Exhibit 11
AGREEMENT, WAIVER AND CONSENT
This Agreement, Waiver and Consent (the "Agreement"), effective as of
December 19, 2002, by and between Xxxxxx Technologies, Inc., a New York
corporation (the "Company"), and Xxxxxxx US Discovery Offshore Fund III, L.P.
("Discovery").
W I T N E S S E T H:
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WHEREAS, the Company and Discovery are parties to the Stock Purchase
Agreements, dated as of March 30, 1999 and February 16, 2001, respectively, each
as amended effective as of March 5, 2002 (the "Purchase Agreements"), pursuant
to which Discovery purchased shares of the Company's Series A Convertible
Preferred Stock, par value $.01 per share (the "Preferred A Stock");
WHEREAS, as of the date hereof, Discovery holds an aggregate of 16,114
shares of Preferred A Stock;
WHEREAS, the Company contemplates engaging in a convertible debt
financing transaction substantially in accordance with the terms set forth on
Exhibit A hereto (the "Convertible Debt Financing"), pursuant to which the
Company intends to issue convertible promissory notes (the "Convertible Notes")
with a conversion rate that may be less than the conversion price per share of
Common Stock into which the Preferred A Stock is convertible as set forth in the
designation of the Preferred A Stock (the "Conversion Price") in effect
immediately prior to the issuance of the Convertible Notes, which such
Convertible Notes will be either (a) convertible into shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), at a conversion
rate that may be less than the Conversion Price of the Preferred A Stock in
effect immediately prior to the conversion of the Convertible Notes or (b)
applied to the purchase of securities to be offered by the Company at the public
offering purchase price in an Equity Offering (as defined below), which such
purchase price may be less than the Conversion Price in effect immediately prior
to the issuance of such securities;
WHEREAS, the Company proposes to issue to the holders of the
Convertible Notes, as consideration for their participation in the Convertible
Debt Financing, on the earlier of (a) the first anniversary of the closing date
of the Convertible Debt Financing, or (b) the consummation of any public
offering by the Company of equity securities which, when aggregating the
outstanding principal and accrued interest of the Convertible Notes together
with the outstanding principal and accrued interest of the Exchange Notes and
all additional proceeds from new investors, equals not less than $2,000,000 (an
"Equity Offering"), Common Stock purchase warrants (the "Convertible Note
Warrants") to purchase shares of Common Stock at an exercise price that may be
less than the Conversion Price of the Preferred A Stock in effect immediately
prior to the issuance of, or the commencement of the Company's obligation to
issue, the Convertible Note Warrants;
WHEREAS, the Company has engaged in a bridge financing transaction
substantially in accordance with the terms set forth on Exhibit B hereto (the
"Bridge Financing"), pursuant to which the Company issued promissory notes which
are not convertible into equity securities (the "Bridge Notes");
WHEREAS, the Company contemplates engaging in a note exchange
transaction substantially in accordance with the terms set forth on Exhibit C
hereto (the "Note Exchange"), pursuant to which the Company intends to issue
convertible promissory notes (which will be identical in terms to the
Convertible Notes to be issued in the proposed Convertible Debt Financing) (the
"Exchange Notes"), in exchange for the outstanding Bridge Notes issued in the
Company's Bridge Financing, with a conversion rate that may be less than the
Conversion Price of the Preferred A Stock in effect immediately prior to the
issuance of the Exchange Notes, which will be either (a) convertible into shares
of the Common Stock, at a conversion rate that may be less than the Conversion
Price of the Preferred A Stock in effect immediately prior to the conversion of
the Exchange Notes or (b) applied to the purchase of securities to be offered by
the Company at the public offering purchase price in an Equity Offering, which
such purchase price may be less than the Conversion Price in effect immediately
prior to the issuance of such securities;
WHEREAS, the Company proposes to issue to the holders of the Exchange
Notes, as consideration for their participation in the Note Exchange, on the
earlier of (a) the first anniversary of the closing date of the Note Exchange,
or (b) the consummation by the Company of an Equity Offering, Common Stock
purchase warrants (the "Exchange Note Warrants") to purchase shares of Common
Stock at an exercise price that may be less than the Conversion Price of the
Preferred A Stock in effect immediately prior to the issuance of, or the
commencement of the Company's obligation to issue, the Exchange Note Warrants;
WHEREAS, Section 9A of the Purchase Agreements prohibits the Company
from issuing or selling any additional shares of its Common Stock (other than
any options or other securities that may be issued under any of the Company's
Stock Option or Stock Incentive Plans) or any evidences of indebtedness, shares
of preferred stock or other securities which are convertible or exchangeable
into shares of Common Stock (each, an "Additional Issuance"), for a
consideration per share that is less than the Conversion Price of the Preferred
A Stock in effect immediately prior to such issuance or sale without obtaining
the prior written consent of Discovery;
WHEREAS, Discovery has agreed to provide written consent to the Company
to engage in the proposed Convertible Debt Financing, including the obligation
to issue the Convertible Note Warrants in accordance with the terms set forth in
this Agreement and on Exhibit A hereto;
WHEREAS, Discovery has agreed to provide written consent to the Company
to engage in the proposed Note Exchange, including the obligation to issue the
Note Exchange Warrants in accordance with the terms set forth in this Agreement
and on Exhibit C hereto;
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WHEREAS, Section 4(a) of Article 5 of the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation") contains a
provision in the designation of the Preferred A Stock which irrevocably
constitutes Xxxxx X. Xxxxxx and Xxxxxxx X. Xxxxxxxxxxx, and each of them, as the
proxy of each holder of the Preferred A Stock, with full power of substitution
in each of them, in the name, place and stead of such holder, to vote at all
meetings of the stockholders of the Company (other than with respect to matters
requiring a separate class of holders of the Preferred A Stock) that number of
the Company's voting shares of all classes held by the holders of the Preferred
A Stock as shall exceed twenty-nine percent (29%) of the votes entitled to be
cast by all stockholders of the Company (the "Proxy");
WHEREAS, Section 5(d)(ii) of Article 5 of the Certificate of
Incorporation contains a provision in the designation of the Preferred A Stock
that establishes a conversion price floor of not less than $1.78 per common
share with respect to the adjustment of the Conversion Price of the Preferred A
Stock in the event of the issuance or sale of Additional Shares of Stock by the
Company for a consideration per Additional Share of Stock less than the
Conversion Price in effect immediately prior to such issuance or sale of
Additional Shares of Stock by the Company (the "Conversion Price Floor");
WHEREAS, Discovery has requested, and the Company, principally as
consideration for Discovery's consent to the Convertible Debt Financing and the
Note Exchange, has indicated its intention to amend: (i) Section 4(a) of Article
5 of the Certificate of Incorporation to remove the Proxy, and (ii) Section
5(d)(ii) of Article 5 of the Certificate of Incorporation to remove the
Conversion Price Floor;
WHEREAS, the Company has requested, and Discovery, principally as
consideration for the Company's proposed amendments to Sections 4(a) and
5(d)(ii) of Article 5 of the Certificate of Incorporation, has indicated its
intention to defer the implementation of the anti-dilution adjustment of the
Conversion Price of the Preferred A Stock pursuant to the Certificate of
Incorporation that may result from any or all of the issuances of the
Convertible Notes, the Convertible Note Warrants, the Exchange Notes and the
Exchange Note Warrants;
WHEREAS, the Nasdaq Stock Market, Inc. ("Nasdaq") has advised the
Company that if the Company were to amend its Certificate of Incorporation to
remove the Proxy and the Conversion Price Floor in Sections 4(a) and 5(d)(ii),
respectively, of Article 5 thereof, then in order to maintain the listing of its
Common Stock on Nasdaq, the Company must amend the voting provisions in Section
4(a) of Article 5 of the Certificate of Incorporation to provide that for
purposes of determining the votes held per share of Preferred A Stock, the
Conversion Price shall not be less than $1.78;
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WHEREAS, the Company and Discovery desire to maintain the listing of
the Company's Common Stock on Nasdaq;
WHEREAS, Section 9.1 of the Purchase Agreements prohibits the Company
from amending Sections 4(a) and 5(d)(ii) of Article 5 of its Certificate of
Incorporation without obtaining the prior written consent of Discovery;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Amendments to Certificate of Incorporation.
(a) Consent. The Company and Discovery hereby agree, subject to the
requisite stockholder approval, to the following amendments to Article 5 of the
Certificate of Incorporation:
(i) Section 4(a) shall be deleted in its entirety and a new
Section 4(a) shall be inserted in lieu and instead thereof to read as follows:
"(a) General. In addition to any voting rights
provided in the Corporation's Certificate of Incorporation or
by law, the Series A Preferred Stock shall vote together with
the Common Stock as a single class on all actions to be voted
on by the stockholders of the Corporation. Each share of
Series A Preferred Stock shall entitle the holder thereof to
such number of votes per share on each such action as shall
equal the number of shares of Common Stock (including
fractions of a share) into which each share of Series A
Preferred Stock is then convertible; provided, however, that,
notwithstanding any other provision to the contrary herein, as
the same relates solely to the voting rights of the Series A
Preferred Stock as set forth in this Section 4, in determining
the number of votes per share of Series A Preferred Stock, the
Conversion Price shall be the higher of (a) the Conversion
Price then in effect, or (b) $1.78. The holders of the Series
A Preferred Stock shall be entitled to notice of any
stockholder's meeting in accordance with the By-Laws of the
Corporation."
(ii) Section 5(d)(ii) shall be deleted in its entirety and a
new Section 5(d)(ii) shall be inserted in lieu and instead thereof to read as
follows:
"(ii) Issuance of Additional Shares of Stock. If the
Corporation shall (except as hereinafter provided) issue or
sell Additional Shares of Stock in exchange for consideration
in an amount per Additional Share of Stock less than the
Conversion Price in effect immediately prior to such issuance
or sale of Additional Shares of Stock, then the Conversion
Price as to the Common Stock into which the Series A Preferred
Stock is convertible immediately prior to such adjustment
shall be adjusted to equal the consideration paid per
Additional Share of Stock. The provisions of this Section
5(d)(ii) shall not apply to any issuance of Additional Shares
of Common Stock for which an adjustment is provided under
Section 5(d)(i) or which are dividends or distributions
received by the holders of the Series A Preferred Stock
pursuant to Section 2(b) hereof."
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(b) Waiver. Section 9.1 of the Purchase Agreements is hereby waived
solely for the purpose of the Company effecting the amendments to its
Certificate of Incorporation as described in Section 1(a) hereof.
(c) Prompt Filing. The Company agrees that it will file a Certificate
of Amendment to its Certificate of Incorporation in order to effect the
amendments described in Section 1(a) hereof, promptly upon the receipt of the
requisite shareholder approval for the same.
(d) Acknowledgement. The parties hereto acknowledge that by virtue of
the provisions of Section 5(d)(iii) of Article 5 of the Certificate of
Incorporation, the foregoing amendment to the determination of the Conversion
Price in Section 5(d)(ii) of Article 5 of the Certificate of Incorporation also
applies to any warrants or other securities convertible, exercisable or
exchangeable into Additional Shares of Stock or any Convertible Security that
the Company may issue.
2. Convertible Debt Financing.
(a) Consent. Discovery hereby consents to the issuance by the Company
in the Convertible Debt Financing, substantially in accordance with the terms
set forth on Exhibit A hereto, of (i) the Convertible Notes for consideration
that is less than the Conversion Price of the Preferred A Stock in effect
immediately prior to the issuance of the Convertible Notes, and (ii) the
Convertible Note Warrants, or the Company's obligation to issue the Convertible
Note Warrants, for consideration that is less than the Conversion Price of the
Preferred A Stock in effect immediately prior to the issuance, or the Company's
obligation to issue, the Convertible Note Warrants.
(b) Waiver. Section 9A of the Purchase Agreements is hereby waived
solely with respect to the issuance by the Company of the Convertible Notes and
the Convertible Note Warrants in the Convertible Debt Financing as described in
Section 2(a) hereof.
3. Note Exchange.
(a) Consent. Discovery hereby consents to the issuance by the Company
in the Convertible Debt Financing, substantially in accordance with the terms
set forth on Exhibit C hereto, of (i) the Exchange Notes for consideration that
is less than the Conversion Price of the Preferred A Stock in effect immediately
prior to the issuance of the Exchange Notes, and (ii) the Exchange Note
Warrants, or the Company's obligation to issue the Exchange Note Warrants, for
consideration that is less than the Conversion Price of the Preferred A Stock in
effect immediately prior to the issuance, or the Company's obligation to issue,
the Exchange Note Warrants.
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(b) Waiver. Section 9A of the Purchase Agreements is hereby waived
solely with respect to the issuance by the Company of the Exchange Notes and the
Exchange Note Warrants in the Note Exchange as described in Section 3(a) hereof.
4. Partial Waiver of the Anti-Dilution Adjustment.
(a) Convertible Notes. Discovery hereby agrees to waive the
anti-dilution adjustment of the Conversion Price of the Preferred A Stock, under
Section 5(d) of Article 5 of the Certificate of Incorporation, that would result
from the issuance of the Convertible Notes at the time of the closing of the
Convertible Debt Financing for consideration that is less than the Conversion
Price of the Preferred A Stock in effect immediately prior to the issuance of
the Convertible Notes. It is expressly agreed by the parties hereto that such
waiver is not a waiver of the anti-dilution adjustment to the Conversion Price
of the Preferred A Stock upon (i) the conversion of all or a portion of the
principal amount of any Convertible Note outstanding and/or accrued and unpaid
interest thereon for the underlying shares of Common Stock at the then-effective
conversion rate, or (ii) the application of all of the outstanding principal and
accrued interest of any Convertible Note to the purchase of securities to be
offered by the Company at the public offering purchase price, in an Equity
Offering. For the avoidance of doubt, upon the occurrence of any event described
in clauses (i) or (ii) of the foregoing sentence, the Conversion Price of the
Preferred A Stock shall be adjusted downward to the lesser of (x) the
then-effective conversion rate of the Convertible Notes and (y) the public
offering purchase price of the Equity Offering (if any).
(b) Convertible Note Warrants. Discovery hereby agrees to waive the
anti-dilution adjustment of the Conversion Price of the Preferred A Stock, under
Section 5(d) of Article 5 of the Certificate of Incorporation, with respect to
the Company's issuance of, or the commencement of the Company's obligation to
issue, Convertible Note Warrants in connection with the Convertible Debt
Financing, for consideration that is less than the Conversion Price of the
Preferred A Stock in effect immediately prior to the issuance of, or the
Company's obligation to issue, the Convertible Note Warrants. It is expressly
agreed by the parties hereto that such waiver is not a waiver of the
anti-dilution adjustment to the Conversion Price of the Preferred A Stock upon
the exercise of the Convertible Note Warrants.
(c) Exchange Notes. Discovery hereby agrees to waive the anti-dilution
adjustment of the Conversion Price of the Preferred A Stock, under Section 5(d)
of Article 5 of the Certificate of Incorporation, that would result from the
issuance of the Exchange Notes at the time of the closing of the Note Exchange
for consideration that is less than the Conversion Price of the Preferred A
Stock in effect immediately prior to the issuance of the Exchange Notes. It is
expressly agreed by the parties hereto that such waiver is not a waiver of the
anti-dilution adjustment to the Conversion Price of the Preferred A Stock upon
(i) the conversion of all or a portion of the principal amount of any Exchange
Note outstanding and/or accrued and unpaid interest thereon for the underlying
shares of Common Stock at the then-effective conversion rate, or (ii) the
application of all of the outstanding principal and accrued interest of any
Exchange Note to the purchase of securities to be offered by the Company at the
public offering purchase price, in an Equity Offering. For the avoidance of
doubt, upon the occurrence of any event described in clauses (i) or (ii) of the
foregoing sentence, the Conversion Price of the Preferred A Stock shall be
adjusted downward to the lesser of (x) the then-effective conversion rate of the
Exchange Notes and (y) the public offering purchase price of the Equity Offering
(if any).
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(d) Exchange Note Warrants. Discovery hereby agrees to waive the
anti-dilution adjustment of the Conversion Price of the Preferred A Stock, under
Section 5(d) of Article 5 of the Certificate of Incorporation, with respect to
the Company's issuance of, or the commencement of the Company's obligation to
issue, Exchange Note Warrants in connection with the Note Exchange, for
consideration that is less than the Conversion Price of the Preferred A Stock in
effect immediately prior to the issuance of, or the Company's obligation to
issue, the Exchange Note Warrants. It is expressly agreed by the parties hereto
that such waiver is not a waiver of the anti-dilution adjustment to the
Conversion Price of the Preferred A Stock upon the exercise of the Exchange Note
Warrants.
(e) No Other Waiver. Except to the extent expressly set forth in the
foregoing Sections 4(a), (b), (c) and (d), nothing herein shall be construed to
amend, waive or limit the adjustment of the Conversion Price of the Preferred A
Stock in connection with the issuance, conversion, application to the purchase
price in an Equity Offering, or exchange of, as the case may be, the Convertible
Notes, the Convertible Note Warrants, the Exchange Notes, the Exchange Note
Warrants, the securities in an Equity Offering, or any other event that would
result in an adjustment of the Conversion Price of the Preferred A Stock as set
forth in the designation of the Preferred A Stock in the Certificate of
Incorporation.
5. Expenses. The Company shall pay the reasonable fees and expenses of
Discovery's counsel Xxxxxx, Xxxxx & Xxxxxxx LLP in connection with this
Agreement, the proposed amendments to the Certificate of Incorporation, the
documentation related to the Bridge Financing, the proposed Convertible Debt
Financing, the proposed Note Exchange and the proposed Equity Offering,
including filings with the Securities and Exchange Commission related thereto,
and any other related documentation for the transactions contemplated hereby and
thereby (whether or not a closing occurs under the Convertible Debt Financing,
the Note Exchange or the Equity Offering), and if any such closing occurs, the
Company will make such payments on each closing date. Nothing herein shall be
construed to amend, waive or limit the rights of Discovery to payment of any
fees and expenses pursuant to Section 13 of the Purchase Agreements.
6. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision and shall not affect or render invalid or unenforceable any
other provision of this Agreement, and this Agreement shall be construed as if
such provision had been drawn so as not to be invalid or unenforceable.
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7. Notices. Any notice or other communication hereunder shall be in
writing and shall be delivered personally or by overnight courier, or if mailed,
by registered or certified mail, postage prepaid, return receipt requested, (i)
if to the Company, to Xxxxxx Technologies, Inc., 000 Xxxxx Xxxxxxxxxx Xxxx,
Xxxxx Xxxxx, XX 00000, Attention: President, or (ii) if to Discovery, to Xxxxxxx
US Discovery Partners, L.P., c/o JPMorgan Partners, 1221 Avenue of the Xxxxxxxx,
00xx Xxxxx, Xxx Xxxx, XX 00000, Attention: Xxxxxx X. Xxxx, and shall be deemed
given in all cases upon receipt. Any party may change the address to which
notices are to be sent by giving written notice of any change in the manner
provided herein.
8. Entire Agreement. This Agreement represents and expresses the entire
understanding and agreement between the parties with respect to the subject
matter hereof and may not be modified or terminated except by an agreement in
writing signed by both of the parties hereto. Except as specifically waived
hereby the Purchase Agreements shall remain in full force and effect in
accordance with their respective terms.
9. Definitions. All capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Certificate of Incorporation, as
in effect as of the date hereof.
10. Benefit of Agreement. The provisions of this Agreement shall be
binding upon and shall inure to the benefit of the successors and permitted
assigns of the parties hereto.
11. Headings. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.
12. Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
13. Governing Law. This Agreement shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of said state.
[Signature page to follow]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
XXXXXX TECHNOLOGIES, INC.
By:
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Name:
Title:
XXXXXXX US DISCOVERY OFFSHORE FUND III, L.P.
By: Xxxxxxx US Discovery Partners, L.P.,
its general partner
By: Xxxxxxx US Discovery LLC,
its general partner
By:
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Name:
Title:
[Signature page to Agreement, Waiver and Consent between
Xxxxxx Technologies, Inc. and Xxxxxxx US Discovery Offshore Fund III, L.P.]
Exhibit A
CONVERTIBLE DEBT FINANCING TERM SHEET
Exhibit B
BRIDGE FINANCING TERM SHEET
EXHIBIT C
NOTE EXCHANGE TERM SHEET
