capital stock of the Company. Except as disclosed in the
Disclosure Letter and except for the Registration Rights Agreement by and among
the Company and the signatories thereto dated as of the date hereof (the
"Registration Rights Agreement") there are no agreements, either written or
oral, which obligate the Company or any of its Subsidiaries to effect the
registration of any of its securities under the 1933 Act.
2.18 Patents, Trademarks, Proprietary Rights.
---------------------------------------
(a) Except as disclosed in the Disclosure Letter, the Company and
its Subsidiaries have ownership of, or license to use, all patents, copyrights,
trademarks, servicemarks, tradenames, permits, trade secrets, customer lists,
manufacturing or other processes, computer programs, software designs and
related materials and other intellectual property that are used or to be used in
the business of the Company or any of its Subsidiaries and that are material to
the conduct of the Company's or a Subsidiary's business (collectively, the
"Intellectual Property Rights"). The Intellectual Property Rights are sufficient
to enable the Company and each Subsidiary to carry on its business as currently
conducted in all material respects and the Company's and each Subsidiary's use
and enjoyment of the Intellectual Property Rights does not violate any license
or conflict with or infringe the intellectual property rights of others in a
manner which would materially and adversely affect the business, assets,
properties, prospects, operations or condition (financial or otherwise) of the
Company or such Subsidiary and no proceedings have been instituted or are
pending (or to the knowledge of the
-9-
Company, threatened) which allege any violation, conflict or infringement of the
intellectual property rights of others. Other than as described in the
Disclosure Letter, there are no outstanding options, licenses or agreements of
any kind to which the Company or any Subsidiary thereof is a party or by which
it may be bound relating to or affecting any Intellectual Property, whether
owned by the Company or a Subsidiary thereof or another person (which term
"person" as used herein includes both individuals and entities of every kind and
description).
(b) Neither the Company nor any Subsidiary is aware that any of
its employees is obligated under any contract or contracts (including licenses,
agreements, covenants and other commitments of any nature), or is subject to any
order, writ, judgment, injunction, decree, determination or award of any court,
administrative agency or other tribunal, that restricts the employee's
activities on behalf of the Company or such Subsidiary as presently conducted or
interfere with the use of such employee's best efforts to promote the interests
of the Company or such Subsidiary.
(c) The Disclosure Letter sets forth each agreement pursuant to
which the Company or any of its Subsidiaries has obtained a license to utilize
Intellectual Property Rights (including, the use of any name or likeness) in
connection with products offered for resale by the Company or any of its
Subsidiaries and which requires or is reasonably expected to result in payments
by the Company in excess of $20,000 in any fiscal year. True and correct copies
of each such agreement (as in force as of the date hereof) has been provided to
the Purchasers and each of such agreements is in full force and effect. The
Company is not aware of any existing material default or event of default (or
event which with notice or lapse of time, or both, would constitute a material
default or an event of default) by any party under any of such agreements.
(d) The Disclosure Letter sets forth all patents, patent
applications, trademarks, trademark applications and registrations and
registered copyrights which are owned by or licensed to the Company or any of
its Subsidiaries or used or to be used by the Company or any of its Subsidiaries
in their business as presently conducted, and which are material to the Company
or a Subsidiary. All of such patents, patent applications, trademark
registrations, trademark applications and registered copyrights have been duly
registered in, filed in or issued by the United States Patent and Trademark
Office, the United States Register of Copyrights, or the corresponding offices
of other jurisdictions as identified on the Disclosure Letter, and have been
properly maintained and renewed in accordance with all applicable provisions of
law and administrative regulations in the United States and each such
jurisdiction.
(e) The Disclosure Letter sets forth all material licenses and
other agreements under which the Company or any of its Subsidiaries has granted
rights to others in Intellectual Property Rights owned or licensed by the
Company or any of its Subsidiaries. Except as described in the Disclosure
Letter, all of said licenses or other agreements are in full force and effect,
and there is no material default or event of default (or event which with notice
or lapse of time, or both, would certificate a material default or an event of
default) by any party thereto.
(f) The Company and its Subsidiaries have taken all steps required
in accordance with sound business practice and business judgment to establish
and preserve their ownership of all material Intellectual Property Rights. To
the Company's knowledge, neither the Company nor its Subsidiaries made any such
information available to any person or entity other than employees of the
Company or any of its Subsidiaries except pursuant to written agreements
requiring the recipients to maintain the confidentiality of such information and
appropriately restricting the use thereof. To the knowledge to the Company,
there are no infringements by others of any of its or any Subsidiary's
Intellectual Property Rights.
2.19 Insurance. Except as described in the Disclosure Letter, all the
---------
insurable properties of the Company and the Subsidiaries are insured for the
benefit of the Company and the Subsidiaries against all risks usually insured
against by persons operating similar properties in the locality where such
properties are located under valid and enforceable policies issued by insurance
companies of recognized responsibility in reasonably sufficient amounts.
2.20 Employee Benefit Plans.
----------------------
(a) The Disclosure Letter contains a complete and correct list of
all Employee Benefit Plans and Employee Pension Benefit Plans currently
maintained for the benefit of any current or former employees of the Company or
any Subsidiary by the Company or any ERISA Affiliate or to which the Company or
any ERISA Affiliate currently contributes or is currently obligated to make
payments with respect to any current or former employees of the Company or any
Subsidiary.
(b) With respect to each Employee Benefit Plan listed on the
Disclosure Letter: (i) each Employee Benefit Plan has been administered in
accordance with its terms, and is in compliance in all material respects with
the applicable provisions of ERISA, the Code and all other federal, foreign,
state and other applicable laws, rules and regulations, as they relate to such
plan (including, without limitation, funding, filing, terminating, reporting and
disclosure and COBRA continuation coverage obligations); (ii) the Company has
made or provided for in a timely fashion all contributions to all Employee
Benefit Plans as required under the terms of such Plans through and including
the period ending on the Closing Date; (iii) no Employee Pension Benefit Plan
has incurred or has been the subject of a "reportable event" (as defined in
Section 4043 of ERISA) that is required to be reported to the PBGC, and neither
the Company nor any ERISA Affiliate has any liability to the PBGC with respect
to or arising from the maintenance of any such plan, and there have been no
"prohibited transactions" (as described in Section 4975 of the Code or in Part 4
of Subtitle B of Title I of ERISA) with respect to any Employee Benefit Plan;
(iv) there are and during the past three years there have been no inquiries,
proceedings, claims or suits pending or, to the Company's knowledge, threatened
by any governmental agency or authority or by any participant or beneficiary
against any of the Employee Benefit Plans, the assets of any of the trusts under
such Plans or the Plan sponsor or the Plan administrator, or against any
fiduciary of any of such Employee Benefit Plans with respect to the design or
operation of the Employee Benefit Plans; (v) each Employee Pension Benefit Plan
which is intended to be "qualified" within the meaning of Section 401(a) of the
Code is, and has from its inception been so qualified, and any trust created
pursuant to any such Employee Pension Benefit
Plan is exempt from federal income tax under Section 501(a) of the Code and the
IRS has issued each such Plan a favorable determination letter which is
currently applicable; (vi) neither the Company nor any ERISA Affiliate is aware
of any circumstance or event which could jeopardize the tax-qualified status of
any such Employee Pension Benefit Plan or the tax-exempt status of any related
trust, or would cause the imposition of any liability, penalty or tax under
ERISA or the Code with respect to any Employee Benefit Plan; and (vii) no event
has occurred which would permit the PBGC to impose a lien against any of the
assets of the Company or any ERISA Affiliate under Title IV of ERISA.
(c) Neither the Company nor any ERISA Affiliate maintains a
Multiemployer Plan or an Employee Pension Benefit Plan which is a defined
benefit plan as defined in Section 3(35) of ERISA, and neither the Company nor
any ERISA Affiliate currently has any liability to make any withdrawal liability
payment to any Multiemployer Plan. Neither the Company nor any ERISA Affiliate
is delinquent in making any contributions required to be paid to any
Multiemployer Plan. There is no pending dispute between the Company or any ERISA
Affiliate and any Multiemployer Plan concerning payment of contributions or
payment of withdrawal liability payments.
(d) With respect to each Employee Benefit Plan maintained by the
Company or any ERISA Affiliate: (i) no unsatisfied liabilities to participants,
the IRS, the DOL, the PBGC or to any other person or entity have been incurred
as a result of the termination of any Employee Benefit Plan; (ii) no Employee
Pension Benefit Plan, which is subject to the minimum funding requirements of
Part 3 of Subtitle B of Title I of ERISA or subject to Section 412 of the Code,
has incurred any "accumulated funding deficiency" within the meaning of Section
302 of ERISA or Section 412 of the Code and there has been no waived funding
deficiency within the meaning of Section 303 of ERISA or Section 412 of the
Code; (iii) there has been no event with respect to an Employee Pension Benefit
Plan which would require disclosure under Sections 4062(c), 4063(a) or 4041(e)
of ERISA.
(e) All reports and information required to be filed with the DOL,
IRS and PBGC and with plan participants and their beneficiaries with respect to
each Employee Benefit Plan required to be listed on the Disclosure Letter have
been filed timely and have been complete and accurate in all respects, and all
annual reports (Form 5500 series) of such Plans were certified without
qualification by each Plan's accountants and actuaries.
(f) All Employee Benefit Plans listed on the Disclosure Letter
may, without liability, be amended, terminated or otherwise discontinued except
as specifically prohibited by federal law.
(g) Any bonding required under ERISA with respect to any Employee
Benefit Plan listed on the Disclosure Letter has been obtained and is in full
force and effect and no funds held by or under the control of the Company are or
could be deemed plan assets.
(h) Except as set forth in the Disclosure Letter, neither the
Company nor any ERISA Affiliate maintains any plan, fund or program that
provides post retirement medical benefits, post retirement death benefits or
other post retirement welfare benefits.
(i) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any employee of the Company to severance pay,
unemployment compensation or any other payment, (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due to any such
employee, or (iii) result in any liability of the Company under Title IV of
ERISA or otherwise.
(j) Each Employee Benefit Plan that provides medical benefits has
been operated in compliance with all requirements of Sections 601 through 608 of
ERISA and either (i) Section 162(i)(2) and (k) of the Code and regulations
thereunder (prior to 1989); or (ii)Section 4980B of the Code and regulations
thereunder (after 1988), relating to the continuation of coverage under certain
circumstances in which coverage would otherwise cease.
(k) With respect to each Employee Benefit Plan which is subject to
Title IV of ERISA, the present value of accrued benefits under each such plan,
based upon both (i) the actuarial assumptions used for funding purposes in the
most recent actuarial report prepared by such plan's actuary with respect to
such plan, and (ii) the actuarial assumptions specified in Section 412 of the
Code, did not, as of its latest valuation date, exceed the then current value of
the assets of such plans allocable to such accrued benefits determine as of the
latest valuation date.
(l) For purposes hereof:
(i) "COBRA" shall refer to Title V of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended.
(ii) "Code" shall refer to the Internal Revenue Code of 1986,
as amended.
(iii) "DOL" shall refer to the United States Department of
Labor.
(iv) "Employee Benefit Plan" shall have the meaning ascribed
to such term by Section 3(3) of ERISA.
(v) "Employee Pension Benefit Plan" shall have the meaning
ascribed to such term by Section 3(2) of ERISA.
(vi) "ERISA" shall refer to the Employee Retirement Income
Security Act of 1974, as amended.
(vii) "ERISA Affiliate" shall refer to any trade or business,
whether or not incorporated, under common control with the Company within the
meaning of Section 414(b), (c), (m) or (o) of the Code.
(viii)"IRS" shall refer to the Internal Revenue Service.
(ix) "Multiemployer Plan" shall have the meaning ascribed to
such term by Section 4001(a)(3) of ERISA.
(x) "PBGC" shall refer to the Pension Benefit Guaranty
Corporation.
2.21 Contracts and Agreements.
------------------------
(a) The Company has filed as exhibits to its annual report on Form
10-K, as amended, for the fiscal year ended January 31, 1996 and its quarterly
reports on Form 10-Q for the quarters ended April 30, 1996 and July 31, 1996,
all of the contracts and agreements required to be so filed by the rules and
regulations of the Securities and Exchange Commission (the "SEC"). True and
correct copies of all such agreements requested by the Purchasers have been
provided to the Purchasers prior to the date hereof. Other than (i) the
contracts and agreements filed as exhibits to its annual report on Form 10-K, as
amended, for the fiscal year ended January 31, 1996 and its quarterly reports on
Form 10-Q for the quarter ended July 31, 1996 and (ii) as described in the SEC
Reports or the Disclosure Letter, neither the Company nor any Subsidiary is a
party to any contract or agreement which is material to the business,
properties, assets, prospects, operations or condition (financial or otherwise)
of the Company and its Subsidiaries taken as a whole.
(b) Except as disclosed in the Disclosure Letter, neither the Company
nor any Subsidiary is (i) in default under any agreement, contract or instrument
to which it is a party or by which it is bound, which default may have a
Material Adverse Effect, (ii) in violation of its Certificate of Incorporation
or By-Laws (or other organizational documents), each as amended to date, or
(iii) in default with respect to any order, writ, injunction or decree of any
court or governmental agency binding on it, and no event has occurred which with
notice or lapse of time, or both, would create any default or violation
described in clauses (i) through (iii).
2.22 Absence of Certain Developments. Except as described in the
-------------------------------
Disclosure Letter, since the Balance Sheet Date, neither the Company nor any
Subsidiary has (i) incurred or become subject to any material liabilities
(absolute or contingent) except current liabilities incurred, and liabilities
under contracts entered into, in the ordinary course of business; (ii)
mortgaged, pledged or subjected to lien, charge or any other encumbrance any of
its assets, tangible or intangible, except Permitted Liens; (iii) sold, assigned
or transferred any of its tangible or intangible assets or rights or canceled
any debts or obligations except in the ordinary course of business; (iv)
suffered any material losses of assets (whether tangible or intangible) or
rights (including without limitation, license rights), or waived any rights of
substantial value (whether or not in the ordinary course of business); (v) made
any changes in officer compensation except for annual increases consistent with
past practices; (vi) entered into any material transaction other than in the
ordinary course of business, except for the
-14-
transactions contemplated by this Agreement; (vii) made any material change in
any of its material contracts, its Certificate or Articles of Incorporation or
Bylaws (or other organizational documents), or in any arrangements or agreements
of any nature relating to its officers and directors; (viii) granted any stock
options or other rights to acquire its capital stock or modified any outstanding
stock options, grants, awards or other rights to acquire its capital stock; (ix)
become aware of any change in the regulatory climate applicable to its business,
including any proposed legislation or regulations which could have a Material
Adverse Effect or (x) otherwise experienced any material change in its assets,
financial condition or results of operation.
2.23 Contracts with Insiders. Except as set forth in the SEC Reports or
-----------------------
the Disclosure Letter, no officer or director of the Company, or, to the
Company's knowledge, holder of more than 5% of the Company's outstanding Common
Stock, is a party to any contract, agreement, or arrangement providing for (a)
the Company's or a Subsidiary's employment of, (b) the furnishing of services to
the Company or a Subsidiary by, (c) the rental of real or personal property by
the Company or a Subsidiary from, or (d) the payment by the Company or a
Subsidiary to, any such person, or, to the Company's knowledge, any member of
such person's family, or any corporation, partnership or other entity in which
such person, or, to the Company's knowledge, any member of his family, has an
interest or of which such person, or, to the Company's knowledge, any member of
his family, is an officer, director, trustee, or beneficiary.
2.24 Environmental Matters.
---------------------
(i) With respect to the Company and each of its Subsidiaries:
(a) Each of the Company and its Subsidiaries, and all operations,
processes and other activities on any real properties owned, used, lease,
operated or occupied by them (collectively, the "Company Properties", and
individually, a "Company Property") are, and have been, in compliance with all
Environmental Laws (as defined below);
(b) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or
threatened, before any court, governmental agency or board or other forum
against the Company or any of its Subsidiaries or with respect to any Company
Property (x) for alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (y) relating to the release into the
environment of any Hazardous Material (as defined below) or oil, whether or not
occurring at or on a Company Property;
(c) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or
threatened, before any court, governmental agency or board or other forum
relating to or against any Company Property (or the Company or any of its
subsidiaries in respect of such Company Property) (x) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the release into the environment of any
Hazardous Material or oil whether or not occurring at or on Company Property;
-15-
(d) There is no factual basis for any suit, claim, action,
demand, executive or administrative order, directive or proceeding of a type
described in Section 2.24 (i)(b) or (c);
(e) The Company Properties and any properties formerly owned,
used, lease, operated or occupied by the Company or any of its Subsidiaries
(including, without limitation, soil, groundwater or surface water on or under
the properties, and buildings thereon) do not contain any Hazardous Material (as
defined below) other than as permitted or acceptable under applicable
Environmental Law or for which the Company or its subsidiaries would be liable
under applicable Environmental Law (provided, however, that with respect to
properties formerly owned, used, leased, operated or occupied by the Company or
any of its Subsidiaries, such representation is limited to the period the
Company or any such Subsidiary owned, used, lease, operated or occupied such
properties);
(f) None of the Company or any of its Subsidiaries has
received any notice, demand letter, executive or administrative order, directive
or request for information from any Federal, state, local or foreign
governmental entity or any third party indicating that it may be in violation
of, or liable under, any Environmental Law;
(g) There are no underground storage tanks on, in or under any
Company Properties and no underground storage tanks have been closed or removed
from any of the Company Properties which are, or during any period of time when
they have been, in the ownership of the Company or any of its Subsidiaries; and
(h) During the period of (1) the Company's or any of its
Subsidiaries' ownership, use, leasing, operation or occupation of any of the
Company Properties, or (m) the Company's or any of its Subsidiaries'
participation in the management of any Company Properties, there has been no
release of Hazardous Material or oil in, on, under or affecting such properties
which would subject the Company or its Subsidiaries to liability under any
Environmental Law.
(ii) The following definitions apply for purposes of this Section
2.24: (x) "Environmental Law" means any federal, state or local law, statute,
ordinance, rule regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, directive, executive or administrative order,
judgment, decree, injunction, requirement or agreement with any governmental
entity, (A) relating to the protection, preservation or restoration of the
environment (which includes, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, structures, soil, surface land,
subsurface land, plant and animal life or any other natural resource), or to
human health or safety, or (B) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of, Hazardous Materials, in each case as amended
and as now or hereafter in effect, including all current Environmental Laws and
all future Environmental Laws and subsequent interpretations thereof; and (y)
"Hazardous Material" means any substance which is or could be detrimental to
human health or safety or to the environment, currently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any substance containing any such substance as a
component. Hazardous Material includes, without limitation, any toxic waste,
pollutant, contaminant, hazardous substance, toxic substance, hazardous waste,
special waste, industrial substance, oil or petroleum or any derivative or by-
product thereof, radon, radioactive material, asbestos, asbestos-containing
material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl.
2.25 Certain Agreements. The Disclosure Letter lists all
------------------
employment and severance agreements (the "Employment and Severance Agreements")
that the Company and each Subsidiary has entered into with its officers and
employees. Except as disclosed in the Disclosure Letter, the issuance and sale
of the Common Shares and Warrants to the Purchasers hereunder, the issuance of
the Warrant Shares upon the exercise of the Warrants, and the completion of the
other transactions provided for herein will not result in (i) a "change of
control" of the Company, as that term is used in any of the Employment and
Severance Agreements or give any employee the right thereunder to terminate his
employment or receive severance or other payments from the Company or any
Subsidiary, or (ii) the acceleration of vesting of any outstanding Option or
Option Share issued by the Company to any employee under the Existing Stock
Plans.
2.26 Accounts Receivable. All accounts and notes receivable
-------------------
of the Company and its Subsidiaries represent valid obligations from sales made
or services rendered in the ordinary course of business, and are collectible in
full in the ordinary course of business, without any set-off or discount, except
to the extent of the amount of the reserve for possible losses set forth on the
Disclosure Letter, which reserve amount may be adjusted from time to time in
accordance with normal business practices of the Company or such Subsidiary. The
Disclosure Letter includes a correct and complete accounts and notes receivable
aging of the Company and its Subsidiaries as of a recent date including the
reserves for possible losses as of such date.
2.27 Inventory. The Disclosure Letter sets forth, as of
---------
October 31, 1996, the location and fair market value of all inventory of the
Company. Except as described in the Disclosure Letter, all inventory of the
Company and its Subsidiaries is valued on the Company's consolidated books and
records at the lower of cost, determined by the "first in, first out" method of
accounting, or the fair market value thereof. All such inventory consisting of
finished goods is, to the Company's knowledge, of merchantable quality, and is
saleable in the ordinary course of business consistent with past practice.
2.28 Books and Records. The books and records of the Company
-----------------
and its Subsidiaries accurately and fairly reflect their respective income,
expenses, assets and liabilities, and the Company and its Subsidiaries maintain
internal accounting controls which provide reasonable assurance that: (i)
transactions are executed in accordance with management's authorization; (ii)
transactions are recorded as necessary to permit preparation of reliable
financial statements and to maintain accountability for earnings and assets;
(iii) access to assets is permitted only in accordance with management's
authorization; (iv) the recorded accountability of all assets is compared with
existing assets at reasonable intervals; and (iv) all intercompany transactions,
charges and expenses among or between the Company, any Subsidiary, or any other
affiliate of the Company are accurately reflected in all financial statements.
2.29 Certain Payments. Neither the Company nor any of its
----------------
Subsidiaries, nor any director, officer, agent or employee of any such person,
or any other person associated with or acting for or on behalf of the Company or
any of its Subsidiaries has directly or indirectly (a) made any unlawful
contributions, gift, bribe, rebate, payoff, influence payment, kickback, or
other payment to any person, private or public, regardless of form, whether in
money, property or services, (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, or (iii) to
obtain special concessions or special concessions already obtained, for or in
respect of the Company or any of its Subsidiaries, or (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Company and its Subsidiaries, or (c) taken any other action in violation
of any provision of the Foreign Corrupt Practices Act of 1977, as amended.
2.30 U.S. Real Property Holding Company. The Company is not
----------------------------------
now and has never been a "United States real property holding corporation," as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service, and the Company has
filed with the Internal Revenue Service all statements, if any, with its United
States income tax returns which are required under Section 1.897-2(h) of such
Regulations.
2.31 Minute Books. The minute books of the Company and its
------------
Subsidiaries heretofore made available for inspection by the Purchasers contain
complete summaries of all meetings of directors and shareholders since the
incorporation of the Company or such Subsidiary, as applicable, and reflect
accurately in all material respects all transactions referred to in such minutes
or records. No corporate action has been taken on the part of the board of
directors or the executive committee of the Company or any Subsidiary thereof,
nor has any action been taken on the part of the stockholders of the Company as
such, which is not recorded in such minute books, except for actions which will
not have a Material Adverse Effect.
2.32 Labor Agreements and Actions. Neither the Company nor
----------------------------
any Subsidiary thereof is bound by or subject to, any written or oral, express
or implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company, has sought to
represent any of the employees, representatives or agents of the Company or any
such Subsidiary thereof. There is no strike or other labor dispute involving the
Company or any Subsidiary thereof pending, or to the knowledge of the Company
threatened, which could have a material adverse effect on the business, assets,
properties, prospects, operations or condition (financial or otherwise) of the
Company or any of its Subsidiaries nor is the Company aware of any labor
organization activity involving any of the employees of the Company or any
Subsidiary thereof. The Company is not aware that any officer or key employee,
or that any group of key employees, intends to terminate his, her or their
employment with the Company or any Subsidiary thereof, nor does the Company or
any such Subsidiary have a present intention to terminate the employment of any
of the foregoing. Except as set forth in the Disclosure Letter, the employment
of each employee of the Company or a Subsidiary thereof is terminable at the
will of the applicable employer without further liability of such employer to
such employee except for the payment of such employee's normal salary accrued
but not paid through the date of such termination and amounts due pursuant to
change of control or severance provisions as set forth on the Disclosure Letter.
2.33 Entire Business; Etc. Except as set forth in the
--------------------
Disclosure Letter, all of the assets (including the Company's and its
Subsidiaries' interests under franchises, licenses, Intellectual Property,
leases and permits) necessary for the conduct of the business of the Company and
its Subsidiaries as presently conducted are held exclusively by the Company or a
Subsidiary thereof.
2.34 Conditions Affecting Company and Subsidiaries. Except as
---------------------------------------------
disclosed in an SEC Report, there is no fact, development or threatened
development with respect to the markets, products, services, clients, customers,
facilities, computer software, databases, personnel, vendors, suppliers,
licensors, operations, assets or prospects of the business of the Company or any
of its Subsidiaries which are known to the Company which is reasonably likely to
materially adversely affect the business, operation or prospects of the Company
and its Subsidiaries considered as a whole, other than such conditions as may
affect as a whole the economy generally.
2.35 Projections. The Company has previously provided the
-----------
Purchasers with a true, correct and complete copy of its Consolidated Income
Statement Forcast Quaterly Summary (the "Projections"). The Projections were
prepared in good faith by the senior management of the Company as of October 25,
1996. The Company believes there is a reasonable basis (in the aggregate and
not necessarily as to specific sources of revenues, expenses and profits) for
such Projections. With respect to the foregoing, it shall be understood that
the Projections are based on certain assumptions which may or may not be proved
accurate over time and the results projected are subject to all of the
uncertainties associated with Projections. Because of the number and range of
variables and assumptions involved in a forecast of this nature, actual results
may vary from the results shown therein.
2.36 Information. The SEC Reports are correct and complete
-----------
and comply as to form with the requirements of the Securities Exchange Act of
1934, as amended, and the regulations promulgated thereunder. Neither this
Agreement nor any document delivered to the Purchasers pursuant hereto,
including the SEC Reports, contains an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. There is no fact known to the Company which could have a Material
Adverse Effect which has not been set forth in this Agreement, the Disclosure
Letter or the other documents furnished to the Purchasers on or prior to the
date hereof in connection with the transactions contemplated hereby.
2.37 Cash Flow. Based upon the net proceeds to be received
---------
by the Company upon the closing of the transactions contemplated hereby and the
Company's good faith best estimate of its expected cash flow from operations and
expected cash expenditures, the Company will have sufficient funds to satisfy
its requirements through June 30, 1997 and to cause all of its accounts payable
to be current as of such date (i.e., less than 60 days outstanding).
SECTION 3. PURCHASERS' REPRESENTATIONS AND WARRANTIES
------------------------------------------
Each Purchaser understands that the offer and sale of the
Common Shares and Warrants pursuant to this Agreement will not be registered
under the 1933 Act on the grounds that such offers and sales are exempt pursuant
to Section 4(2) of the 1933 Act and/or Regulation D promulgated under Section
4(2) of the 1933 Act, and that the reliance of the Company on such exemptions is
predicated in part on such Purchaser's representations, warranties, covenants
and acknowledgments set forth in this Section 3. The representations of each
Purchaser under this Section 3 are made exclusively by and with respect to such
Purchaser and no Purchaser shall be liable or responsible for the breach of any
representation or warranty made by any other Purchaser.
3.1 Pre-Existing Entity. Each Purchaser severally (and not
-------------------
jointly) represents and warrants to the Company that such Purchaser was not
organized for the specific purpose of purchasing the Common Shares and Warrants
purchased by it hereunder.
3.2 Principal Place of Business. Each Purchaser severally
---------------------------
(and not jointly) represents and warrants to the Company that the address of its
principal place of business is as set forth on Schedule 1 hereto.
3.3 Purchase Without View to Distribute. Each Purchaser
-----------------------------------
severally (and not jointly) represents and warrants to the Company that the
Common Shares and Warrants to be purchased by it are being, and any Warrant
Shares acquired upon exercise of such Warrants will be, acquired by such
Purchaser for its own account (with its own funds and not for the account or
benefit of or with funds obtained from any officer, director or affiliate of the
Company or any of its Subsidiaries), not as a nominee or agent, and not with a
view to resale or distribution within the meaning of the 1933 Act, and the rules
and regulations thereunder, and such Purchaser will not distribute the Common
Shares, Warrants or Warrant Shares in violation of the 1933 Act.
3.4 Restrictions on Transfer. Each Purchaser severally (and
------------------------
not jointly) (i) acknowledges that the Common Shares, Warrants and Warrant
Shares are not registered under the 1933 Act and that the Common Shares,
Warrants and Warrant Shares (if any) to be acquired by it must be held
indefinitely by it unless they are subsequently registered under the 1933 Act or
an exemption from registration is available, (ii) is aware that any routine
sales under Rule 144 of the Securities and Exchange Commission under the 1933
Act of Common Shares, Warrants, and Warrant Shares may be made only in limited
amounts and in accordance with the terms and conditions of that Rule and that in
such cases where the Rule is not applicable, compliance with some other
registration exemption will be required, (iii) is aware that Rule 144 is not
presently available for use by such Purchaser for resale of any such Common
Shares, Warrants and Warrant Shares and (iv) is aware that, except as provided
for in the Registration Rights Agreement, the Company is not obligated to
register under the 1933 Act any sale, transfer or other disposition of the
Common Shares, Warrants or Warrant Shares.
3.5 Access to Information. Each Purchaser confirms that the
---------------------
Company has made available to it the opportunity to ask questions of and receive
answers from the Company's officers
and directors concerning the terms and conditions of the offering and the
business and financial condition of the Company, and to acquire, and such
Purchaser has received to its satisfaction, such additional information, in
addition to that set forth herein, about the business and financial condition of
the Company and the terms and conditions of the offering as it has requested.
Neither such inquiries nor any other due diligence investigation conducted by
any Purchaser or any of its advisors or representatives shall modify, amend or
affect any Purchaser's right to rely on the Company's representations and
warranties contained in Section 2 hereof. Each of the Purchasers acknowledges
that each of TLLP, TLCV and their respective affiliates has acted for its own
account with respect to the transactions contemplated hereby, that no
information provided by the Company to the Purchasers has been subject to
independent verification by Tech Leaders and Tech Leaders makes no
representations or warranty with respect to the accuracy or completeness of any
such information.
3.6 Additional Representations of the Purchaser. Each
-------------------------------------------
Purchaser severally (and not jointly) represents that (i) it is an "accredited
investor" as such term is defined in Rule 501 promulgated under the 1933 Act,
(ii) its financial situation is such that it can afford to bear the economic
risk of holding the Common Shares, Warrants and Warrant Shares for an indefinite
period of time and suffer complete loss of its investment in the Common Shares,
Warrants and Warrant Shares, (iii) its knowledge and experience in financial and
business matters are such that it is capable of evaluating the merits and risks
of its purchase of the Common Shares, Warrants and Warrant Shares as
contemplated by this Agreement and (iv) the purchase of the Common Shares,
Warrants and Warrant Shares by it has been duly and properly authorized and this
Agreement has been duly executed by it or on its behalf.
SECTION 4. CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS
-----------------------------------------------
The Purchasers' obligation to purchase and make payment for the
Common Stock and Warrants subscribed for hereunder on the Closing Date is
subject, at their option, to the satisfaction of each of the following
conditions:
4.1 Representations and Warranties. On the Closing Date, the
------------------------------
representations and warranties contained in Section 2 hereof shall be true and
correct in all material respects with the same effect as though made on and as
of the Closing Date, and the Company shall have so certified to the Purchasers
in writing.
4.2 Performance. All the covenants, agreements and
-----------
conditions contained in this Agreement to be performed or complied with by the
Company on or prior to the Closing Date shall have been performed or complied
with in all material respects, and the Company shall have so certified to the
Purchasers in writing.
4.3 Approvals and Consents. The Company (and if applicable,
----------------------
the Purchasers) shall have duly obtained, received or effected (and all
applicable waiting and termination periods, if any, including any extensions
thereof, under any applicable law, statute, regulation or rule, including,
without limitation, the applicable waiting period, if any, under the HSR Act,
shall have expired or
terminated) all authorizations, consents, approvals, licenses, franchises,
permits and certificates by or of, and shall have made all filings and effected
all notifications, registrations and qualifications with, all federal, state,
local and foreign governmental and regulatory authorities to the extent required
to be obtained, received, effected or filed by the Company for the issuance,
sale and delivery of the Common Stock and Warrants being issued and sold on the
Closing Date and the consummation of the transactions contemplated hereby.
4.4 Delivery of Common Stock Certificates and Warrants. The
--------------------------------------------------
Purchaser shall have received duly executed stock certificates of the Company
evidencing the ownership of the Common Stock being purchased by such Purchaser
hereunder and warrant certificates duly executed by the Company with respect to
the Warrants being purchased by such Purchaser hereunder.
4.5 Opinion of Counsel to the Company. On the Closing Date,
---------------------------------
the Purchasers shall have received an opinion from counsel for the Company dated
the Closing Date, addressed to Purchasers covering such matters as may be
specified by the Purchasers, including, without limitation, that no approval of
the stockholders of the Company is required to authorize the transactions
contemplated by this Agreement, and which opinion of counsel shall be in form
and substance satisfactory to the Purchasers in their sole discretion.
4.6 Proceedings; Certified Copies. All proceedings to be
-----------------------------
taken in connection with the transactions contemplated by this Agreement and to
be consummated on or prior to the Closing Date, and all documents incident
thereto, shall be satisfactory in form and substance to the Purchasers. The
Purchasers shall have received such certified copies or other copies of such
documents as they may reasonably request.
4.7 Investigation. The results of the Purchasers' due
-------------
diligence investigation of the Company shall be satisfactory to the Purchasers
in all respects in their sole and absolute discretion.
4.8 No Proceeding or Litigation. No suit, action, or other
---------------------------
proceeding seeking to restrain, prevent or change the transactions contemplated
hereby or otherwise questioning the validity or legality of such transactions
shall have been instituted and be pending.
4.9 No Material Adverse Change. There shall have been no
--------------------------
Material Adverse Change to the Company and its Subsidiaries taken as a whole
since the date of this Agreement.
4.10 Environmental Obligations. The Company will cause full
-------------------------
compliance by it and its Subsidiaries with the New Jersey Industrial Sites
Recovery Act, 13:1K-6 et seq. ("ISRA") prior to the Closing Date. The Company
-- ---
will provide to Purchaser at least five (5) days prior to Closing any and all
documents evidencing such compliance. If the Company believes that ISRA does not
apply to this transaction, it will provide a letter to that effect explaining
the reasoning therefor at least five (5) days prior to the Closing Date, and the
Company will be deemed thereby to have made a representation and warranty to
Purchaser incorporated into this Agreement that ISRA does not apply to this
transaction.
4.11 NNM. The Company shall have notified the NASD of the
---
issuance of the Shares in accordance with the rules and regulations of the NNM.
4.12 Executive Officer Agreements. ▇▇▇ ▇▇▇▇▇▇ shall have
----------------------------
entered into an employment agreement with the Company in form and substance
satisfactory to the Purchasers.
4.13 Cancellation of Options. The Company shall have
-----------------------
delivered evidence satisfactory to the Purchasers that options exercisable to
purchase at least 150,000 shares of Common Stock owned by ▇▇▇ ▇▇▇▇▇▇ and
outstanding at October 31, 1996 have been cancelled.
4.14 Waiver by ▇▇▇▇▇▇▇. The Company shall have delivered to
-----------------
the Purchasers an unconditional, non-revocable acknowledgment by ▇▇▇▇▇ ▇▇▇▇▇▇▇,
in form and substance satisfactory to the Purchasers, (a) that all references to
beneficial ownership of the Company's Common Stock or voting securities
contained in his employment agreement refer to the actual ownership of shares of
Common Stock or voting securities of the Company, and when determining
beneficial ownership thereunder, no consideration shall be given to any shares
of Common Stock or voting securities issuable upon exercise, conversion or
exchange of any other securities and (b) that ▇▇. ▇▇▇▇▇▇▇ shall not have any
rights to payment or other remuneration as a result of the execution of this
Agreement, the Registration Rights Agreement or the transactions contemplated
hereby or thereby (including, without limitation, the issuance of the Common
Shares and Warrants.
4.15 Waiver by Holders of Registration Rights. The Company
----------------------------------------
shall have delivered to the Purchasers either (a) an unconditional, non-
revocable waiver from holders of a majority of the Registrable Shares (as
defined in the Registration Rights Agreement dated May 28, 1996 (the "May 28,
1996 Registration Rights Agreement") by and between the Company and Fidelity
Convertible Securities Fund (the "Fidelity Fund")), in form and substance
satisfactory to the Purchasers, waiving the applicability of Section 7 of the
May 28, 1996 Registration Rights Agreement to the Common Shares and Warrants
issuable hereunder and to the Warrant Shares and other securities issuable upon
exercise of the Warrants or (b) evidence, satisfactory to the Purchasers, that
the Fidelity Fund has disposed of all of the shares of Common Stock constituting
Registrable Shares under the May 28, 1996 Registration Rights Agreement pursuant
to an effective Registration Statement within the meaning of the May 28, 1996
Registration Rights Agreement.
4.16 Waiver by Congress Financial Corporation. The Company
----------------------------------------
shall have delivered to the Purchasers an unconditional, non-revocable waiver
from Congress Financial Corporation ("Congress"), in form and substance
satisfactory to the Purchasers, waiving any ability of Congress to declare a
default or event of default under that certain Loan and Security Agreement dated
July 31, 1995 (as amended, the "Congress Loan Agreement") by and between the
Company and Congress (as amended to date) as a result of the execution of this
Agreement, the Registration Rights Agreement and the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Common
Shares and Warrants and the issuance of the Warrant Shares or other securities
upon exercise of the Warrants).
4.17 Lock-up Agreements. The Company shall have delivered an
------------------
agreement, in form and substance satisfactory to Tech Leaders, restricting the
ability of ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and the Estate of ▇▇▇▇ ▇▇▇▇▇▇ from selling
shares of Common Stock.
4.18 Other Documents. The Company shall have delivered an executed
---------------
copy of the Registration Rights Agreement and such other certificates and
documents as the Purchasers shall have reasonably requested.
SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
-------------------------------------------------
The Company's obligation to sell the Common Shares and Warrants to each
Purchaser on the Closing Date is subject, at the Company's option, to the
satisfaction of each of the following conditions by the applicable Purchaser:
5.1 Representations and Warranties. On the Closing Date, the
------------------------------
representations and warranties of such Purchaser contained in Section 3 hereof
shall be true and correct in all material respects with the same effect as
though made on and as of the Closing Date and such Purchaser shall have so
certified to the Company in writing.
5.2 Performance. All the covenants, agreements and conditions
-----------
contained in this Agreement to be performed or complied with by such Purchaser
on or prior to the Closing Date shall have been performed or complied with in
all material respects, and such Purchaser shall have so certified to the Company
in writing.
5.3 No Proceeding or Litigation. No suit, action, or other proceeding
---------------------------
seeking to restrain, prevent or change the transactions contemplated hereby or
otherwise questioning the validity or legality of such transactions shall have
been instituted and be pending.
SECTION 6. COVENANTS OF THE COMPANY PRIOR TO CLOSING
-----------------------------------------
6.1 Payment of Expenses. The Company shall (i) pay the expenses
-------------------
incurred by it in connection with the issuance and sale of the Common Shares and
Warrants and the execution, delivery and performance of this Agreement and (ii)
at Closing, up to a maximum of $25,000, pay the legal, accounting, consulting
and other advisory fees and expenses incurred by the Purchasers with respect to
the negotiation and preparation of this Agreement.
6.2 Operation of Business in Ordinary Course. Prior to the Closing,
----------------------------------------
the Company will operate its business and the business of each of its
Subsidiaries only in the usual and normal course, and will not, without the
consent of the Purchasers, engage in any of the transactions described in
Section 2.22 hereof.
6.3 Conditions Precedent. The Company and each Purchaser shall each
--------------------
use its best efforts to cause the conditions specified in Section 4 to be
satisfied by the Closing Date.
SECTION 7. COVENANTS OF THE COMPANY AFTER CLOSING
--------------------------------------
7.1 Rule 144.
--------
(a) The Company covenants that (i) the Company will use its best
efforts to comply with the current public information requirements of Rule
144(c)(1) under the 1933 Act; and (ii) at all such times as Rule 144 is
available for use by the holders of the Common Shares, Warrants or Warrant
Shares, the Company will furnish each such holder upon request with all
information within the possession of the Company required for the preparation
and filing of Form 144.
(b) At all times during which the Company is neither subject to
the reporting requirements of Section 13 or 15(d) of the 1934 Act, nor exempt
from reporting pursuant to Rule 12g3-2(b) under the 1934 Act, it will provide as
promptly as practicable (in any event not later than twenty (20) days after
initial request) in written form, upon the written request of any Purchaser or a
prospective buyer of the Common Shares, Warrants or Warrant Shares from such
Purchaser, all information required by Rule 144A(d)(4)(i) of the General
Regulations promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company further covenants, upon written request, as promptly
as practicable (in any event not later than twenty (20) days after initial
request) to cooperate with and assist the Purchaser or any member of the
National Association of Securities Dealers, Inc. System for Private Offerings
Resales and Trading through Automated Lindake ("PORTAL") in applying to
designate and thereafter maintain the eligibility of such securities for trading
through PORTAL. The Company's obligations under this Section shall at all times
be contingent upon the Purchaser's obtaining from a prospective buyer an
agreement to take all reasonable precautions to safeguard the Rule 144A
Information from disclosure to anyone other than a person who will assist such
buyer in evaluating the purchase of the Common Shares, Warrants or Warrant
Shares.
7.2 Financial Statements; SEC Reports. The Company and each Purchaser
---------------------------------
agrees that the Company shall deliver to each Purchaser owning any Shares or
Warrants the following:
(a) (i) within ninety (90) days after the end of each fiscal
year, an audited consolidated balance sheet, and related, audited consolidated
statements of income, cash flow, and stockholders' equity of the Company and its
Subsidiaries as at the end of and for such fiscal year prepared in accordance
with GAAP, and accompanied by the opinion of an independent public accountant
and (ii) within forty-five (45) days after the end of each of the first three
fiscal quarters of each fiscal year, a consolidated balance sheet and a
consolidated statement of income of the Company and its Subsidiaries as at the
end of and for such quarter and the year to date and as at the end of and for
the corresponding periods of the preceding fiscal year, and a consolidated
statement of cash flow for the year to date and for the corresponding period of
the preceding fiscal year;
(b) promptly after the same are sent, copies of all proxy
statements, financial statements and reports which the Company sends to its
stockholders in their capacities as stockholders, and promptly after the same
are filed, copies of all financial statements and reports which the Company may
make to, or file with, any governmental authority, agency, commission, board or
bureau, including but not limited to 10-K's and 10-Q's as applicable, and any
prospectus or registration statement filed by the Company or any Subsidiary with
the Securities and Exchange Commission or any successor agency;
(c) promptly, such additional financial and other information as
the Purchaser may from time to time reasonably request;
(c) such further information regarding the Company's business,
condition, property, assets or operations, financial or otherwise, as any
Purchaser may from time to time reasonably request, all prepared in form and
detail satisfactory to such Purchaser;
(d) promptly upon becoming available, one copy of each report and
management letter submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit or other
examination made by them of the books of the Company or any Subsidiary.
7.3 Maintenance of Existence; Insurance. The Company will keep, and
-----------------------------------
will cause each of its Subsidiaries to keep, its corporate existence, rights and
franchises in full force and effect (subject to the provisions of this
Agreement), and its properties in good repair, working order and condition,
normal wear and tear excepted. The Company will maintain, and will cause each of
its Subsidiaries to maintain, public liability, property damage and workmen's
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to substantially the same
extent presently maintained.
7.4 Compliance with Laws. The Company will, and will cause each
--------------------
Subsidiary to, comply in all material respects with all laws and regulations
applicable to the conduct of its business, including without limitation ERISA,
environmental laws, employee safety laws, and the rules and regulations of the
Federal Trade Commission and Consumer Product Safety Commission, and will
indemnify and hold harmless each holder of Common Shares, Warrants, or Warrant
Shares against any failure or alleged failure by the Company to do so.
7.5 Board Representative. (a) The Company shall use its best efforts
--------------------
to cause a person designated by Tech Leaders (any designation to be made by, or
consent required from, Tech Leaders hereunder shall be by the unanimous consent
of TLLP and TLCV for so long as either of them beneficially owns any Fully
Diluted Shares (as defined below)) to be appointed to the Company's Board of
Directors at the Company's first Board meeting after the Closing Date and
thereafter, for so long as Tech Leaders beneficially owns any Fully Diluted
Shares, shall use its best efforts to maintain such designee (or such
replacement for such designee as Tech Leaders may designate from time to time)
as a member of the Company's Board of Directors and as a member of the Audit
Committee and Compensation Committee thereof. Upon the purchase by Tech Leaders
of an aggregate of 540,000 Warrant Shares upon the exercise of all or any
portion of the Warrants purchased by Tech Leaders hereunder, the Company shall
use its best efforts to cause an additional person designated by Tech Leaders to
be appointed to the Company's Board of Directors at the Company's first Board
meeting following such exercise and thereafter, for so long as Tech Leaders
beneficially owns at least 500,000 shares of Common Stock (calculated based on
actual shares issued and outstanding and without giving effect to any shares
issuable upon exercise, exchange or conversion of other securities) shall use
its best efforts to maintain such designee (or such replacement for such
designee as Tech Leaders may designate from time to time) on the Company's Board
of Directors. As used herein, "Fully Diluted Shares" shall mean all shares of
Common Stock plus all shares of Common Stock issuable upon exercise, conversion
or exchange of any securities exercisable or exchangeable for, or convertible
into, shares of Common Stock (including, without limitation, the Warrants).
(b) The Company shall use its best efforts to identify and appoint, as soon
as practicable, an individual to serve as President of the Company (it being
agreed that the first of such candidates may be a current officer of the
Company), which individual shall report directly to both the Company's Chief
Executive Officer and to the Company's Board of Directors and shall have such
responsibilities and duties as are customary for the president of a public
company. At all times that a designee of Tech Leaders is a member of the
Company's Board of Directors, the Company shall not appoint any new President
(or any other officer performing similar functions) without the approval of a
majority of the Directors constituting the Company's Board of Directors and the
approval of the members(s) of the Company's Board of Directors designated by
Tech Leaders pursuant to Section 7.5(a). For the avoidance of doubt, the
President to be appointed pursuant to the first sentence of this Section 7.5(b)
shall require the approval of a majority of the Directors constituting the
Company's Board of Directors and the approval of the members(s) of the Company's
Board of Directors designated by Tech Leaders pursuant to Section 7.5(a).
7.6 Right to Acquire Additional Voting Securities.
---------------------------------------------
(a) Right to Maintain Proportionate Ownership of Voting
---------------------------------------------------
Securities. From and after the date of Closing, each Purchaser shall have the
----------
right, with respect to any issuance of additional Voting Securities by the
Company other than Permitted Issuances (but including any issuance of Voting
Securities issuable as a result of any issuance of Voting Securities (including
a Permitted Issuance) to other parties with preemptive or similar rights), to
acquire all or any part of such proportion of the Voting Securities to be issued
as (A) the aggregate number of Votes represented by Voting Securities held by
such Purchaser at the time of the applicable issuance bears to (B) the aggregate
number of Votes represented by the Company's outstanding Voting Securities prior
to issuance of such additional Voting Securities; provided that such right to
acquire Voting Securities shall be at the same prices or, in the case of Voting
Securities offered for consideration other than cash, at a price equivalent to
the fair market value of such noncash consideration, valued at the time of the
first written agreement in principle (including any non-binding letter of
intent) or binding agreement with respect to such issuance of additional Voting
Securities, subject to adjustment if the definitive agreement provides for
materially different noncash consideration or if materially different noncash
consideration is paid upon closing of such issuance, and on the same terms and
conditions as the prices, terms and conditions applicable to such issuance. The
right to acquire Voting Securities pursuant to this Section 7.6 (A) shall
terminate on the tenth anniversary of the Closing Date; and (B) shall not be
transferable. To the extent that other parties with preemptive or similar rights
do not exercise such rights with respect to a particular issuance, the number of
shares that such Purchaser has the right to purchase hereunder with respect to
such issuance shall be correspondingly reduced. The Company shall promptly
notify each Purchaser in writing of any and all agreements in principle
(including any nonbinding letter of intent) and binding agreements with respect
to a proposed issuance of additional Voting Securities (other than Permitted
Issuances) and of the actual date of issuance of additional Voting Securities
(other than Permitted Issuances). Any acquisition by a Purchaser pursuant to
this Section 7.6 with respect to an issuance of additional Voting Securities by
the Company shall occur at the date of issuance of such additional Voting
Securities if at least 20 business days have lapsed since the date of first
notice by the Company to such Purchaser of an agreement in principle (including
a nonbinding letter of intent) or binding agreement with respect thereof or, if
such 20 business day period has not lapsed, then within 20 business days
following such notice on a date selected by such Purchaser; provided that, if
such Voting Securities are offered for noncash consideration, any acquisition
shall occur within 20 business days of the determination of the Fair Value (as
defined below) of such noncash consideration on a date selected by such
Purchaser. The fair market value of any noncash consideration shall be
determined as set forth below and shall be made in good faith and utilizing
reasonable business judgment. In any circumstances in which the fair market
value of any such consideration ("Fair Value") is to be determined pursuant to
this Section 7.6, the Company shall give to each Purchaser written notice of the
proposed Fair Value, as determined in good faith by the Board of Directors of
the Company. If, within 30 days after the date such notice is given, the Company
and the Purchasers holding a majority of the Voting Securities held by all the
Purchasers (the "Majority Holders") agree upon the Fair Value then the Fair
Value for purposes of this Section 7.6 shall be as so agreed. If the Majority
Holders and the Company do not agree upon such Fair Value within such 30-day
period, then the Majority Holders and the Company shall appoint a recognized
investment banking firm of national reputation, reasonably acceptable to the
Majority Holders and the Company for the purpose of determining the Fair Value.
If the Company and the Majority Holders cannot agree on the appointment of a
mutually acceptable investment banking firm, or if the firm so appointed
declines or fails to serve, then the Majority Holders and the Company shall each
choose one such investment banking firm and the respective firms so chosen shall
appoint another recognized investment banking firm of national reputation for
the purpose of determining the Fair Value. The investment banking firm so
selected shall appraise the Fair Value for the purposes of this Section 7.6, and
such investment banking firm shall make such appraisal (which shall be in the
form of a written report signed by such investment banking firm) and, for the
purposes of determining the Fair Value pursuant to this Section 7.6, such
appraised Fair Value shall be determined as herein provided shall be final and
conclusive on the Company and the Purchasers. All costs of appraisal shall be
borne by the Company. Each of the Company and the Purchasers shall use all
reasonable efforts to take or cause to be taken all action required by this
Section 7.6 as promptly as possible.
(b) Certain Definitions. For purposes of Section 7.6, the
-------------------
following terms shall have the meanings ascribed to them below:
(i) "Voting Securities" shall mean Common Stock and any other
securities or interests entitling the holder thereof to vote for or
designate a director or directors of the Company and securities or
instruments which are convertible into, exchangeable for or otherwise
evidencing the right to purchase or otherwise acquire shares of Common
Stock or other securities or interests entitling the holder thereof to vote
for or designate a director or directors of the Company;
(ii) "Votes" shall mean the right to vote for or designate a
director and the number of votes represented by a Voting Security shall be
(A) one Vote per share with respect to shares of Common Stock, (B) the
voting power relative to a share of Common Stock with respect to any other
securities or interests entitling the holder thereof to vote for or
designate a director or directors of the Company and (C) the voting power
of the underlying Common Stock or other securities or interests issuable
with respect to securities or instruments convertible into, exchangeable
for or otherwise evidencing the right to purchase or otherwise acquire
shares of Common Stock or other securities or interests entitling the
holder thereof to vote for or designate a director or directors of the
Company;
(iii) "Permitted Issuances" shall mean (A) issuances of Common
Stock by the Company upon exercise or conversion of presently outstanding
securities, (B) the grant of Plan Options (as defined in the Warrants) to
directors, officers, employees or other persons having a business
relationship with the Company and issuances of Common Stock upon the
exercise of such Plan Options, and (C) the issuance of Voting Securities
(other than for cash) in connection with mergers, acquisitions or similar
transactions.
7.7 Press Releases. The Purchaser shall have the right to reasonably
--------------
approve any press release with respect to the transactions contemplated by this
Agreement. In addition, at no time may the Company use or otherwise refer to the
name of any Purchaser or any Purchaser's affiliates in any press release,
publication or other report without the prior consent of such Purchaser.
7.8 NNM Listing. The Company shall use its best efforts to cause the
-----------
listing of the Common Shares and Warrant Shares pursuant to the notification
filed with the NASD pursuant to Section 4.11 to be declared effective as soon as
practicable after the Closing and shall use its best efforts to maintain such
listing of the Common Shares and Warrant Shares for so long as any Shares or
Warrants are outstanding.
7.9 License Agreements. Prior to the execution of any license or sub-
------------------
license agreement pursuant to which the Company is obligated or is reasonably
expected to pay in excess of $250,000 during any fiscal year, the Company shall
obtain the Board of Directors' approval.
7.10 ▇▇▇▇▇▇▇▇ ▇'▇▇▇▇. The Company will not, without the prior written
---------------
consent of Tech Leaders, pay all or any portion of that certain $425,000 payment
contemplated to be made to ▇▇▇▇▇▇▇▇ ▇'▇▇▇▇ and/or his affiliates pursuant to
that certain Letter Agreement dated September 4, 1996 between Mine O'Mine,
Scoreboard & Classic Games and Management Plus Enterprises.
7.11 Amendments to Agreements. For so long as Tech Leaders is
------------------------
entitled to designate a member(s) to the Company's Board of Directors, the
Company shall not amend the employment agreement of either ▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇▇
▇▇▇▇▇▇▇ without obtaining Tech Leaders' prior written consent.
7.12 Waivers, Consents, Etc. Compliance with any of the covenants
----------------------
in this Section 7 may be waived, either generally or in the particular instance,
and any consent required thereunder may be given by Tech Leaders on behalf of
all the Purchasers.
SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON TRANSFERABILITY OF
COMMON SHARES, WARRANTS AND WARRANT SHARES
------------------------------------------------------------
8.1 Compliance with 1933 Act. The Common Shares, Warrants and
------------------------
Warrant Shares shall not be transferable, except upon the conditions specified
in this Section 8, which conditions are intended to insure compliance with the
provisions of the 1933 Act and applicable state securities laws in respect of
any such transfer.
8.2 Restrictive Legend. The Warrants, and each certificate
------------------
representing the Common Shares, Warrant Shares and any shares of Common Stock or
other securities issued in respect of such Common Shares or Warrant Shares upon
any stock split, stock dividend, recapitalization, merger, consolidation,
similar event, shall (unless otherwise permitted by the provisions of Section
9.4 below) be stamped or otherwise imprinted with the following legend:
"[THIS WARRANT HAS] OR [THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE] NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW AND THE TRANSFERABILITY [THEREOF IS SUBJECT TO THE
PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BY AND AMONG THE COMPANY AND THE
SIGNATORIES THERETO"
8.3 Restrictions on Transferability. The Company shall not be
-------------------------------
required to register the transfer of the Common Shares or the Warrants or any
Warrant Shares on the books of the Company unless the Company shall have been
provided with an opinion of counsel reasonably satisfactory to it prior to such
transfer to the effect that registration under the 1933 Act or any applicable
state securities law is not required in connection with the transaction
resulting in such transfer; provided, however, that no such opinion of counsel
shall be necessary in order to effectuate a transfer in accordance with the
provisions of Rule 144(k) promulgated under the 1933 Act. Each certificate for
Common Shares or Warrant Shares issued upon any transfer as above provided shall
bear the restrictive legend set forth in Section 8.2 above, except that such
restrictive legend shall not be required if the opinion of counsel reasonably
satisfactory to the Company referred to above is to the further effect that such
legend is not required in order to establish compliance with the provisions of
the 1933 Act and any applicable state securities law, or if the transfer is made
in accordance with
the provisions of Rule 144(k) under the 1933 Act or pursuant to a registration
statement in effect under the 1933 Act.
8.4 Termination of Restrictions on Transferability. The
----------------------------------------------
conditions precedent imposed by this Section 8 upon the transferability of the
Common Shares, Warrants and Warrant Shares shall cease and terminate as to any
of the Common Shares, Warrants or Warrant Shares when (i) such securities shall
have been registered under the 1933 Act and sold or otherwise disposed of in
accordance with the intended method of disposition by the seller or sellers
thereof set forth in the registration statement covering such securities, (ii)
at such time as an opinion of counsel satisfactory to the Company shall have
been rendered as required pursuant to the second sentence of Section 8.3 to the
effect that the restrictive legend on such securities is no longer required, or
(iii) when such securities are transferable in accordance with the provisions of
Rule 144(k) promulgated under the 1933 Act. Whenever the conditions imposed by
this Section 8 shall terminate as hereinabove provided with respect to any of
the Common Shares, Warrants or Warrant Shares, the holder of any such securities
bearing the legend set forth in this Section 8 as to which such conditions shall
have terminated shall be entitled to receive from the Company, without expense
(except for the payment of any applicable transfer tax) and as expeditiously as
possible, new Warrants in accordance with the terms thereof, or new stock
certificates, not bearing such legend.
SECTION 9. DISPUTE RESOLUTION
------------------
9.1 Good-Faith Negotiations.
------------------------
(a) If any dispute arises under this Agreement that is not
settled promptly in the ordinary course of business, the parties shall seek to
resolve any such dispute between them, first, by negotiating promptly with each
other in good faith in face-to face negotiations. These face-to-face
negotiations shall be conducted by the respective designated senior management
representative of each party (or in the case of a dispute involving the Company
and all Purchasers, a designated senior management representative of Tech
Leaders who shall negotiate on behalf of all the Purchasers). If the parties are
unable to resolve the dispute between them through these face-to-face
negotiations within 20 days (or such period as the parties shall otherwise
agree) following the date of notification (the "Notice Date") by one party to
the other of the existence of such dispute, then any such disputes shall be
resolved in the following manner.
(b) Mediation. The parties shall endeavor to resolve any dispute
---------
arising out of or relating to this Agreement by mediation under the CPR
Mediation Procedures for Business Disputes. Unless otherwise agreed, the parties
will select a mediator from the CPR Panels of Neutrals and shall notify CPR to
initiate the selection process.
(c) Resolution of Disputes.
----------------------
(i) Any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and costs, exceeds
$1,000,000 ("Summary Proceeding"),
arising out of or relating to this Agreement, the Registration Rights Agreement,
the Warrants or any other agreement executed in connection herewith or therewith
or the breach, termination or validity thereof which has not been resolved by
mediation as provided herein within 90 days of the Notice Date, shall be
litigated exclusively in the Superior Court of the State of Delaware (the
"Delaware Superior Court") as a summary proceeding pursuant to Rules 124-131 of
the Delaware Superior Court, or any successor rules (the "Summary Proceeding
Rules"). Each of the parties hereto hereby irrevocably and unconditionally (A)
submits to the jurisdiction of the Delaware Superior Court for any Summary
Proceeding, (B) agrees not to commence any Summary Proceeding except in the
Delaware Superior Court, (C) waives, and agrees not to plead or to make, any
objection to the venue of any summary Proceeding in the Delaware Superior Court,
(D) waives, and agrees not to plead or to make any claim that any Summary
Proceeding brought in the Delaware Superior Court has been brought in an
improper or otherwise inconvenient forum, (E) waives, and agrees not to plead or
to make, any claim that the Delaware Superior Court lacks personal jurisdiction
where such courts are vested with sole and exclusive jurisdiction by statute and
(G) understands and agrees that it shall not seek a jury trial or punitive
damages in any Summary Proceeding based upon or arising out of or otherwise
related to this Agreement or any other agreement executed in connection herewith
or the breach, termination or validity thereof, and waives any and all rights to
any such jury trial or to seek punitive damages.
(ii) In the event any action, suit or proceeding where
the amount in controversy as to at least one party, exclusive of interest and
costs, does not exceed $1,000,000 (a "Proceeding"), arising out of or relating
to this Agreement, or any other agreement executed in connection herewith or the
breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such time as such application is
rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
(iii) If a Summary Proceeding is not available to resolve
any dispute hereunder, the controversy or claim shall be settled by arbitration
conducted on a confidential basis, under the U.S. Arbitration Act, if
applicable, and the then current Commercial Arbitration Rules of the American
Arbitration Association (the "Association") strictly in accordance with the
terms of this Agreement and the substantive law of the State of Delaware,
including such law in respect of the statute of limitations. The arbitration
shall be conducted at the Association's regional office located in Philadelphia
by three arbitrators, one of whom shall be an attorney and one of whom shall be
a member of a "Big Six" accounting firm familiar with companies engaged in the
business conducted by the Company. The arbitrators are not empowered to award
damages in excess of compensatory damages and each party hereby irrevocably
waives any right to recover such damages with respect to any such disputes.
Judgment upon the arbitrators' award may be entered and enforced in any court of
competent jurisdiction.
(c) Neither party shall be precluded hereby from securing
equitable remedies in court of any jurisdiction, including, but not limited to,
temporary restraining orders and preliminary
injunctions to protect its rights and interest but shall not be sought as a
means to avoid or stay arbitration or Summary Proceeding.
(d) Each party is required to continue to perform its
obligations under this contract pending final resolution of any dispute arising
out of or relating to this contract, unless to do so would be impossible or
impracticable under the circumstances.
SECTION 10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
------------------------------------------------------
All covenants, agreements, representations and warranties made
herein and in the certificates delivered pursuant hereto shall survive the
execution and delivery of this Agreement and the issuance and sale of the Common
Shares and Warrants hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Purchasers.
SECTION 11. MISCELLANEOUS
-------------
11.1 Owner of Common Shares, Warrants and Warrant Shares. The
---------------------------------------------------
Company may deem and treat the person in whose name the Common Shares, Warrants
and Warrant Shares, as the case may be, are registered as the absolute owner
thereof for all purposes whatsoever, and the Company shall not be affected by
any notice to the contrary.
11.2 Successors. This Agreement shall be binding upon and except
----------
as provided herein, shall inure to the benefit of the respective successors,
executors, personal representatives, heirs and assigns of each of the parties
hereto.
11.3 Broker or Finder. Each party to this Agreement represents
----------------
and warrants that, to the best of its knowledge, no broker or finder has acted
for such party in connection with this Agreement or the transactions
contemplated by this Agreement and that no broker or finder is entitled to any
broker's or finder's fee or other commission in respect thereof based in any way
on agreements, arrangements or understandings made by such party. The Company
shall indemnify each Purchaser against, and hold it harmless from, any
liability, cost, or expense (including reasonable attorneys' fees and expenses)
resulting from any agreement, arrangement, or understanding made by the Company,
and each Purchaser shall indemnify the Company against, and hold the Company
harmless from, any liability, cost, or expense (including reasonable attorneys
fees and expenses) resulting from any agreement, arrangement, or understanding
made by such Purchaser with any third party, for brokerage or finder's fees or
other commissions in connection with this Agreement or any of the transactions
contemplated hereby.
11.4 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Delaware with
regard to principles of conflict of laws and without regard to any rule
requiring strict construction against the draftsman.
11.5 Notice. Any notice or other communications required or
------
permitted hereunder shall be deemed given when delivered personally, or upon
receipt by the party entitled to receive the notice when sent by registered or
certified mail, postage prepaid, addressed as follows or to such other address
or addresses as may hereafter be furnished in writing by notice similarly given
by one party to the other:
To the Company:
The Score Board, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
To the Purchasers at their address as reflected on Schedule I
hereto.
Notice to any holder of Common Shares, Warrants or Warrant Shares
other than a Purchaser shall be given in a like manner to such holder at the
address reflected in the Company's records.
11.6 Full Agreement. This Agreement, together with the
--------------
Registration Rights Agreement and Warrants and the Exhibits, Schedules and
Disclosure Letter attached hereto or delivered herewith, and other documents
delivered herewith, sets forth the entire understanding of the parties with
respect to the transactions contemplated hereby.
11.7 Headings. The headings of the sections of this Agreement are
--------
inserted for convenience of reference only and shall not be considered a part
hereof.
11.8 No Waiver; Cumulative Remedies. No failure or delay on the
------------------------------
part of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy hereunder. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
11.9 Amendments, Waivers and Consents. Any provision in the
--------------------------------
Agreement to the contrary notwithstanding, and except as hereinafter provided,
changes in, termination or amendments of or additions to this Agreement may be
made, and compliance with any covenant or provision set forth herein may be
omitted or waived, if the Company (i) shall obtain consent thereto in writing
from the holder or holders of at least a majority in interest of the Shares
(treating all Warrant Shares issuable upon exercise of the Warrants as
outstanding for this purpose) and (ii) shall deliver copies of such consent in
writing to any holders who did not execute such consent; provided that no
consents shall be effective to reduce the percentage in interest of the Shares
the consent of the holders of which is required under this Section 11.9. Any
waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
IN WITNESS WHEREOF, each of the parties hereto has fully executed this
Agreement as of the date first set forth above.
THE SCORE BOARD, INC.
By:
---------------------------------
Name:
Title:
PURCHASERS:
TECHNOLOGY LEADERS II L.P.
By: Technology Leaders II Management L.P.,
the General Partner
By: Technology Leaders Management, Inc.,
a General Partner
By:
---------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
TECHNOLOGY LEADERS II OFFSHORE C.V.
By: Technology Leaders II Management L.P.,
a General Partner
By: Technology Leaders Management, Inc.,
a General Partner
By:
---------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
------------------------------------
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ TRUST
By:
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ TRUST
By:
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee
THE OUTSOURCING PARTNERSHIP, L.L.C.
By:
---------------------------------
Name:
Title:
------------------------------------
▇▇▇▇ ▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇
NEWVALU, INC.
By:
---------------------------------
Name:
Title:
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇