Exhibit 10.7
FINANCING AGREEMENT
FINANCING AGREEMENT, dated as of June 30, 2000, among THE PATHWAYS
GROUP, INC., a Delaware corporation (the "Company"), XXXXX X. XXXX, XX
("Xxxx"),XXXXXX MERCHANT PARTNERS GROUP LLC, a Delaware limited liability
company ("Xxxxxx") and HARVEST OPPORTUNITY PARTNERS LP, a Delaware limited
partnership ("Harvest"; Harvest and Xxxxxx are collectively referred to herein
as the "Lender").
W I T N E S S E T H
WHEREAS, the Company desires to issue and sell to the Lender senior
secured promissory notes of the Company, and the Lender is willing to purchase
such senior secured promissory notes, on the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations and covenants contained herein, the parties hereto agree as
follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.1 CERTAIN DEFINED TERMS. As used herein, the following terms shall
have the following meanings:
"ACT" shall mean the Securities Act of 1933, as amended, and the rules
and regulations thereunder as in effect from time to time.
"COMMON STOCK" shall mean the Common Stock, par value $0.01 per share,
of the Company.
"CLOSING DATE" shall mean the date on which the Initial Note is issued
by the Company and purchased by the Lender.
"COMMITMENT FEE" shall have the meaning set forth in Section 2.6
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"EVENT OF DEFAULT" shall have the meaning set forth in the Note.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder as in effect from time to
time.
"EXCHANGE NOTE" shall mean the Note issued pursuant to Section 4.1
hereof.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States.
"GOVERNMENTAL AUTHORITY" shall mean (a) the government of any federal,
state, municipal or other political subdivision in which property of the Company
or any of its Subsidiaries is located and (b) any other government exercising
jurisdiction over the Company or any of its Subsidiaries, including all agencies
and instrumentalities of such government.
"GOVERNMENTAL REQUIREMENTS" shall mean laws, ordinances, statutes,
codes, rules, regulations, orders, decrees and judgments of any Governmental
Authority.
"INITIAL NOTE" shall have the meaning set forth in Section 2.5 hereof.
"INITIAL WARRANT" shall have the meaning set forth in Section 5.2
hereof.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" shall mean the Intellectual
Property Security Agreement, as shall be mutually agreed by the Company and the
Lender, as amended or supplemented from time to time.
"LINE OF CREDIT" shall mean the line of credit up to an aggregate
principal amount of $1,350,000, to be provided by the Lender to the Company.
"LINE OF CREDIT NOTE" shall have the meaning set forth in Section 3.2
hereof.
"MATURITY DATE" shall mean the earlier of (i) June 30, 2001, or (ii)
the date on which an Event of Default shall occur.
"MJT WARRANT" shall have the meaning set forth in Section 8.8 hereof.
"1999 WARRANTS" shall mean the aggregate of 1,250,000 warrants, issued
in connection with the Company's issuance and sale of the Series A Preferred
Stock, plus the aggregate of 100,000 dividend warrants accrued pursuant thereto
through the date hereof.
"NOTE" or "NOTES" shall mean the Series A Senior Secured Note or Notes
of the Company, in substantially the form of Exhibit A attached hereto, and
shall include the Initial Note, the Line of Credit Note, the Exchange Note and
any notes issued in substitution or exchange therefor.
"PENALTY WARRANT" shall have the meaning set forth in Section 9.2.
"PERMITTED LIENS" shall mean (i) liens for taxes, assessments or
governmental charges or levies on its property, if such taxes, assessments or
governmental charges or levies shall not at the time be due and delinquent or if
the same thereafter can be paid without penalty or if the Company shall
currently be contesting the validity thereof in good faith, provided adequate
reserves therefor have been set aside; and (ii) liens consisting of (A) pledges
or deposits to secure obligations of the Company under workmen's compensation or
other similar laws, (B) pledges or deposits to secure performance in connection
with bids, tenders, contracts or leases
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entered into in the ordinary course of business to which the Company is a party,
(C) deposits to secure public or statutory obligations of the Company; or (D)
mechanics', carriers', workmen's, repairmen's or other like liens arising or
incurred in the ordinary course of business or deposits to obtain the release of
such liens;
"REGISTRABLE SHARES" means, collectively, (i) the Warrant Shares, (ii)
the shares of Common Stock issuable upon exercise of the 1999 Warrants, and
(iii) if at the time a registration statement is filed pursuant to Section 9.1
hereof, any Penalty Warrants have been issued, the shares of Common Stock
issuable upon exercise of the Penalty Warrants.
"SECURITY AGREEMENT" shall mean the Security Agreement, in
substantially the form of Exhibit C attached hereto, as amended, modified or
supplemented from time to time.
"SERIES A PREFERRED STOCK" shall mean, collectively, the outstanding
300,000 shares of Series A Preferred Stock, par value $0.01 per share, of the
Company.
"TRANSACTION DOCUMENTS" shall mean, collectively, this Agreement, the
Notes, the Security Agreement, the Intellectual Property Security Agreement and
the Warrants.
"WARRANT SHARES" shall mean the shares of Common Stock issuable upon
exercise of the Warrants.
"WARRANT" shall mean each warrant entitling the holder thereof to
purchase shares of Common Stock on the terms set forth therein, in substantially
the form of Exhibit B attached hereto, which are issued pursuant to the terms of
this Agreement.
1.2 ACCOUNTING TERMS. All accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with GAAP and, except as
otherwise herein expressly provided, the term AGAAP" with respect to any
computation required or permitted hereunder shall mean such accounting
principles as are generally accepted in the United States at the date of such
computation.
Section 2. THE NOTES.
2.1 THE NOTES. Each Note to be issued and sold by the Company
hereunder shall have the following terms and conditions:
(a) each Note shall bear interest at 10.0% per annum, based on a year
of 365 days and actual days elapsed;
(b) each Note shall mature and be payable in full on the Maturity
Date; and
(c) each Note shall be secured in accordance with the Security
Agreement and the Intellectual Property Security Agreement.
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2.2 PAYMENTS. Any payments and prepayments made on account of the
principal of the Notes shall be recorded by the Lender on its books and endorsed
by the Lender on the schedule attached to the Notes or any continuation thereof;
but no failure by the Lender to make, or any delay in making, such recording or
endorsement shall affect the obligations of the Company under this Agreement or
the Notes.
2.3 REPAYMENT OF THE NOTES. The Company shall pay the unpaid principal
amount of the Notes in full on the Maturity Date. At any time, the Company may,
at its option, prepay the Notes, in whole or in part at any time, without
premium or penalty.
2.4 INTEREST. The Company will pay to the holders of the Notes
interest on the unpaid principal amount of the Notes for the period commencing
on the date such principal amount shall have been borrowed by the Company to but
excluding the date on which the principal amount of the Notes shall be paid in
full, at a rate equal to 10 percent per annum. Interest shall be calculated on
the basis of a year of 365 days, and actual days elapsed. So long as no Event of
Default shall have occurred and be continuing, accrued interest shall be due and
payable on the Maturity Date.
2.5 INITIAL NOTES. Subject to the terms and conditions of this
Agreement, the Lender agrees to purchase a Note of the Company in an aggregate
principal amount of $650,000 (the "Initial Note") on the Closing Date, upon
satisfaction of the conditions set forth in Section 7.1 hereof. The Initial
Notes shall be issued to Xxxxxx and Harvest in such principal amounts,
aggregating $650,000, as Xxxxxx and Harvest shall notify the Company prior to
the Closing Date. On the Closing Date, the Lender shall purchase the Initial
Notes by transmitting immediately available funds in the amount of $650,000, of
which $600,000 shall be wired to the account of the Company specified to the
Lender in writing prior to the Closing Date, and of which $50,000 shall be
retained by the Lender as payment of the Commitment Fee in accordance with
Section 2.6 hereof.
2.6 COMMITMENT FEE. As consideration for the Lender's agreement to
purchase the Notes and provide the Line of Credit, the Company agrees to pay to
the Lender on the Closing Date a commitment fee (the "Commitment Fee") equal to
$50,000. The Company acknowledges and agrees that the Lender shall retain the
amount of the Commitment Fee out of the purchase price for the Initial Note.
Section 3. LINE OF CREDIT.
3.1 LINE OF CREDIT. The Lender hereby agrees to provide to the Company
a Line of Credit in the maximum principal amount of $1,350,000. The Line of
Credit shall be available, in one or more advances, to the Company at any time
prior to the Maturity Date, upon satisfaction of the following conditions:
(a) the Company shall have delivered to the Lender the Line of Credit
Note in accordance with Section 3.2 hereof;
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(b) the Company shall have delivered to the Lender Warrants for the
purchase of up to 1,035,000 shares of Common Stock, in accordance with Section
5.3 hereof;
(c) the Company shall have achieved the following performance
milestones:
(i) the Company shall have reduced its monthly expenses to
an aggregate amount of less than $500,000, and the Company shall have
provided evidence thereof which is reasonably satisfactory to the
Lender; and
(ii) the Company shall have earned revenues in an amount as
shall be reasonably agreed upon by the Company and the Lender;
(d) no Event of Default shall have occurred and be continuing;
(e) the Company shall have provided to the Lender with a notice of
borrowing, specifying the amount requested to be borrowed, at least one Business
Day prior to the requested borrowing date.
If the Company shall have satisfied the aforesaid conditions precedent, the
Lender shall make advances under the Line of Credit in accordance with the
notices of borrowing received from the Company.
3.2 LINE OF CREDIT NOTE. The Line of Credit shall be evidenced by a
Note in the maximum aggregate principal amount of $1,350,000 (the "Line of
Credit Note"). The Company shall issue and deliver the Line of Credit Note prior
to the initial borrowing under the Line of Credit. Any payments and prepayments
made on account of the principal of the Line of Credit Note shall be recorded by
the Lender on its books and endorsed by the Lender on the schedule attached to
the Line of Credit Note or any continuation thereof; but no failure by the
Lender to make, or any delay in making, such recording or endorsement shall
affect the obligations of the Company under this Agreement or the Line of Credit
Note.
3.3 INTEREST RESERVE. The Company hereby agrees that the Lender shall
be authorized to reserve out of the available Line of Credit an amount not to
exceed $200,000, which amount shall be applied by the Lender to the payment of
accrued but unpaid interest on the outstanding Notes on the Maturity Date to the
extent that the Company shall not have otherwise paid the accrued interest on
the Maturity Date.
Section 4. EXCHANGE NOTES.
4.1 ISSUANCE OF EXCHANGE NOTES. Subject to the terms and conditions of
this Agreement, the Company shall issue Notes (each, an "Exchange Note") to the
holders of the outstanding Series A Preferred Stock in exchange for the
surrender by each such holder of all of the shares of Series A Preferred Stock
held by such holder. The Exchange Notes shall be issued in an aggregate
principal amount equal to the sum of (a) $3,000,000, which is the aggregate
Liquidation Value (as defined in the Certificate of Designations for the Series
A Preferred Stock) of the outstanding shares of Series A Preferred Stock, plus
(b) an amount equal to the accrued but
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unpaid dividends on the outstanding Series A Preferred Stock equal to $225,000
through the date hereof. The Exchange Notes shall be issued to each holder of
the Series A Preferred Stock in direct proportion to the percentage of all
outstanding shares of Series A Preferred Stock held by such holder. The Company
shall issue each such Exchange Note to a holder of Series A Preferred Stock only
upon the surrender to the Company for cancellation of the certificates
evidencing the Series A Preferred Stock held by such holder. Upon the issuance
of an exchange note in exchange for the Series A Preferred Stock, all dividends
and warrants issuable pursuant to the terms of the Series A Preferred Stock
shall thereupon cease to accrue. The Company's failure to issue an Exchange Note
because of the failure of a holder of Series A Preferred Stock to surrender the
certificate evidencing such Series A Preferred Stock shall not constitute a
default by the Company hereunder.
4.2 TERMS OF EXCHANGE NOTES. Each Exchange Note shall have the same
terms and conditions as the Initial Note and the Line of Credit Note, and shall
be PARI PASSU with such Notes.
4.3 REPRICING OF 1999 WARRANTS. Simultaneously with the issuance of
the Exchange Notes or as soon thereafter as practicable, the Company agrees that
it shall amend the terms of the 1999 Warrants to provide that the exercise price
of the 1999 Warrants shall equal the exercise price of the Initial Warrant. The
Company and the Lender shall cooperate with each other to execute such
amendments to the 1999 Warrants as shall be necessary to implement the foregoing
change in the exercise price of the 1999 Warrants. Except for the foregoing, the
terms and provisions of the 1999 Warrants shall remain unmodified and
unaffected.
Section 5. ISSUANCE OF WARRANTS.
5.1 WARRANTS GENERALLY. In consideration for the agreements of the
Lender set forth herein, the Company agrees to issue Warrants to the Lender on
the terms and conditions set forth in this Agreement. Each Warrant shall have
the following terms and conditions:
(a) each Warrant shall be immediately exercisable, and shall expire on
the date which is the third anniversary of the Closing Date;
(b) each Warrant shall be exercisable to purchase one share of Common
Stock at a price equal to the lesser of (i) $1.00, or (ii) the average closing
price of the Company's Common Stock, as reported on the NASDAQ SmallCap Market
for twenty trading days, commencing ten trading days before the Closing Date and
ending on the tenth trading day following the Closing Date;
(c) each Warrant shall have the terms and conditions set forth in the
form of Warrant attached hereto;
(d) each Warrant may be exercised, in whole or in part, by payment in
cash or by certified or bank check or by wire transfer, or in accordance with
the terms of the Warrant, by a cashless exercise; and
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(e) the holder of each Warrant shall be entitled, at each meeting of
stockholders of the Company while the Warrants are outstanding and have not been
exercised, a number of votes equal to the number of Warrant Shares which would
be then issuable upon exercise of the Warrants, only to the extent that such
Warrants have not been exercised at such time; each holder of Warrants shall be
eligible to cast such votes with the Common Stock, and the record date for
casting such votes shall be the same as the record date for the record holders
of the Company's Common Stock.
5.2 INITIAL WARRANT. On the Closing Date, the Company shall issue to
the Lender a Warrant (the "Initial Warrant") to purchase up to an aggregate of
965,000 Warrant Shares. Immediately after the tenth trading day following the
Closing Date, the Company and the Lender shall agree as to the exercise price of
such Warrant in accordance with the formula set forth in Section 5.1(b) hereof.
5.3 LINE OF CREDIT WARRANT. Prior to the Company's first borrowing
under the Line of Credit, the Company shall issue to the Lender a Warrant (the
"Line of Credit Warrant") to purchase up to an aggregate of 1,035,000 shares of
Common Stock. Such Line of Credit Warrant shall become exercisable in tranches,
in the same proportion as the Company's borrowings under the Line of Credit bear
to the aggregate available principal amount under the Line of Credit; PROVIDED,
HOWEVER, that for purposes of this Section 5.3 the amount of the Line of Credit
reserved for payment of interest pursuant to Section 3.3 hereof shall be deemed
to be outstanding.
Section 6. REPRESENTATIONS AND WARRANTIES.
6.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Lender as follows:
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its respective
properties and to carry on its business in the places and in the manner as
currently conducted and as currently contemplated to be conducted. The Company
is duly qualified to do business and is in good standing as a foreign
corporation in all jurisdictions where the failure to so qualify or be in good
standing would have a material adverse effect on the business or financial
condition of the Company.
(b) The execution, delivery and performance by the Company of the
Transaction Documents are within the corporate power of the Company, and the
Transaction Documents have been duly and validly authorized, executed and
delivered by the Company. This Agreement constitutes, and when the other
Transaction Documents are executed and delivered for value such other
Transaction Documents will constitute, the valid and binding obligations of the
Company, enforceable in accordance with their respective terms, except as such
enforceability may be subject to bankruptcy, insolvency, moratorium and other
similar laws affecting creditors' rights generally and to general equitable
principles.
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(c) The authorized capital stock of the Company is as set forth in the
Company's Annual Report on Form 10-K for its fiscal year ended December 31,
1999, as further reported in the Company's Quarterly Report on Form 10-Q for its
fiscal quarter ended March 31, 2000. All outstanding shares of Common Stock and
Preferred Stock were duly authorized and validly issued, are fully paid and
nonassessable, and were not issued in violation of any preemptive rights. Upon
issuance of the Warrant Shares issuable pursuant to the exercise of the Warrants
against payment therefor in accordance with the Warrants, such Warrant Shares
will have been duly authorized and validly issued and will be fully paid and
nonassessable.
(d) The execution and delivery by the Company of this Agreement and
the other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby do not and will not: (i) violate, constitute a
default under, or result in a breach of, any agreement or understanding to which
the Company is a party or any judgment, order, decree, law, rule or regulation
to which the Company is subject; (ii) contravene the Certificate of
Incorporation or By-Laws of the Company; (iii) require the authorization,
approval, order, license, permit or consent of, or filing or registration with,
any court or Governmental Authority, or consent of any other party; (iv) result
in the creation of, or give any party the right to create, any liens or
encumbrances upon any assets of the Company, except as contemplated hereby; (v)
terminate or give any party the right to terminate, abandon or refuse to perform
any agreement, arrangement or commitment to which the Company is a party or by
which any of its assets are bound; or (vi) violate any Governmental Requirements
to which the Company or any of its assets are subject.
(e) There is no claim, action, suit, proceeding, investigation or
criminal proceeding, at law or in equity, before any Governmental Authority
(collectively, "Proceedings") pending or, to the Company's knowledge, threatened
against the Company, which, if adversely determined, would, singly or in the
aggregate, have a material adverse effect on the condition, financial or
otherwise, of the Company, or would materially adversely affect consummation of
the transactions contemplated by the Transaction Documents, or which challenges
the validity or propriety of the transactions contemplated by the Transaction
Documents.
(f) The Company has good and marketable title to all of its principal
properties and assets, real and personal, tangible and intangible, free and
clear of all liens, charges and encumbrances except for Permitted Liens and
other liens which do not interfere materially with possession, ownership or use
of any real or personal property of the Company.
(g) The consolidated balance sheet of the Company at December 31,
1999, and the related consolidated statement of operations and consolidated
statement of changes in stockholders' equity for the fiscal year then ended,
including the notes thereto, as audited by PricewaterhouseCoopers LLP,
independent public accountants (the "Financial Statement"), as reported on the
Company's Form 10-KSB for the fiscal year ended December 31, 1999, have been
delivered to the Lender. The Financial Statement, together with the notes
thereto, have been prepared in accordance with GAAP applied on a basis
consistent throughout all periods presented; such statement is correct and
complete in all material respects as contemplated by
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GAAP, is reconcilable to the books and records of the Company in all material
respects, and presents fairly the financial position of the Company as of the
date and for the period indicated.
6.2 REPRESENTATIONS BY THE LENDER. The Lender hereby represents and
warrants to the Company as follows:
(a) Xxxxxx is a limited liability company, duly organized under the
laws of the State of Delaware. Harvest is a limited partnership duly organized
under the laws of the State of Delaware. The Lender has the power to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby. This Agreement constitutes the valid and binding obligation
of each of Xxxxxx and Harvest, enforceable against each of them in accordance
with its terms, except as such enforceability may be subject to bankruptcy,
insolvency, moratorium and other similar laws affecting creditors' rights
generally and to general equitable principles.
(b) The execution and delivery by the Lender of this Agreement and the
consummation of the transactions contemplated hereby will not violate,
constitute a default under or result in a breach of, its organizational
documents or any agreement or understanding to which the Lender is a party or
any Governmental Requirement to which the Lender or any of its assets is
subject.
(c) Each of Xxxxxx and Harvest is an "accredited investor" within the
meaning of Regulation D under the Act.
(d) The Lender acknowledges that the Warrant Shares have not been
registered under the Act and applicable state securities laws, and accordingly,
constitute "restricted securities" for purposes of the Act and such state
securities laws. The Lender further acknowledges and agrees that the Lender will
not be able to transfer such shares except upon compliance with the registration
requirements of the Act and applicable state securities laws or exemptions
therefrom. The Lender agrees that the certificate evidencing the shares may
contain a restrictive legend to such effect.
(e) The Lender is not an officer, director or Aaffiliate@ (as that
term is defined in Rule 405 promulgated under the Act) of the Company.
(f) The Lender has received and reviewed the following documents
constituting the periodic reports filed by the Company with the SEC:
(i) the Company's Annual Report on Form 10-KSB for its
fiscal year ended December 31, 1999; and
(ii) the Company's Quarterly Report on Form 10-QSB for its
fiscal quarter ended March 31, 2000.
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(g) The Lender has such knowledge and expertise in financial and
business matters that the Lender is capable of evaluating the merits and risks
involved in an investment in the Notes and the Warrants and acknowledges that an
investment in the Notes and the Warrants entails a number of very significant
risks and funds should only be invested if the Lender is able to withstand the
total loss of his investment.
(h) Except as set forth in this Agreement or the other Transaction
Documents, no representations or warranties have been made to the Lender by the
Company or any agent, employee or affiliate of the Company. The Lender has
relied solely on the representations, warranties, covenants and agreements of
the Company in this Agreement and the other Transaction Documents, and on the
Lender's independent investigation in making its decision to acquire the Notes
and the Warrants.
Section 7. CONDITIONS PRECEDENT TO CLOSING DATE.
7.1 CONDITIONS PRECEDENT TO THE CLOSING DATE. The obligation of the
Lender to purchase the Initial Note shall be subject to the satisfaction of the
following conditions on or prior to the Closing Date:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement shall be true and correct on and as
of the Closing Date as though made on and as of the Closing Date, except to the
extent that any such representation and warranty relates solely to a prior date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
(c) NO LITIGATION. There shall be no litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority, pending or, to
the knowledge of the Company, threatened by or against the Company or any of its
properties or revenues with respect to this Agreement or any of the transactions
contemplated hereby, and there shall be no writ, injunction, preliminary
restraining order or any order of any nature issued by any Governmental
Authority directing that the transactions provided for herein not be consummated
as provided herein.
(d) CORPORATE DOCUMENTS. The Lender shall have received a true and
complete copies of (i) the Certificate of Incorporation and the By-laws of the
Company, and (ii) the resolutions of the Board of Directors of the Company
authorizing the transactions contemplated by this Agreement and each of the
other Transaction Documents.
(e) SECURITY AGREEMENT. The Company shall have executed and delivered
to the Lender the Security Agreement.
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(f) FURTHER ASSURANCES. The Lender shall have received such other
documents and instruments as the Lender shall reasonably request.
Section 8. COVENANTS.
8.1 TRANSACTION DOCUMENTS TO BE DELIVERED. As soon as practicable
after the Closing Date, but in no event later than July 12, 2000, the Company
shall deliver to the Lender the following:
(a) an executed Intellectual Property Security Agreement, in form
suitable for filing with the Office of Patents and Trademarks, as shall be
mutually acceptable to the Lender and the Company;
(b) executed UCC financing statements, in appropriate form for filing,
with respect to all collateral subject to the UCC, as set forth in the Security
Agreement;
(c) an opinion of counsel to the Company, reasonably satisfactory to
the Lender, as to the enforceability of the Company's obligations under the
Transaction Documents; and
(d) such other instruments and documents as the Lender shall
reasonably request.
8.2 RESERVATION OF SHARES. So long as the Warrants are outstanding,
the Company shall at all times reserve for issuance out of the authorized but
unissued shares of Common Stock of the Company a number of shares equal to the
maximum number of Warrant Shares that may be issued upon exercise of the
Warrants.
8.3 SENIOR INDEBTEDENSS. For so long as the Notes are outstanding, the
Company shall maintain the Notes as the senior secured indebtedness of the
Company, and shall not issue any indebtedness having rights in liquidation
senior to the Notes.
8.4 ISSUANCE OF EXCHANGE NOTES. As soon as practicable after the
Closing Date, the Company shall issue the Exchange Notes against delivery for
cancellation of the certificates evidencing the Series A Preferred Stock. The
Lender shall cooperate with the Company in effecting the exchange, including
interacting with the other holders of the Series A Preferred Stock.
8.5 CONVERSION OF INDEBTEDNESS. As soon as practicable after the
Closing Date, Xxxx shall convert all loans payable to Xxxx (including accrued
interest) to the Company which are outstanding on the Closing Date into shares
of Common Stock at the rate of one share of Common Stock for each $1.00 of such
indebtedness. The amount of such indebtedness of the Company to Xxxx as of the
Closing Date shall exclude accrued but unpaid salary (other than accrued
bonuses) and ordinary and reasonable business expenses incurred by Xxxx on
behalf of the Company in accordance with the Company's customary policies, and
shall be computed by the Company's accounting department and certified to the
Lender prior to the conversion thereof.
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8.6 ELECTION OF DIRECTORS; VISITATION RIGHTS.
(a) Subject to compliance with the requirements of the Exchange Act,
the General Corporation Law of the State of Delaware, and the Company's
Certificate of Incorporation and By-Laws, the Company agrees to appoint to the
Board of Directors such number of independent directors as shall constitute a
majority of the Board of Directors of the Company; PROVIDED, HOWEVER, that the
total number of members of the Board of Directors shall be nine, and the number
of independent directors to be named hereunder shall be five; AND PROVIDED
FURTHER, that the Company may propose as an independent director pursuant to
this Section 8.5 any member of the current Board of Directors who is deemed to
be independent under applicable rules and regulations. The Company shall
nominate such persons to be independent directors and the Lender shall consent
to such nominations prior to the election of such persons as directors of the
Company or prior to the submission of such directors to the stockholders for
election in accordance with the Exchange Act. If the directors to be elected are
submitted to the stockholders for approval, the Lender agrees to cast all of its
votes in favor of the slate of nominees to which the Lender has previously
approved.
(b) The Company shall provide the Lender with no less than 24 hours'
notice (whether in writing, by E-mail, facsimile or telephone) of each meeting
of the Board of Directors. The Lender shall have the right to have one
representative attend each such meeting, but such representative shall not have
any right to vote on any matters brought before the Board.
(c) The Company agrees that the independent directors on the Board of
Directors shall review and consent to each related party transaction (as such
term is defined in Regulation S-K under the Act and the Exchange Act) between
the Company and any of its executive officers, directors or other affiliates,
including, without limitation, all management fringe benefits, and specifically,
private plane expenses incurred by management.
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8.7 PREEMPTIVE RIGHT. For so long as any Warrants are outstanding, in
the event that the Company proposes to issue any shares of Common Stock or
shares of any other capital stock of the Company or carrying any rights or
warrants to purchase capital stock of the Company, the holders of the Warrants
shall have a preemptive right to subscribe for or to purchase PRO RATA
additional shares of Common Stock or such shares of other capital stock or such
other securities of the Company. Such preemptive right shall not apply, however,
to any shares of capital stock of the Company issued upon the exercise of any
option granted in connection with the compensation of any employee of the
Company or any consultant retained by the Company or pursuant to any employee
stock option plan established by the Company. The Company shall give notice of
any proposed issuance as aforesaid to each holder of the Warrants at least 15
days prior thereto, and each holder shall be given a reasonable opportunity on
reasonable conditions as fixed by the Company's Board of Directors to subscribe
for or to purchase the same percentage of such shares of Common Stock or other
capital stock or securities as the shares of Common Stock issuable upon exercise
of outstanding Warrants on the date of such notice bear to the then total number
of issued and outstanding shares of Common Stock, at the same price and upon the
same terms and conditions as contained in such proposed issuance.
8.8 STRATEGIC ADVISOR. The Company agrees that it shall engage
Xxxxxxx, Xxxxx & Xxxxxxxxx ("MJT"), on a non-exclusive basis, to review
strategic alternatives for the Company, such that MJT will prepare and deliver,
no later than July 31, 2000, to the Board of Directors of the Company a
recommendation on the strategic alternatives facing the Company. The Company
shall execute and deliver to MJT an engagement letter in the customary form used
by MJT for transactions of this kind. As consideration for the services of MJT
in such capacity, the Company agrees to (a) reimburse MJT for its reasonable
out-of-pocket expenses up to a maximum of $50,000 (against reasonable detail
therefor) in preparing such report and review the Company's strategic
alternatives, and (b) issue to MJT a Warrant (the "MJT Warrant"), on the same
terms and conditions as the Initial Warrant, entitling MJT to purchase an
aggregate of 300,000 shares of Common Stock, which includes the 150,000 warrants
already agreed to by the Company in connection with MJT's buy-side advisory work
prior to the date hereof, and 150,000 warrants with respect to the engagement
contemplated by this Section 8.8.
8.9 MONTHLY FINANCIAL INFORMATION. For so long as the Notes are
outstanding, the Company shall provide to the Lender an internally-prepared
balance sheet and income statement for each calendar month. Such financial
statements shall be delivered to the Lender no later than the fifteenth day of
the next succeeding calendar month.
Section 9. REGISTRATION RIGHTS.
9.1 REGISTRATION OF REGISTRABLE SHARES. As soon as practicable after
the Closing Date, the Company will file a registration statement (the
"Registration Statement") under the Act, with respect to all of the Registrable
Shares, and the Company shall use its best efforts to cause such Registration
Statement to become effective as soon as practicable after filing. In connection
therewith, each holder of Warrants and 1999 Warrants will provide in a timely
manner all such information and materials pertaining to it as may be required in
order to permit
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the Company to comply with all applicable requirements of the Commission and to
obtain the acceleration of the effective date of the Registration Statement. In
connection with such registration, the Company shall keep the Registration
Statement effective until the earliest of (i) when each holder has sold its
Registrable Shares, (ii) one year following the effective date of the
Registration Statement, or (iii) the date the Registrable Shares may be sold
under Rule 144 under the Act.
9.2 PENALTY WARRANTS.
(a) If the Company shall have failed to file a Registration Statement
with respect to the Registrable Shares by the close of business on July 17, 2000
(the tenth business day following the Closing Date), the Company shall issue to
the Lender a warrant to purchase up to an additional 200,000 shares of Common
Stock, which warrant shall be exercisable at $0.01 per share, shall expire three
years from the date of issuance, and shall otherwise have the same terms and
provisions as the Warrants. On the last business day of each calendar month
following July 2000, during which the Company shall have failed to file a
Registration Statement as required by Section 9.1 hereof, the Company shall
issue to the Lender an additional warrant to purchase 200,000 shares of Common
Stock on the terms and conditions set forth in this Section 9.2(a).
(b) If the Company shall have filed a Registration Statement, and
shall thereafter receive comments on such Registration Statement from the
Securities and Exchange Commission, the Company shall respond to such comments
within ten days following the Company's actual receipt of such letter. If the
Company fails to respond to such comments within such 10-day period, the Company
shall issue to the Lender a warrant to purchase up to an additional 200,000
shares of Common Stock, which warrant shall be exercisable at $0.01 per share,
shall expire three years from the date of issuance, and shall otherwise have the
same terms and provisions as the Warrants. On the last business day of each
calendar month following the expiration of such 10-day period, during which the
Company shall have failed to respond to the SEC's comments, the Company shall
issue to the Lender an additional warrant to purchase 200,000 shares of Common
Stock on the terms and conditions set forth in this Section 9.2.
(c) Each warrant issued by the Company pursuant to this Section 9.2 is
referred to as a "Penalty Warrant".
9.3 PIGGYBACK REGISTRATION RIGHTS. If, at any time prior to the time a
Registration Statement is filed and has become effective, the Company proposes
to register any shares of its Common Stock under the Act or similar federal
statute (other than on Form S-8 or any successor form to be offered to employees
of an issuer pursuant to an employee benefit plan), the Company shall give at
least 45 days' prior written notice thereof to the holders of the Warrants, and,
upon the request of such holders, include in such registration, at the cost and
expense of the Company any of the Warrant Shares; PROVIDED, HOWEVER, that the
Company shall not be obligated to do so more than twice; and PROVIDED, FURTHER,
that if any such registration relates to a firmly underwritten offering for the
account of the Company and if the managing underwriter of such offering advises
the Company in writing that, in its opinion, inclusion of
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such Warrant Shares as requested would adversely affect such offering, then such
Warrant Shares shall, to such extent, be excluded from such registration, on
such basis as the Company shall deem to be fair and equitable.
9.4 COMPLIANCE WITH THE ACT. In connection with any Registration
Statement referred to herein, the Company shall comply with all applicable rules
and regulations of the Securities and Exchange Commission, or of any similar
federal commission, including the Act, and shall make available to its security
holders, as soon as practicable, an earnings statement (which need not be
audited) covering a period of at least 12 months, but not more than 18 months,
beginning with the first month after the effective date of the registration
statement, which earnings statement will satisfy the provisions of Section 11(a)
of the Act.
9.5 DELIVERY OF PROSPECTUSES. The Company agrees to furnish to the
holders of the Registrable Shares, at its own expense, such number of
prospectuses conforming to the requirements of the Act or any similar federal
statute, relating to the shares subject thereto as may from time to time be
requested by such holders. Further, the Company shall, at its own expense in
connection with any registration herein:
(a) Use its best efforts to register or qualify the securities covered
by such registration statement under the securities or blue sky laws of such
jurisdictions as the holders of the Registrable Shares shall reasonably request,
and do any and all other acts and things which may be necessary or advisable to
enable the Lender or any underwriter to offer such shares for them to consummate
the disposition thereof in such jurisdictions, during a period of six months
subsequent to the effective date of such registration statement; PROVIDED,
HOWEVER, that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not then so qualified or to take any
action which would subject it to the service of process in suits other than
those arising out of the offer or sale of the securities covered by such
registration statement in any jurisdiction where it is not then so subject; and
(b) Notify the holders of the Registrable Shares, at any time when a
prospectus relating to the Registrable Shares is required to be delivered under
the Act, of the happening of any event which the Company, in its best judgment,
believes would make a supplement to, or an amendment of, such prospectus
necessary or appropriate, and at the Lender's request, prepare and furnish
thereto a reasonable number of copies of any supplement to, or any amendment of,
such prospectus that may be necessary so that, as thereafter delivered to the
purchasers of any of the Registrable Shares, such prospectus shall not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
9.6 INDEMNIFICATION. In the event of the registration of any of the
Registrable Shares, the Company shall indemnify the initial holders of the
Registrable Shares, and shall hold such holders harmless against any losses,
claims, damages or liabilities, joint or several, to which such holders may
become subject under the Act or any similar federal statute, or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of, or
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are based upon, any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable Shares
are registered under the Act or similar federal statute, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of, or are based upon, the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse such holders for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that to the extent that any such loss, claim, damage or
liability arises out of, or is based upon, an actual or alleged untrue statement
or omission made in such registration statement, preliminary prospectus, final
prospectus, amendment or supplement in reliance upon, and in conformity with,
written information furnished to the Company through an instrument duly executed
by such holders specifically for use in the preparation thereof, the Company
shall not be so liable to such holders.
9.7 INDEMNIFICATION BY HOLDERS. It shall be a condition precedent to
the obligation of the Company to take any action herein relating to the
registration of any of the Registrable Shares that the Company shall have
received from the holders of the Registrable Shares, if such holder wishes to
register any of the Registrable Shares, (i) one or more written statements
setting forth all information with respect to such holder, the Warrant Shares
and the transaction or transactions which such holder contemplates with respect
thereto, which any law, rule or regulation requires to be included in any
registration statement with respect thereto, and (ii) an agreement satisfactory
to the Company to indemnify and hold harmless, in the same manner and to the
same extent as set forth herein, the Company, each director of the Company, each
officer of the Company who signs such registration statement, and any person who
controls the Company within the meaning of the Act, with respect to any actual
or alleged untrue statement in, or omission from, such registration statement,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, if such actual or alleged untrue statement or
omission was made in reliance upon, and in conformity with, any written
statement furnished to the Company by such holder specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus or amendment or supplement. The liability of any holder of
Registrable Shares pursuant to this Section 9.7 shall be limited to the proceeds
received by such holder from the sale of the Registrable Shares.
Section 10. MISCELLANEOUS.
10.1 NOTICES. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made in writing, and mailed, delivered,
sent by facsimile or sent by E-mail (with confirmation by mail to follow) to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof; or, as to any party, at such other address as shall be
designated by such party in a notice to the other parties. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given upon receipt; provided that any such communication which is not
received during normal business hours of the recipient shall be deemed to be
duly given at the opening of business on its next business day.
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10.2 EXPENSES. The Company shall reimburse the Lender for all of their
reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees) in connection with the negotiation, execution and delivery of this
Agreement and the other Transaction Documents up to a maximum aggregate amount
of $50,000.
10.3 AMENDMENTS. Any provision of this Agreement may be modified,
amended or waived, but only in writing signed by the Company, Xxxx and the
Lender.
10.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
10.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
10.6 SEVERABILITY. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
10.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE PATHWAYS GROUP, INC.
By /s/ Xxxxx X. Xxxx, XX
--------------------------------
Xxxxx X. Xxxx, XX
President
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
/s/ Xxxxx X. Xxxx, XX
-----------------------------------
XXXXX X. XXXX, XX
Address:
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
XXXXXX MERCHANT PARTNERS GROUP LLC
By /s/ Xxxxxx X. Xxxxxx
--------------------------------
Xxxxxx X. Xxxxxx
Managing Member
Address:
Xxx Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Telecopier No.: (000) 000-0000
Telephone No. (000) 000-0000
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HARVEST OPPORTUNITY PARTNERS L.P.
By JMP Asset Management Group, LLC
General Partner
By
--------------------------------
Xxxxxx X. Xxxxxx
Managing Member
Address:
Xxx Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Telecopier No.: (000) 000-0000
Telephone No. (000) 000-0000
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