EXHIBIT 10.19
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of September 17, 1999
among
NET VALUE HOLDINGS, INC.
and
THE PURCHASERS EXECUTING THIS AGREEMENT AND LISTED ON EXHIBIT A
AND
THOSE PURCHASERS, IF ANY, PARTICIPATING
IN THE SECOND TRANCHE CLOSING
TABLE OF CONTENTS
Page
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ARTICLE I - Purchase and Sale of Preferred Stock 1
Section 1.1 Purchase and Sale of Stock 1
Section 1.2 The Conversion Shares 2
Section 1.3 Purchase Price, Execution and Closing 2
Section 1.4 Escrow. 2
Section 1.5 Warrants. 3
ARTICLE II - Representations and Warranties 5
Section 2.1 Representation and Warranties of the Company 5
(a) Organization, Good Standing and Power 5
(b) Authorization; Enforcement 5
(c) Capitalization 5
(d) Issuance of Shares 6
(e) No Conflicts 6
(f) Commission Documents, Financial Statements 7
(g) Subsidiaries 7
(h) No Material Adverse Change 8
(i) No Undisclosed Liabilities 8
(j) No Undisclosed Events or Circumstances 8
(k) Indebtedness 8
(l) Title to Assets 8
(m) Actions Pending 9
(n) Compliance with Law 9
(o) Taxes 9
(p) Certain Fees 9
(q) Disclosure 10
(r) Operation of Business 10
(s) Environmental Compliance 10
(t) Books and Record Internal Accounting Controls 11
(u) Material Agreements 11
(v) Transactions with Affiliates 11
(w) Securities Act of 1933 11
(x) Governmental Approvals 12
(y) Employees 12
(z) Absence of Certain Developments 12
(aa) Use of Proceeds 14
(ab) Public Utility Holding Company Act and
Investment Company Act Status 14
(ac) ERISA 14
(ad) Dilutive Effect 14
Section 2.2 Representations and Warranties of the Purchasers 14
(a) Organization and Standing of the Purchasers 15
(b) Authorization and Power 15
(c) No Conflicts 15
(d) Acquisition for Investment 15
(e) Accredited Purchasers 16
(f) Rule 144 16
(g) [Intentionally Omitted.] 16
(h) General 16
(i) Short Selling. 16
ARTICLE III - Covenants 17
Section 3.1 Securities Compliance 17
Section 3.2 Registration and Listing 17
Section 3.3 Inspection Rights 17
Section 3.4 Compliance with Laws 18
Section 3.5 Keeping of Records and Books of Account 18
Section 3.6 Reporting Requirements 18
Section 3.7 Amendments 18
Section 3.8 Other Agreements 19
Section 3.9 Distributions. 19
Section 3.10 Status of Dividends 19
Section 3.11 [Intentionally Omitted.] 20
Section 3.12 Regulation S 20
Section 3.13 Restrictions on Subsequent Financings 20
Section 3.14 Reservation of Shares 22
Section 3.15 Transfer Agent Instructions 22
Section 3.16 Transfer or Resale 22
Section 3.17 Short Selling. 23
ARTICLE IV - Conditions 23
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares at the First Tranche Closing 23
(a) Accuracy of Each First Tranche Purchaser's
Representations and Warranties 23
(b) Performance by the First Tranche Purchasers 23
(c) No Injunction 24
Section 4.2 Conditions Precedent to the Obligation of the Company
to Sell the Shares at the Second Tranche Closing 24
(a) Accuracy of Each Second Tranche Purchaser's
Representations and Warranties 24
(b) Performance by the Second Tranche Purchasers 24
(c) No Injunction 24
(d) Payment of Second Tranche Purchaser Prices 24
Section 4.3 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares at the First Tranche Closing 24
(a) Accuracy of the Company's Representations
and Warranties 25
(b) Performance by the Company 25
(c) No Suspension, Etc 25
(d) No Injunction 25
(e) No Proceedings or Litigation 25
(f) Certificate of Designation of Rights and Preferences 25
(g) Opinion of Counsel, Etc. 26
(h) Registration Rights Agreement 26
(i) Preferred Stock Certificates 26
(j) Resolutions 26
(k) Reservation of Shares 26
(l) Transfer Agent Instructions 26
(m) Secretary's Certificate 26
(n) Escrow Agreement 27
(o) Officer's Certificate 27
Section 4.4 Conditions Precedent to the Obligation of the Purchasers
to Purchase the Shares at the Second Tranche Closing 27
(a) Accuracy of the Company's Representations
and Warranties 27
(b) Performance by the Company 27
(c) No Suspension, Etc 27
(d) No Injunction 27
(e) No Proceedings or Litigation 28
(f) Opinion of Counsel, Etc. 28
(g) Preferred Stock Certificates 28
(h) Resolutions 28
(i) Reservation of Shares 28
(j) Secretary's Certificate 28
(k) Officer's Certificate 29
(l) Registration Statement 29
ARTICLE V - Registration Rights 29
ARTICLE VI - Stock Certificate Legend 29
Section 6.1 Legend 29
ARTICLE VII - Termination 30
Section 7.1 Termination by Mutual Consent 30
Section 7.2 Other Termination 30
Section 7.3 Termination of Second Tranche Closing 31
Section 7.4 Effect of Termination 31
ARTICLE VIII - Indemnification 31
Section 8.1 General Indemnity 31
Section 8.2 Indemnification Procedure 31
ARTICLE IX - Miscellaneous 32
Section 9.1 Fees and Expenses 32
Section 9.2 Specific Enforcement, Consent to Jurisdiction 33
Section 9.3 Entire Agreement; Amendment 33
Section 9.4 Notices 34
Section 9.5 Waivers 34
Section 9.6 Headings 35
Section 9.7 Successors and Assigns 35
Section 9.8 No Third Party Beneficiaries 35
Section 9.9 Governing Law 35
Section 9.10 Survival 35
Section 9.11 Counterparts 35
Section 9.12. Publicity 36
Section 9.13 Severability 36
Section 9.14 Further Assurances 36
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
This SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of September 17, 1999 by and among Net Value Holdings,
Inc., a Delaware corporation (the "Company"), and each of the Purchasers of
shares of Series B Convertible Preferred Stock of the Company executing this
Agreement and whose names are set forth on Exhibit A hereto (individually, a
"First Tranche Purchaser" and collectively, the "First Tranche Purchasers") and
each of those Purchasers of shares of Series B Convertible Preferred Stock who
purchase such shares pursuant to the Second Tranche Closing, if applicable
(individually, a "Second Tranche Purchaser," and collectively, the "Second
Tranche Purchasers"). Each of the First Tranche Purchasers and Second Tranche
Purchasers is referred to herein as a "Purchaser" and are collectively referred
to herein as the "Purchasers"; provided, however, if the Second Tranche Closing
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does not occur, the term "Purchaser" shall only include a First Tranche
Purchaser and the term "Purchasers" shall only include the First Tranche
Purchasers. Prior to the Second Tranche Closing, if applicable, the Second
Tranche Purchasers shall provide the Company with an Exhibit AA which shall set
forth the names of the Second Tranche Purchasers and the number of shares of the
Series B Convertible Preferred Stock each such Second Tranche Purchaser is
purchasing.
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
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conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, shares of the Company's Series B
Convertible Preferred Stock, par value $.001 per share (the "Preferred Shares"),
and one callable and one non-callable Warrant A, Warrant B, Warrant C and
Warrant D (singularly a "Warrant" and together, the "Warrants"), each in
substantially the form attached hereto as Exhibit B, to purchase the Company's
Common Stock, par value $.001 per share (the "Common Stock"). The Preferred
Shares and the Warrants shall be funded in two tranches as agreed upon by the
Company and the Purchasers. The designation, rights, preferences and other terms
and provisions of the Series B Convertible Preferred Stock are set forth in the
Certificate of Designation of the Relative Rights and Preferences of the Series
B Convertible Preferred Stock attached hereto as Exhibit C (the "Certificate of
Designation"). The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") or Section 4(2) of the Securities Act.
Section 1.2 The Conversion Shares. The Company has authorized and has
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reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock, to effect the conversion of
the Preferred Shares and exercise of the Warrants. Any shares of Common Stock
issuable upon conversion of the Preferred Shares and exercise of the Warrants
(and such shares when issued) are herein referred to as the "Conversion Shares"
and the "Warrant Shares", respectively. The Preferred Shares, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to as the
"Shares".
Section 1.3 Purchase Price, Execution and Closing. In consideration of
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and in express reliance upon the representations, warranties, covenants, terms
and conditions of this Agreement, the Company agrees to issue and sell to the
Purchasers and the Purchasers, severally but not jointly, agree to purchase the
Preferred Shares set forth opposite their respective names on Exhibit A and
Exhibit AA, as applicable, and Warrants exercisable for that number of Warrant
Shares computed in accordance with Section 1.5. The aggregate purchase price of
the Preferred Shares and the Warrants being acquired by each Purchaser is set
forth opposite such Purchaser's name on Exhibit A and Exhibit AA, as applicable,
(each a "Purchase Price", and collectively referred to as the "Purchase
Prices"). Those Purchase Prices listed on Exhibit A hereto shall be the "First
Tranche Purchase Prices" and those Purchase Prices listed on Exhibit AA, as
applicable, shall be the "Second Tranche Purchase Prices." The closing of the
purchase and sale of the first tranche (the "First Tranche Closing") of
Preferred Shares and Warrants to be acquired by the Purchasers from the Company
shall take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau & Klimpl, LLP, at 10:00
a.m. eastern time (i) on September 17, 1999 or (ii) such other time and place or
on such date as the Purchaser and the Company may agree upon (the "First Tranche
Closing Date"), subject to the satisfaction (or waiver) of the applicable
conditions set forth in Article IV hereof with respect to the First Tranche
Closing. This Agreement shall be effective as of the First Tranche Closing Date.
Subject to the satisfaction (or waiver) of the applicable conditions set forth
on Article IV hereof with respect to the Second Tranche Closing, the closing of
the purchase and sale of the second tranche (the "Second Tranche Closing" and as
with the First Tranche Closing, a "Closing") of Preferred Shares and Warrants to
be acquired by the Purchasers from the Company shall take place at the offices
of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau & Klimpl, LLP in New York, New York (i) as soon as
practicable after the filing of the Registration Statement (as such term is
defined in the Registration Rights Agreement), the date (the "Filing Date") of
which is to be October 1, 1999 (such filing shall be confirmed by the Company by
facsimile to the Escrow Agent and each of the Purchasers on the Filing Date) or
(ii) such other time and place or on such date as the Purchasers and the Company
may agree upon (the "Second Tranche Closing Date" and as with the First Tranche
Closing Date, a "Closing Date").
Section 1.4 Escrow. On or before each of the Closing Dates, (a) the
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Company shall execute and deliver to the escrow agent (the "Escrow Agent")
identified in the Escrow Agreement attached hereto as Exhibit D (the "Escrow
Agreement") all applicable agreements, documents, instruments and writings
required pursuant to (i) Section 4.3 in regard to the First Tranche Closing
(collectively, the "First Tranche Company Closing Documents") or (ii) Section
4.4 in regard to the Second Tranche Closing (collectively, the "Second Tranche
Company Closing Documents" and together with the First Tranche Company Closing
Documents, the "Company Closing Documents"), to be delivered by the Company
including, without limitation,
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certificates for the number and series of Preferred Shares set forth opposite
each Purchaser's name on Exhibit A or Exhibit AA, as applicable, registered in
such Purchaser's name and such Purchaser's Warrants and (b) each of the
Purchasers shall pay by wire transfer of immediately available funds into escrow
in accordance with the Escrow Agreement such Purchaser's Purchase Price and
execute and deliver all applicable agreements, documents, instruments and
writings required pursuant to (i) Section 4.1 in regard to the First Tranche
Closing (collectively and together with such Purchaser's First Tranche Purchase
Price, the "First Tranche Purchaser's Closing Documents") or (ii) Section 4.2 in
regard to the Second Tranche Closing (collectively, and together with such
Purchaser's Second Tranche Purchase Price, the "Second Tranche Purchaser's
Closing Documents" and together with the First Tranche Purchaser's Closing
Documents, and the Company Closing Documents, the "Closing Documents"), to be
delivered by such Purchaser. In regard to the First Tranche Closing, the Escrow
Agent shall give notice (an "Escrow Agent Notice") to the parties hereto when
the Escrow Agent has received all of the First Tranche Company Closing Documents
and First Tranche Purchaser's Closing Documents and shall deliver the First
Tranche Company Closing Documents to the Purchasers and wire transfer the funds
constituting the First Tranche Purchase Prices and deliver the other First
Tranche Purchaser's Closing Documents to the Company pursuant to the terms of
the Escrow Agreement. In regard to the Second Tranche Closing, the Escrow Agent
shall give an Escrow Agent Notice to the parties hereto when the Escrow Agent
has received all the Second Tranche Company Closing Documents and Second Tranche
Purchaser's Closing Documents. The Company shall then give notice (the "Company
Closing Notice") to the Escrow Agent and the Purchasers when all of the
conditions set forth in Section 4.2 have been satisfied or waived and that it is
ready to file the Registration Statement as soon as is practicable after receipt
of the Purchaser Closing Notice (defined below) of each Purchaser. Each
Purchaser shall give notice (each a "Purchaser Closing Notice") to the Company
and the Escrow Agent that all of the conditions set forth in Section 4.4 have
been satisfied or waived except for Section 4.4(l). Upon the filing of the
Registration Statement, the Company shall give notice (the "Filing Notice") to
the Escrow Agent and the Purchasers that such filing has occurred. As soon
thereafter as is practicable on the Second Tranche Closing Date, the Escrow
Agent shall deliver the Second Tranche Company Closing Documents to the
Purchasers and wire transfer the funds constituting the Second Tranche Purchase
Prices and deliver the other Second Tranche Purchaser's Closing Documents to the
Company pursuant to the terms and conditions of the Escrow Agreement.
Section 1.5 Warrants. At each Closing, the Company agrees to issue to
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the applicable Purchasers a non-callable and a callable Warrants A, Warrants B,
Warrants C and Warrants D, representing the number of Warrant Shares as
calculated pursuant to this Section 1.5. At each Closing, the Warrants issued to
the Purchasers, collectively, shall be exercisable for that number of Warrant
Shares equal to twenty-five percent (25%) of the quotient of: (i) the sum of the
Purchase Prices (relating to such Closing) of the Purchasers and (ii) the
initial Conversion Price (as such term is defined in Section 5(d) of the
Certificate of Designation). The Warrant Shares subject to the Warrants being
issued on each Closing Date shall be divided equally among the non-callable and
callable Warrant As, Warrant Bs, Warrant Cs and Warrant Ds. Each Purchaser shall
receive a non-callable and a callable Warrant A, Warrant B, Warrant C and
Warrant D, each exercisable for that number of Warrant Shares computed by
multiplying (a) the percentage computed by dividing such Purchaser's Purchase
Price by the sum of the Purchase Prices (relating to such Closing) of all of the
Purchasers (relating to such Closing) by (b) the product of multiplying .125 by
the aggregate number of Warrant Shares (relating to such Closing). Each of
3
the Warrants shall be exercisable for five (5) years from the Closing Date on
which such Warrant is issued and the exercise price of each of the Warrants
shall be as follows:
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Type of Warrant Exercise Price
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Warrant A 110% of the initial Conversion Price
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Warrant B 120% of the initial Conversion Price
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Warrant C 130% of the initial Conversion Price
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Warrant D 140% of the initial Conversion Price
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The calculation of the Warrant Shares for which any Warrants are exercisable
under this Section 1.5 shall be referred to herein as the "Warrant Calculation."
In the case where a Purchaser receiving Warrants representing Warrant
Shares at the First Tranche Closing would have received more Warrant Shares for
such Warrants if the number of Warrant Shares represented by such Warrants had
been calculated pursuant to the Warrant Calculation at the Second Tranche
Closing, such Purchaser shall be entitled to exchange such Warrants received
pursuant to the First Tranche Closing for Warrants (the "Exchange Warrants")
which represent the number of Warrant Shares as calculated pursuant to the
Warrant Calculation at the Second Tranche Closing. In such case, the Warrant
Calculation for all Warrants issued in connection with the Second Tranche
Closing and Exchange Warrants shall be made as if the Closings had occurred on
the same Closing Date. If any Purchaser shall be entitled to Exchange Warrants,
the Company shall have three (3) Trading Days (as such term is defined in the
Warrant) from the date on which the Company shall be in receipt of the original
Warrants of a Purchaser to deliver to such Purchaser Exchange Warrants. The
Company agrees that if the Company fails to delivery to any applicable Purchaser
Exchange Warrants pursuant to the delivery requirements of this Section 1.5, any
such Purchaser shall be entitled to an injunction or injunctions to prevent or
cure breaches and to enforce specifically the terms and provisions of this
Section 1.5, this being in addition to any other remedy to which any such
Purchaser may be entitled by law or equity.
ARTICLE II
Representations and Warranties
Section 2.1 Representation and Warranties of the Company. The Company
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hereby makes the following representations and warranties to the Purchasers:
(a) Organization, Good Standing and Power. The Company is a
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corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any subsidiaries or securities of
any kind in any other entity except as set forth in Schedule 2.1(a) hereto.
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Except as set forth on Schedule 2.1(a) hereto, the Company and
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each such subsidiary is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
4
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect (as defined
hereinafter) on the Company's financial condition. For the purposes of this
Agreement, "Material Adverse Effect" means any adverse effect on the business,
operations, properties, prospects, or financial condition of the Company or its
subsidiaries and which is material to such entity or other entities controlling
or controlled by such entity.
(b) Authorization; Enforcement. The Company has the requisite
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corporate power and authority to enter into and perform this Agreement, the
Escrow Agreement, the Transfer Agent Instructions (as defined in Section 3.15),
Registration Rights Agreement attached hereto as Exhibit E (the "Registration
Rights Agreement") and the Warrants (collectively, the "Transaction Documents")
and to issue and sell the Shares in accordance with the terms hereof, the
Certificate of Designation and the Warrants. The execution, delivery and
performance of the Transaction Documents and the Certificate of Designation by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its Board of
Directors or stockholders is required. This Agreement has been duly executed and
delivered by the Company. The Registration Rights Agreement will have been duly
executed and delivered by the Company on or before the First Tranche Closing
Date. Each of the Transaction Documents constitutes, or shall constitute when
executed and delivered, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and
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the shares thereof currently issued and outstanding as of September 17, 1999 are
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of Company's
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Common Stock and Series A Convertible Preferred Stock have been duly and validly
authorized. Except as set forth in this Agreement and the Registration Rights
Agreement and as set forth on Schedule 2.1(c) hereto, no shares of Common Stock
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or any other securities issued by the Company are entitled to preemptive rights
or registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and the Registration
Rights Agreement and as set forth on Schedule 2.1(c), there are no contracts,
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commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company. Except for customary transfer restrictions contained in agreements
entered into by the Company in order to sell restricted securities or as
provided on Schedule 2.1 (c) hereto, the Company is not a party to any agreement
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granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,
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the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to each of the Closings
complied with all applicable Federal and state securities laws, and no
stockholder has a right of
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rescission or damages with respect thereto which would have a Material Adverse
Effect on the Company's financial condition or operating results. The Company
has furnished or made available to the Purchasers true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof (the
"Articles"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").
(d) Issuance of Shares. The Preferred Shares to be issued at each of
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the Closings have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Preferred
Shares shall be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Certificate of
Designation. When the Conversion Shares and the Warrant Shares are issued in
accordance with the terms of the Preferred Shares as set forth in the
Certificate of Designation and the Warrants, respectively, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
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Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not (i) violate
any provision of the Company's Articles or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any commitment
to which the Company is a party or by which the Company is bound or by which any
of its respective properties or assets are bound, or (iv) result in a violation
of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including Federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases other than violations pursuant to clause (i) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or the Certificate of
Designation, or issue and sell the Preferred Shares, the Conversion Shares and
the Warrant Shares in accordance with the terms hereof or thereof (other than
any filings which may be required to be made by the Company with the Securities
and Exchange Commission (the "Commission") or state securities administrators
subsequent to any of the Closings, any registration statement which may be filed
pursuant hereto, and the Certificate of Designation); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Purchasers herein.
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(f) Commission Documents, Financial Statements. The Company has not
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provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement. The
financial statements of the Company furnished to the Purchasers comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary
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of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of the Company's ownership of the outstanding stock
or other interests of such subsidiary. For the purposes of this Agreement,
"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. Except as disclosed on
Schedule 2.1(g), there are no outstanding preemptive, conversion or other
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rights, options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Except
as set forth on Schedule 2.1(g), neither the Company nor any subsidiary is
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subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of the capital stock of any subsidiary or any
convertible securities, rights, warrants or options of the type described in the
preceding sentence. Neither the Company nor any subsidiary is party to, nor has
any knowledge of, any agreement restricting the voting or transfer of any shares
of the capital stock of any subsidiary.
(h) No Material Adverse Change. Since June 30, 1999, the Company has
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not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.
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(i) No Undisclosed Liabilities. Except as disclosed on Schedule
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2.1(i) hereto, neither the Company nor any of its subsidiaries has any
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liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its subsidiaries
respective businesses since June 30, 1999 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.
7
(j) No Undisclosed Events or Circumstances. No event or circumstance
--------------------------------------
has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
------------ ---------------
hereof all outstanding secured and unsecured Indebtedness of the Company or any
subsidiary, or for which the Company or any subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $25,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP. Except as disclosed on Schedule 2.1(k), neither the Company nor any
---------------
subsidiary is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has
---------------
good and marketable title to all of its real and personal property, free of any
encumbrances, except for those indicated on Schedule 2.1(l) hereto or such that,
---------------
individually or in the aggregate, do not cause a Material Adverse Effect on the
Company's financial condition or operating results. Except as described on
Schedule 2.1(l), all said leases of the Company and each of its subsidiaries are
---------------
valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation
---------------
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth on Schedule 2.1(m) hereto, there is no
---------------
action, suit, claim, investigation or proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
-------------------
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth on Schedule 2.1(n) hereto or such that,
---------------
individually or in the aggregate, do not cause a Material Adverse Effect. The
Company and each of its subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
8
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the Company
----- ---------------
and each of the subsidiaries has accurately prepared and filed all federal,
state and other tax returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all additional
assessments, and adequate provisions have been and are reflected in the
financial statements of the Company and the subsidiaries for all current taxes
and other charges to which the Company or any subsidiary is subject and which
are not currently due and payable. Except as disclosed on Schedule 2.1(o)
---------------
hereto, none of the federal income tax returns of the Company or any subsidiary
has been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) pending or threatened against the Company or any subsidiary
for any period, nor of any basis for any such assessment, adjustment or
contingency.
(p) Certain Fees. The Company has not employed any broker or finder
------------
or incurred any liability for any brokerage or investment banking fees,
commissions, finders' fees, financial advisory fees or other similar fees in
connection with this Agreement, except as set forth on Schedule 2.1(p) hereto.
---------------
All those entities listed on Schedule 2.1(p) hereto are broker/dealers (i)
---------------
registered and in good standing with the National Association of Securities
Dealers, Inc. and (ii) registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(q) Disclosure. To the best of the Company's knowledge, neither this
----------
Agreement or the Schedules hereto nor any other documents, certificates or
---------
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading; provided, however, that the Purchasers understand and agree that any
-------- -------
and all drafts of the Registration Statement provided to them are incomplete
drafts subject to completion.
(r) Operation of Business. The Company and each of the subsidiaries
---------------------
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, including (but not
limited to) those set forth on Schedule 2.1(r) hereto, and all rights with
---------------
respect to the foregoing, which are necessary for the conduct of its business as
now conducted without any conflict with the rights of others except as disclosed
on Schedule 2.1(r).
---------------
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
------------------------ ---------------
hereto, the Company and each of its subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws.
Schedule 2.1(s) hereto sets forth all material permits, licenses and other
---------------
authorizations issued under any Environmental Laws to the Company or its
subsidiaries. "Environmental Laws" shall mean all applicable laws relating to
the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface
9
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature.
Except as set forth on Schedule 2.1(s) hereto, the Company has all necessary
---------------
governmental approvals required under all Environmental Laws and used in its
business or in the business of any of its subsidiaries. The Company and each of
its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the any of the Closings
or that may give rise to any environmental liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any hazardous
substance. "Environmental Liabilities" means all liabilities of a person
(whether such liabilities are owed by such person to governmental authorities,
third parties or otherwise) whether currently in existence or arising hereafter
which arise under or relate to any Environmental Law.
(t) Books and Record Internal Accounting Controls. The records and
---------------------------------------------
documents of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions is taken
with respect to any differences.
(u) Material Agreements. Except as set forth on Schedule 2.1(u)
------------------- ---------------
hereto, neither the Company nor any subsidiary is a party to any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement, a
copy of which would be required to be filed with the Commission as an exhibit to
a registration statement on Form S-1 or applicable form (collectively, "Material
Agreements") if the Company or any subsidiary were registering securities under
the Securities Act. Except as set forth on Schedule 2.1(u) hereto, the Company
---------------
and each of its subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. No written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement of
the Company
10
or of any subsidiary limits or shall limit the payment of dividends on the
Company's Preferred Shares, other Preferred Stock, if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth on Schedule
---------------------------- --------
2.1(v) hereto, there are no loans, leases, agreements, contracts, royalty
------
agreements, management contracts or arrangements or other continuing
transactions exceeding $100,000 between (a) the Company, any subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply
----------------------
with all applicable Federal and state securities laws in connection with the
offer, issuance and sale of the Preferred Shares and the Warrants hereunder.
Neither the Company nor anyone acting on its behalf, directly or indirectly, has
or will sell, offer to sell or solicit offers to buy the Preferred Shares, the
Warrants or similar securities to, or solicit offers with respect thereto from,
or enter into any preliminary conversations or negotiations relating thereto
with, any person, or has taken or will take any action so as to bring the
issuance and sale of the Preferred Shares and the Warrants under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of the Preferred Shares and the Warrants.
(x) Governmental Approvals. Except as set forth on Schedule 2.1(x)
---------------------- ---------------
hereto, and except for the filing of any notice prior or subsequent to any of
the Closings that may be required under applicable state and/or Federal
securities laws (which if required, shall be filed on a timely basis), including
the filing of a registration statement or statements pursuant to the
Registration Rights Agreement, and the filing of the Certificate of Designation
with the Secretary of State for the State of Delaware, no authorization,
consent, approval, license exemption of, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Preferred Shares, or for the
performance by the Company of its obligations under the Transaction Documents or
the Certificate of Designation.
(y) Employees. Neither the Company nor any subsidiary has any
---------
collective bargaining arrangements or agreements covering any of its employees,
except as set forth on Schedule 2.1(y) hereto. Except as set forth on Schedule
--------------- --------
2.1(y) hereto, neither the Company nor any subsidiary has any employment
------
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since June 30, 1999, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or,
11
to the knowledge of the Company, has any present intention of terminating his or
her employment or engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as provided in Schedule
------------------------------- --------
2.1(z) hereto, since June 30, 1999, neither the Company nor any subsidiary has:
------
(i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
12
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the
---------------
Preferred Shares will be used by the Company for acquisitions and funding
certain preexisting obligations as listed on Schedule 2.1(aa), working capital
----------------
and general corporate purposes.
(ab) Public Utility Holding Company Act and Investment Company
---------------------------------------------------------
Act Status. The Company is not a "holding company" or a "public utility company"
----------
as short terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon each of the
Closings will not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
(ac) ERISA. No liability to the Pension Benefit Guaranty
-----
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(ad) Dilutive Effect. The Company understands and
---------------
acknowledges that the number of Conversion Shares issuable upon conversion of
the Preferred Shares and the Warrant Shares issuable upon exercise of the
Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares in accordance with this Agreement and the Certificate of
Designation and its obligations to issue the Warrant Shares upon the exercise of
the Warrants in accordance with this Agreement and the Warrants, is, in each
case, absolute and unconditional
13
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
Section 2.2 Representations and Warranties of the Purchasers. Each of
------------------------------------------------
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
-------------------------------------------
Purchaser is an entity, such Purchaser is a corporation, limited liability
company or partnership duly incorporated or organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. The Purchaser has the requisite
-----------------------
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement, the Escrow Agreement and to purchase the Preferred Shares and
the Warrants being sold to it hereunder. The execution, delivery and performance
of this Agreement, the Registration Rights Agreement, the Escrow Agreement and
the documents contemplated hereby by such Purchaser and the consummation by it
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate, company or partnership action (if the Purchaser is an
entity), and no further consent or authorization of such Purchaser or its Board
of Directors, stockholders, members, managers or partners, as the case may be,
is required. This Agreement, the Registration Rights Agreement and the Escrow
Agreement will have been duly executed and delivered by the Purchasers on the
Effective Date. Each of this Agreement, the Registration Rights Agreement and
the Escrow Agreement constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Purchaser enforceable against
the Purchaser in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, or similar laws relating to, or affecting
generally the enforcement of, creditor's rights, remedies or by other equitable
principles of general application.
(c) No Conflicts. The execution, delivery and performance of
------------
this Agreement, the Registration Rights Agreement, the Escrow Agreement and the
documents contemplated hereby and thereby and the consummation by such Purchaser
of the transactions contemplated hereby and thereby or relating hereto do not
and will not (i) result in a violation of such Purchaser's charter documents
bylaws, partnership agreement, operating agreement or other organizational
documents, or (ii) conflict with, constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of any
agreement, indenture or instrument to which such Purchaser is a party, or result
in a violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to such Purchaser or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a Material Adverse Effect on such
Purchaser). Such Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the Escrow Agreement or
the documents contemplated hereby and thereby or to purchase the Preferred
Shares and the Warrants in accordance with the terms hereof, provided that for
purposes of the representation
14
made in this sentence, such Purchaser is assuming and relying upon the accuracy
of the relevant representations and agreements of the Company herein.
(d) Acquisition for Investment. Such Purchaser is purchasing the
--------------------------
Shares and the Warrants solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Such
Purchaser does not have a present intention to sell the Shares or the Warrants,
nor a present arrangement (whether or not legally binding) or intention to
effect any distribution of the Shares or the Warrants to or through any person
or entity; provided, however, that by making the representations herein and
-------- --------
subject to Section 2.2(f) below, such Purchaser does not agree to hold the
Shares or the Warrants for any minimum or other specific term and reserves the
right to dispose of the Shares or the Warrants at any time in accordance with
Federal securities laws applicable to such disposition. Such Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Shares or the Warrants and that it has been given full access
to such records of the Company and the subsidiaries and to the officers of the
Company and the subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation.
(e) Accredited Purchasers. Such Purchaser is an "accredited
---------------------
investor" as defined in Regulation D promulgated under the Securities Act and is
a resident of the jurisdiction indicated on Exhibit A hereto.
(f) Rule 144. Such Purchaser understands that the Shares and the
--------
Warrants must be held indefinitely unless such Shares and the Warrants are
registered under the Securities Act or an exemption from registration is
available. Such Purchaser acknowledges that such person is familiar with Rule
144 of the rules and regulations of the Commission, as amended, promulgated
pursuant to the Securities Act ("Rule 144"), and that such person has been
advised that Rule 144 permits resales only under certain circumstances. Such
Purchaser understands that to the extent that Rule 144 is not available, such
person will be unable to sell any Shares and the Warrants without either
registration under the Securities Act or the existence of another exemption from
such registration requirement.
(g) [Intentionally Omitted.]
(h) General. Such Purchaser understands that the Shares are being
-------
offered and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares. Purchaser understands that no United States
federal or state agency or any government or governmental agency has passed upon
or made any recommendation or endorsement of the Shares and the Warrants
(i) Short Selling. During the period beginning five (5) Trading
-------------
Days prior to a Closing Date (the "Pre-Closing Period") through such Closing
Date, no Purchaser participating in such Closing Date or any person acting on
behalf of such Purchaser has taken any action intended to decrease the Per Share
Market Value (as defined in the Warrant) during the Pre-Closing Period. During
the Pre-Closing Period, no Purchaser participating in such Closing Date
15
or any person acting on behalf of such Purchaser effected any "short" sales in
the Common Stock or borrowed shares or otherwise participated in any transaction
which could be considered a "short sale" under the rules and regulations
promulgated under the Exchange Act (a "Short Sale").
ARTICLE III
Covenants
The Company covenants with each of the Purchasers, which covenants are for
the benefit of the Purchasers and their permitted assignees (as defined herein),
and, with respect to Sections 3.16 and 3.17, each of the Purchasers covenants
with the Company, which covenants are for the benefit of the Company and its
permitted assignees (as defined herein), as follows:
Section 3.1 Securities Compliance.
---------------------
(a) The Company shall notify the Commission in accordance with
their rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Preferred
Shares, Warrants, Conversion Shares and Warrants Shares as may be required under
Regulation D, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Preferred Shares and the Warrant Shares to the
Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Shares and the Warrants.
Section 3.2 Registration and Listing. The Company will cause its Common
------------------------
Stock to be registered under Sections 12(b) or 12(g) of the Exchange Act
pursuant to the Registration Statement within 150 days of (a) the later of (i)
the First Tranche Closing Date and (ii) the Second Tranche Closing Date, if
applicable, and (b) the date which is within five (5) business days of the date
on which the Commission informs the Company that it may request the acceleration
of the effectiveness of the Registration Statement, will comply in all respects
with its reporting and filing obligations under the Exchange Act, will comply
with all requirements related to any registration statement filed pursuant to
this Agreement or the Registration Rights Agreement, and will not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
over-the-counter electronic bulletin board.
Section 3.3 Inspection Rights. The Company shall permit, during normal
-----------------
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to
16
purchase the Preferred Shares or shall beneficially own any Preferred Shares, or
shall own Conversion Shares which, in the aggregate, represent more than 2% of
the total combined voting power of all voting securities then outstanding, to
examine and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
--------------------
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
---------------------------------------
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. The Company shall furnish the
----------------------
following, if and when applicable, to each Purchaser so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q or
10-QSB, as the case may be, as soon as available, and in any event within 45
days after the end of each of the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K or
10-KSB, as the case may be, as soon as available, and in any event within 90
days after the end of each fiscal year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any
----------
provision of the Articles or Bylaws of the Company, or Registration Rights
Agreement in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of the
holders of the Preferred Shares; provided, however, that this provision shall
-------- -------
not apply to any amendment or waiver specifically permitted by the terms and
provisions of the Certificate of Designation.
17
Section 3.8 Other Agreements. The Company shall not enter into any
----------------
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document or the Certificate of Designation.
Section 3.9 Distributions. So long as any Preferred Shares or Warrants
-------------
remain outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company; provided, however, that this
-------- -------
provision shall not apply to any transaction described in clauses (i) or (ii)
above specifically permitted by the terms and provisions of the Certificate of
Designation or Warrants.
Section 3.10 Status of Dividends. The Company covenants and agrees that
-------------------
(i) no Federal income tax return or claim for refund of Federal income tax or
other submission to the Internal Revenue Service will adversely affect the
Preferred Shares, any other series of its Preferred Stock, or the Common Stock,
and any deduction shall not operate to jeopardize the availability to Purchasers
of the dividends received deduction provided by Section 243(a)(1) of the Code or
any successor provision, (ii) in no report to shareholders or to any
governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by GAAP (according to the Company's accountants), a governmental body having
jurisdiction over the accounts of the Company or by a change in generally
accepted accounting principles required as a result of action by an
authoritative accounting standards setting body, and (iii) other than pursuant
to this Agreement or the Certificate of Designation, it will take no action
which would result in the dividends paid by the Company on the Preferred Shares
out of the Company's current or accumulated earnings and profits being
ineligible for the dividends received deduction provided by Section 243(a)(1) of
the Code. The preceding sentence shall not be deemed to prevent the Company from
designating the Preferred Stock as "Convertible Preferred Stock" in its annual
and quarterly financial statements in accordance with its prior practice
concerning other series of preferred stock of the Company. In the event that the
Purchasers have reasonable cause to believe that dividends paid by the Company
on the Preferred Shares out of the Company's current or accumulated earnings and
profits will not be treated as eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision, the
Company will, at the request of the Purchasers of 51% of the outstanding
Preferred Shares, join with the Purchasers in the submission to the Service of a
request for a ruling that dividends paid on the Shares will be so eligible for
Federal income tax purposes. In addition, the Company will reasonably cooperate
with the Purchasers (at Purchasers' expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a
18
deduction with respect to all or a portion of the dividends on the Shares is
allowable for Federal income tax purposes, or (ii) in the absence of such an
amendment, issuance or modification and after a submission of a request for
ruling or technical advice, the service shall rule or advise that dividends on
the shares should not be treated as dividends for Federal income tax purposes.
If the Service determines that the Preferred Shares or Conversion Shares
constitute debt, the Company may file protective claims for refund.
Section 3.11 [Intentionally Omitted.]
Section 3.12 Regulation S. The Company covenants and agrees that if the
------------
Company fails to register the Conversion Shares under the terms and conditions
of the Registration Rights Agreement attached hereto as Exhibit E or such
registration shall no longer be effective, then for so long as any of the
Preferred Shares or Conversion Shares remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Securities Act,
the Company shall, in order to permit resales of the Preferred Shares or
Conversion Shares pursuant to Regulation S under the Securities Act, (a)
continue to file all material required to be filed pursuant to Section 13(a) or
15(d) of the Exchange Act and (b) not knowingly engage in directed selling
efforts in connection with the resale of securities by any Purchaser under
Regulation S.
Section 3.13 Restrictions on Subsequent Financings. The Company
-------------------------------------
covenants and agrees that as long as there are any Preferred Shares outstanding,
the Company with respect to any subsequent offer or sale to, or exchange with
(or other type of distribution to), any third party (a "Subsequent Financing")
of Common Stock or any securities convertible or exchangeable into Common Stock,
including debt securities, (collectively, the "Financing Securities"), which
shall include, through exercise, exchange, or conversion or otherwise, the
offering, sale or distribution of Additional Shares of Common Stock or Common
Stock Equivalents (as such terms are defined in Section 5(e) of the Certificate
of Designation) at a price which is less than the Conversion Price, shall comply
with the applicable terms and conditions (including but not limited to, those
relating to adjustments to the conversion of the Preferred Shares and number of
Conversion Shares) of Section 5(e) of the Certificate of Designation.
Notwithstanding the foregoing, a Subsequent Financing shall not include: (i) any
transaction involving the Company's issuances of any Financing Securities (other
than for cash) (A) as consideration in a merger, consolidation or sale of
assets, (B) in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital) or (C) in exchange for
assets, stock or joint venture interest; (ii) the grant of any Financing
Securities under any Company employee benefit plan stock option plan, restricted
stock plan or stock purchase plan for the benefit of the Company's employees or
directors; or (iii) any transaction entered into and completed on terms and
conditions which contemplate the exchange, consideration or sale (or other type
of distribution or payment, as applicable) of any Financing Securities at a
price (as determined in a manner consistent with the Certificate of Designation)
at or above the Conversion Price; (iv) any transaction what is disclosed on
Schedule 2.1(c) or Schedule 2.1(z); or (v) the issuance of securities upon
--------------- ---------------
exercise or conversion of the Preferred Shares or the Warrants; or (vi) any
transaction (an "Alternative Transaction") involving the Company's issuance of
any Financing Securities if the Second Tranche Closing has not occurred on or
before October 1, 1999 (the "Drop Dead Date") or the Second Tranche Closing has
occurred on or before the Drop Dead Date and the aggregate Purchase Prices
delivered at the Second Tranche Closing is less than $3,000,000; provided that
--------
the failure of the Second Tranche Closing to have occurred by the
19
Drop Dead Date is not due to the failure of Company's obligations pursuant to
Article IV of this Agreement, and further provided that any Alternative
------- --------
Transaction (A) is entered into and completed on terms and conditions which
provide for the issuance or sale of any Financing Securities at a price (as
determined in a manner consistent with the Certificate of Designation) at or
above seventy percent (70%) of the Five Day Average Price (as defined in the
Certificate of Designation) of the Common Stock immediately preceding the
scheduled closing date of the Alternative Transaction as set forth in the Rights
Notice (as defined below), (B) the closing date of such Alternative Transaction
occurs on or before October 2, 2000, (C) the Company has complied with the First
Refusal Rights (as defined below) in connection with such Alternative
Transaction, and (D) the proceeds received by October 2, 2000 by the Company in
connection with all such Alternative Transactions do not exceed, in the
aggregate, the difference between $5,000,000 and the aggregate amount of the
Purchase Prices received at the Closings (each of the transactions set forth in
(i)-(vi) of this Section 3.13 being a "Permitted Financing"); provided, however,
-------- -------
that any such Permitted Financing (other than an Alternative Transaction) is not
subject to any term or condition which shall require the Company to file with
the Commission a registration statement in respect of any Financing Securities
prior to sixty (60) days after the Effectiveness Date (as defined in the
Registration Rights Agreement), except as disclosed on Schedule 2.1(c) and
---------------
Schedule 2.1(z) hereto. The Company will promptly notify the Purchasers in
---------------
writing of the terms and conditions of any proposed Subsequent Financing. The
Company will not, directly or indirectly, conduct any proposed Alternative
Transaction (other than an Alternative Transaction at a price (as determined in
a manner consistent with the Certificate of Designation) at or above the
Conversion Price) for any Alternative Transaction during the period beginning on
the date hereof and ending on October 2, 2000, unless it shall have first
delivered to Settondown Capital International, Ltd. or any of its assignees
("Settondown"), at least ten (10) Trading Days prior to the closing of such
Alternative Transaction, a written notice (a "Rights Notice") describing, in
reasonable detail, the proposed Alternative Transaction, the proposed closing
date of the Alternative Transaction which shall be within (20) Trading Days from
the date of the Rights Notice, including, without limitation, all of the terms
and conditions thereof, and providing Settondown an option (the "Rights Option")
during the ten (10) Trading Day period (the "Option Period") following delivery
of the Rights Notice to purchase all of the securities being offered in such
Alternative Transaction on the same, absolute terms and conditions as
contemplated by such Alternative Transaction (the "First Refusal Rights");
provided that no Rights Notice may be delivered until October 4, 1999. Delivery
--------
of any Rights Notice constitutes a representation and warranty by the Company
that there are no other material terms and conditions, arrangements, agreements
or otherwise except for those disclosed in the Rights Notice, to provide
additional compensation to any party participating in any proposed Alternative
Transaction, including, but not limited to, additional compensation based on
changes in the Closing Bid Price (as defined in the Certificate of Designation)
or any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of an Alternative
Financing. If the Company does not receive notice of exercise of the Rights
Option from Settondown within the Option Period, the Company shall have the
right to close the Alternative Transaction on the scheduled closing date with a
third party; provided that all of the terms and conditions of such closing are
--------
the same as those provided to Settondown in the Rights Notice. If the closing of
the proposed Alternative Transaction does not occur on that date, any closing of
the contemplated Alternative Transaction or any other Alternative Transaction
shall be subject to all of the provisions of this Section 3.13, including,
without limitation, the delivery of a new Rights Notice.
20
Section 3.14 Reservation of Shares. So long as any of the Preferred
---------------------
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than an aggregate of 1,100,000 Conversion Shares and Warrant
Shares following the First Tranche Closing and an additional aggregate of
1,650,000 Conversion Shares and Warrant Shares following the Second Tranche
Closing, if applicable.
Section 3.15 Transfer Agent Instructions. The Company shall issue
---------------------------
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
Exhibit F attached hereto (the "Irrevocable Transfer Agent Instructions").
Prior to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 6.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.15 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.15 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 6.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser transfers any Shares or Warrants in compliance with
Section 3.16, the Company shall permit the transfer, and, in the case of the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Purchaser and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations under this Section 3.15 will
cause irreparable harm to the Purchasers by vitiating the intent and purpose of
the transaction contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 3.15 will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.15, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
Section 3.16 Transfer or Resale. Each Purchaser severally, and not
------------------
jointly, understands that (i) except as provided in the Registration Rights
Agreement, the sale or resale of the Shares and the Warrants have not been and
are not being registered under the Securities Act or any state securities laws,
and agrees that the Shares and the Warrants may not be transferred unless (a)
the resale of the Shares and Warrants has been registered thereunder; or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Shares and Warrants to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration; or (c) the Shares and Warrants are sold under Rule 144
promulgated under the Securities Act (or a successor rule); and (ii) neither the
Company nor any other person is under any obligation to register such Securities
under the Securities Act or any state securities laws (other than pursuant to
the Registration Rights Agreement).
21
Section 3.17 Short Selling. Each Purchaser, severally, and not jointly,
-------------
covenants and agrees that neither such Purchaser nor any person acting on behalf
of such Purchaser shall effect any Short Sales in the Common Stock (i) during
the ten (10) Trading Days immediately preceding the exercise of the Reset Option
(as defined in the Certificate of Designation), if exercised, or (ii) if the bid
price of the Common Stock is between $3.50 and $6.50 per share.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to
--------------------------------------------------------
Sell the Shares at the First Tranche Closing. The obligation hereunder of the
--------------------------------------------
Company to issue and sell the Preferred Shares and the Warrants to the First
Tranche Purchasers is subject to the satisfaction or waiver, at or before the
First Tranche Closing, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Accuracy of Each First Tranche Purchaser's Representations
----------------------------------------------------------
and Warranties. The representations and warranties of each First Tranche
--------------
Purchaser shall be true and correct in all material respects as of the date when
made and as of the First Tranche Closing as though made at that time, except for
representations and warranties that are expressly made as of a particular date,
which shall be true and correct in all material respects as of such date.
(b) Performance by the First Tranche Purchasers. Each First
-------------------------------------------
Tranche Purchaser shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser at or
prior to the First Tranche Closing, including having paid by wire transfer of
funds into escrow in accordance with this Agreement and the Escrow Agreement the
Purchase Price set forth opposite such Purchaser's name on Exhibit A, such
Purchaser shall have executed and delivered this Agreement, the Registration
Rights Agreement and the Escrow Agreement to the Escrow Agent on behalf of the
Company. The Escrow Agent shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this
Agreement and the Escrow Agreement to be performed, satisfied or complied with
by the Escrow Agent at or prior to the First Tranche Closing, including delivery
of all of the First Tranche Purchaser's Closing Documents to the Company.
(c) No Injunction. No statute, rule, regulation, executive
-------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Company to
--------------------------------------------------------
Sell the Shares at the Second Tranche Closing. The obligation hereunder of the
---------------------------------------------
Company to issue and sell the Preferred Shares and the Warrants to the Second
Tranche Purchasers is subject to the satisfaction or waiver, at or before the
Second Tranche Closing, of each of the conditions set forth below.
22
These conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) Accuracy of Each Second Tranche Purchaser's Representations and
---------------------------------------------------------------
Warranties. The representations and warranties of each Second Tranche Purchaser
----------
shall be true and correct in all material respects as of the date when made and
as of the Second Tranche Closing as though made at that time, except for
representations and warranties that are expressly made as of a particular date,
which shall be true and correct in all material respects as of such date.
(b) Performance by the Second Tranche Purchasers. Each Second
--------------------------------------------
Tranche Purchaser shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser at or
prior to the Second Tranche Closing, including having paid by wire transfer of
funds into escrow in accordance with this Agreement and the Escrow Agreement the
Purchase Price set forth opposite such Purchaser's name on Exhibit AA, as
applicable, such Purchaser shall have executed and delivered a counterpart to
each of this Agreement, the Registration Rights Agreement and the Escrow
Agreement to the Escrow Agent on behalf of the Company. Each of the Second
Tranche Purchasers shall have delivered such Purchaser's Purchaser Closing
Notice to the Company. The Escrow Agent shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement and the Escrow Agreement to be performed, satisfied
or complied with by the Escrow Agent at or prior to the Second Tranche Closing,
including delivery of all of the Second Tranche Purchaser's Closing Documents to
the Company.
(c) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Payment of Second Tranche Purchaser Prices. The aggregate of
------------------------------------------
all of the Second Tranche Purchase Prices shall not be less than $3,000,000.
Section 4.3 Conditions Precedent to the Obligation of the Purchasers to
-----------------------------------------------------------
Purchase the Shares at the First Tranche Closing. The obligation hereunder of
------------------------------------------------
each Purchaser to acquire and pay for the Preferred Shares and the Warrants is
subject to the satisfaction or waiver, at or before the First Tranche Closing,
of each of the conditions set forth below. These conditions are for each
Purchaser's sole benefit and may be waived by such Purchaser at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
--------------------------------------------------------
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the First Tranche
Closing as though made at that time (except for representations and warranties
that speak as of a particular date), which shall be true and correct in all
material respects as of such date.
(b) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions
23
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the First Tranche Closing.
(c) No Suspension, Etc. From the date hereof to the First Tranche
------------------
Closing Date, trading in the Company's Common Stock shall not have been
suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior to
the First Tranche Closing), and, at any time prior to the First Tranche Closing,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect on,
or any material adverse change in any financial market which, in each case, in
the judgment of such Purchaser, makes it impracticable or inadvisable to
purchase the Preferred Shares.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
----------------------------
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Certificate of Designation of Rights and Preferences. Prior to
----------------------------------------------------
the First Tranche Closing, the Certificate of Designation in the form of Exhibit
C attached hereto shall have been filed with the Secretary of State of Delaware.
(g) Opinion of Counsel, Etc. At the First Tranche Closing, the Escrow
-----------------------
Agent on behalf of each Purchaser shall have received an opinion of counsel to
the Company, dated the date of the First Tranche Closing, in the form of Exhibit
G hereto, and such other certificates and documents as such Purchaser or its
counsel shall reasonably require incident to the First Tranche Closing.
(h) Registration Rights Agreement. Prior to the First Tranche
-----------------------------
Closing, the Company shall have executed and delivered the Registration Rights
Agreement to the Escrow Agent on behalf of each Purchaser.
(i) Preferred Stock Certificates. The Company shall have executed
----------------------------
and delivered to the Escrow Agent on behalf of each Purchaser, the stock
certificates (in such denominations as such Purchaser shall request) for the
Preferred Shares being purchased by such Purchaser at the First Tranche Closing.
24
(j) Resolutions. Prior to the First Tranche Closing, the Board of
-----------
Directors of the Company shall have adopted resolutions consistent with Section
2.1(b) above in a form reasonably acceptable to each Purchaser (the
"Resolutions").
(k) Reservation of Shares. As of the First Tranche Closing Date,
---------------------
the Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred Shares and
the exercise of the Warrants, a number of shares of Common Stock equal to at
least 1,100,000 shares of Common Stock which would be issuable upon conversion
of the Preferred Stock and upon exercise of the Warrants following the First
Tranche Closing (after giving effect to the Preferred Shares and Warrants to be
issued on such Closing Date and assuming all such Preferred Shares and Warrants
were fully convertible or exercisable on such date regardless of any limitation
on the timing or amount of such conversions or exercises).
(l) Transfer Agent Instructions. Prior to the First Tranche
---------------------------
Closing, the Irrevocable Transfer Agent Instructions, in the form of Exhibit F
attached hereto, shall have been delivered to and acknowledged in writing by the
Company's transfer agent.
(m) Secretary's Certificate. At the First Tranche Closing, the
-----------------------
Company shall have delivered to the Escrow Agent on behalf of each Purchaser a
secretary's certificate, dated as of the First Tranche Closing Date, as to (i)
the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the First Tranche Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(n) Escrow Agreement. Prior to the First Tranche Closing, the
----------------
Company shall have executed and delivered the Escrow Agreement to the Escrow
Agent on behalf of each Purchaser.
(o) Officer's Certificate. At the First Tranche Closing, the
---------------------
Company shall have delivered to such Purchaser a certificate of an executive
officer of the Company, dated as of the First Tranche Closing Date, confirming
the accuracy of the Company's representations, warranties and covenants as of
such Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in this Section 4.2 as of such Closing Date.
Section 4.4 Conditions Precedent to the Obligation of the Purchasers to
-----------------------------------------------------------
Purchase the Shares at the Second Tranche Closing. The obligation hereunder of
-------------------------------------------------
each Purchaser to acquire and pay for the Preferred Shares and the Warrants is
subject to the satisfaction or waiver, at or before the Second Tranche Closing,
of each of the conditions set forth below. These conditions are for each
Purchaser's sole benefit and may be waived by such Purchaser at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
--------------------------------------------------------
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Second Tranche
Closing as though made at that time (except for representations and warranties
that speak as of a particular date), which shall be true and correct in all
material respects as of such date.
25
(b) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Second Tranche Closing.
(c) No Suspension, Etc. From the date hereof to the Second Tranche
------------------
Closing Date, trading in the Company's Common Stock shall not have been
suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior to
the Second Tranche Closing), and, at any time prior to the Second Tranche
Closing, trading in securities generally as reported by Bloomberg Financial
Markets ("Bloomberg") shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium
have been declared either by the United States or New York State authorities,
nor shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity or crisis of such magnitude in its
effect on, or any material adverse change in any financial market which, in each
case, in the judgment of such Purchaser, makes it impracticable or inadvisable
to purchase the Preferred Shares.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
----------------------------
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Opinion of Counsel, Etc. At the Second Tranche Closing, the
-----------------------
Escrow Agent on behalf of each Purchaser shall have received an opinion of
counsel to the Company, dated the date of each Closing, in the form of Exhibit G
hereto, and such other certificates and documents as such Purchaser or its
counsel shall reasonably require incident to the Second Tranche Closing.
(g) Preferred Stock Certificates. The Company shall have executed
----------------------------
and delivered to the Escrow Agent on behalf of each Purchaser, the stock
certificates (in such denominations as such Purchaser shall request) for the
Preferred Shares being purchased by such Purchaser at the Second Tranche
Closing.
(h) Resolutions. Prior to the Second Tranche Closing, the Board of
-----------
Directors of the Company shall have adopted resolutions consistent with Section
2.1(b) above in a form reasonably acceptable to each Purchaser (the
"Resolutions").
(i) Reservation of Shares. As of the Second Tranche Closing Date,
---------------------
the Company shall have reserved out of its authorized and unissued Common Stock,
solely for the
26
purpose of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, a number of shares of Common Stock equal to at least 1,650,000
shares of Common Stock which would be issuable upon conversion of the Preferred
Stock and upon exercise of the Warrants following the Second Tranche Closing
(after giving effect to the Preferred Shares and Warrants to be issued on such
Closing Date and assuming all such Preferred Shares and Warrants were fully
convertible or exercisable on such date regardless of any limitation on the
timing or amount of such conversions or exercises).
(j) Secretary's Certificate. At the Second Tranche Closing, the
-----------------------
Company shall have delivered to the Escrow Agent on behalf of each Purchaser a
secretary's certificate, dated as of the Second Tranche Closing Date, as to (i)
the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the Second Tranche Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(k) Officer's Certificate. At the Second Tranche Closing, the
---------------------
Company shall have delivered to such Purchaser a certificate of an executive
officer of the Company, dated as of the Second Tranche Closing Date, confirming
the accuracy of the Company's representations, warranties and covenants as of
the Second Tranche Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.3 as of such Closing
Date.
(l) Registration Statement. Prior to the Second Tranche Closing,
----------------------
the Company shall have filed the Registration Statement after receipt by the
Company of the Purchaser Closing Notice from each Purchaser.
ARTICLE V
Registration Rights
At the First Tranche Closing Date, the Company and the First Tranche
Purchasers shall enter into a Registration Rights Agreement in the form attached
hereto as Exhibit E (the "Registration Rights Agreement") and at the Second
Tranche Closing Date, if applicable, the Second Tranche Purchasers shall duly
execute and delivery to the Company counterparts to the Registration Rights
Agreement.
ARTICLE VI
Stock Certificate Legend
Section 6.1 Legend. Each certificate representing the Shares and the
------
Warrants, and, if appropriate, securities issued upon conversion thereof, shall
be stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required by applicable state securities or "blue
sky" laws):
27
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR NET VALUE HOLDINGS, INC. (THE"COMPANY")
SHALL HAVE RECEIVED AN OPINION, IN FORM, SCOPE AND SUBSTANCE
REASONABLY ACCEPTABLE TO THE COMPANY, OF COUNSEL, WHO IS
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Shares or the
Warrants, without the legend set forth above if at such time, prior to making
any transfer of any Shares or, the Warrants such holder thereof shall give
written notice to the Company describing the manner and terms of such transfer
and removal as the Company may reasonably request and such holder otherwise
complies with the terms of the Transaction Documents. The legend set forth above
shall be removed and the Company shall issue a certificate without such legend
to the holder of any Shares or Warrants upon which it is stamped if, unless
otherwise required by state securities laws, (a) the sale of such Shares or
Warrants is registered under the Securities Act (including registration pursuant
to Rule 416 thereunder) as contemplated by the Registration Rights Agreement (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, to the
effect that a sale or transfer of such Shares or Warrants may be made without
registration under the Securities Act; or (c) such holder provides the Company
with reasonable assurances that such Shares or Warrants can be sold under Rule
144(k). Each Purchaser agrees to sell all Shares or Warrants, including those
represented by a certificate(s) from which the legend has been removed, pursuant
to an effective registration statement, under an exemption from the registration
requirements of the Securities Act or in accordance with Rule 144(k). In the
event the above legend is removed from any Shares or Warrants and the
effectiveness of a registration statement covering such Shares or Warrants is
suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
such Purchaser the Company may require that the above legend be placed on any
such Shares or Warrants that cannot then be sold pursuant to an effective
registration statement, under an exemption from the registration requirements of
the Securities Act or under Rule 144(k) and such Purchaser shall cooperate in
the replacement of such legend. Such legend shall thereafter be removed when
such Shares or Warrants may again be sold pursuant to an effective registration
statement, under an exemption from the registration requirements of the
Securities Act or under Rule 144(k). The restrictions on transfer contained in
Section 6.1 shall be in addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other section of this Agreement.
28
ARTICLE VII
Termination
Section 7.1 Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated at any time prior to the First Tranche Closing by the mutual written
consent of the Company and the Purchasers.
Section 7.2 Other Termination . This Agreement may be terminated by the
-----------------
action of the Board of Directors of the Company or by any one or more of the
Purchasers at any time if the First Tranche Closing shall not have been
consummated by the First Tranche Closing Date, as long as the failure to so
consummate is not the fault of the terminating party.
Section 7.3 Termination of Second Tranche Closing. If the Second
-------------------------------------
Tranche Closing has not occurred on or prior to the Second Tranche Closing Date,
those sections and provisions relating to the Second Tranche Closing in this
Agreement may be terminated by the action of the Board of Directors of the
Company or by any one or more of the Second Tranche Purchasers as long as the
failure to so consummate is not the fault of the terminating party.
Section 7.4 Effect of Termination. In the event of termination by the
---------------------
Company or any one or more of the Purchasers of this Agreement or any part
hereof, written notice thereof shall forthwith be given to the other party and
the transactions contemplated by this Agreement and the Registration Rights
Agreement shall be terminated without further action by either party. If this
Agreement is terminated as provided in Section 7.1 or 7.2 herein, this Agreement
shall become void and of no further force and effect, except for Sections 9.1
and 9.2, and Article VIII herein. Nothing in this Section 7.4 shall be deemed to
release the Company or any Purchaser from any liability for any breach under
this Agreement or the Registration Rights Agreement, or to impair the rights of
the Company and the Purchasers to compel specific performance by the other party
of its obligations under this Agreement and the Registration Rights Agreement.
ARTICLE VIII
Indemnification
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
-----------------
harmless the Purchasers (and its respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorney's fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein.
29
Section 8.2 Indemnification Procedure. Any party entitled to
-------------------------
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VIII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VIII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE IX
Miscellaneous
30
Section 9.1 Fees and Expenses. Each party shall pay the fees and
-----------------
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, provided
that the Company shall allocate $25,000, at the First Tranche Closing, from the
aggregate Purchase Prices, to pay for all attorneys fees and expenses (exclusive
of disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with the preparation, negotiation, execution and delivery of this
Agreement, the Registration Rights Agreement and the transaction contemplated
hereunder. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchasers in connection with Second Tranche Closing, if
applicable, and any amendments, modifications or waivers of this Agreement or
any of the other Transaction Documents requested by the Company, or incurred in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys
fees and expenses. The Company shall pay all stamp or other similar taxes and
duties levied in connection with issuance of the Preferred Shares pursuant
hereto.
Section 9.2 Specific Enforcement, Consent to Jurisdiction .
---------------------------------------------
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Registration Rights Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the Southern District of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 9.2 shall affect
or limit any right to serve process in any other manner permitted by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
---------------------------
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction Documents or
the Certificate of Designation, neither the Company nor any of the Purchasers
makes any representations, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the Company and the holders of at least two-
thirds (2/3) of the Preferred Shares then outstanding, and no provision hereof
may be waived other than by an a written instrument signed by the party against
whom enforcement of any such
31
amendment or waiver is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designation unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
Section 9.4 Notices. Any notice, demand, request, waiver or other
-------
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President and CEO
Net Value Holdings, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Klehr, Harrison, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies as
specified in writing by such Purchaser with
copies to:
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau & Klimpl, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
32
Section 9.5 Waivers. No waiver by either party of any default with
-------
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in
--------
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties and their successors and assigns. A
Purchaser may only assign his rights hereunder if the entity to be assigned such
rights has provided assurances to the Company reasonably satisfactory to the
Company that such entity can comply with the representations and warranties set
forth in Section 2.2 of this Agreement. After the First Tranche Closing, the
assignment by a party to this Agreement of any rights hereunder shall not affect
the obligations of such party under this Agreement. At or prior to the Second
Tranche Closing, if applicable, each of the Second Tranche Purchasers shall have
duly executed and delivered to the Company a counterpart to this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended
----------------------------
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions.
Section 9.10 Survival. The representations and warranties of the Company
--------
and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closings
until the date two years from the later of the (i) First Tranche Closing Date
and (ii) Second Tranche Closing Date, if applicable, and the agreements and
covenants set forth in Articles I, III, V, VII, VIII and IX of this Agreement
shall survive the execution and delivery hereof and the Closings hereunder until
the Purchasers in the aggregate beneficially own (determined in accordance with
Rule 13d-3 under the Exchange Act) less than 2% of the total combined voting
power of all voting securities then outstanding, provided, that Sections 3.1,
3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10 and 3.12 shall not expire until the
Registration Statement required by Section 2 of the Registration Rights
Agreement is no longer required to be effective under the terms and conditions
of Registration Rights Agreement.
Section 9.11 Counterparts. This Agreement may be executed in any number
------------
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of
33
delivery shall cause four additional executed signature pages to be physically
delivered to the other parties within five days of the execution and delivery
hereof.
Section 9.12. Publicity. The Company agrees that it will not disclose,
---------
and will not include in any public announcement, the name of the Purchasers,
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section 9.13 Severability. The provisions of this Agreement, the
------------
Certificate of Designation and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designation or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designation or the Registration Rights Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.
Section 9.14 Further Assurances. From and after the date of this
------------------
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
NET VALUE HOLDINGS, INC.
By:_____________________________________
Name:
Title:
PURCHASERS:
TONGA PARTNERS, L.P.
By:_____________________________________
Name: J. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title:
Address: c/▇ ▇▇▇▇▇▇▇ Capital Management
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
PLEIADES INVESTMENT PARTNERS, L.P.
By:_____________________________________
Name: ▇▇▇ ▇▇▇▇▇▇
Title:
Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇, ext. 3018
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
YEOMAN VENTURES LIMITED (BVI)
35
By:_____________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title:
Address: ▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇▇-▇▇▇-▇▇▇▇
LIGHTLINE LIMITED (BVI)
By:_____________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title:
Address: ▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇▇-▇▇▇-▇▇▇▇
36
EXHIBIT A TO THE
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR NET VALUE HOLDINGS, INC.
First Tranche Closing
---------------------
Name and Address Number of Preferred
of Purchaser Shares Purchased Purchase Price Issuance Date
------------ ---------------- -------------- -------------
Tonga Partners, L.P. 1,500 $1,500,000 September 17, 1999
c/▇ ▇▇▇▇▇▇▇ Capital Management
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Yeoman Ventures Limited (BVI) 250 $ 250,000 September 17, 1999
P.O. Box 146
Road Town, Tartola
British Virgin Islands
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇▇-▇▇▇-▇▇▇▇
Lightline Limited BVI 250 $ 250,000 September 17, 1999
P.O. Box 146
Road Town Tartola
British Virgin Islands
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇▇-▇▇▇-▇▇▇▇
37
