EXHIBIT 10.28
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SECURITIES PURCHASE AGREEMENT
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11% Senior Subordinated Notes
and
Warrants to Purchase Common Stock
As of May 25, 2004
TABLE OF CONTENTS
Page
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ARTICLE I PURCHASE, SALE AND TERMS OF SECURITIES............................................................... 1
1.1 The Senior Subordinated Notes and Warrants to Purchase Common Stock........................ 1
1.2 The Warrant Shares......................................................................... 1
1.3 Sale of Securities......................................................................... 1
1.4 Effectiveness and Closing.................................................................. 1
1.5 Use of Proceeds............................................................................ 2
1.6 Representations, Warranties, and Covenants by the Purchasers............................... 2
1.7 Repayments and Prepayments................................................................. 4
ARTICLE II CONDITIONS TO THE PURCHASERS' OBLIGATION............................................................ 6
2.1 Conditions to the Purchase of Securities................................................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................... 8
3.1 Organization and Standing.................................................................. 8
3.2 Corporate Action........................................................................... 8
3.3 Governmental Approvals..................................................................... 9
3.4 Litigation................................................................................. 9
3.5 Certain Agreements of Officers and Key Employees........................................... 9
3.6 Compliance with Other Instruments.......................................................... 10
3.7 Material Contracts......................................................................... 10
3.8 ERISA...................................................................................... 11
3.9 Transactions with Affiliates............................................................... 11
3.10 Assumptions or Guaranties of Indebtedness of Other Persons................................. 11
3.11 Investments in Other Persons............................................................... 11
3.12 Securities Laws............................................................................ 12
3.13 Disclosure................................................................................. 12
3.14 Brokers or Finders......................................................................... 12
3.15 Capitalization; Status of Capital Stock.................................................... 12
3.16 Registration Rights........................................................................ 13
3.17 Books and Records.......................................................................... 13
3.18 Title to Assets; Intellectual Property..................................................... 13
3.19 Payment of Taxes........................................................................... 14
3.20 Financial Statements....................................................................... 14
3.21 No Undisclosed Liabilities................................................................. 15
3.22 Technology................................................................................. 15
3.23 Indebtedness............................................................................... 15
3.24 Private Offering........................................................................... 15
ARTICLE IV COVENANTS OF THE COMPANY............................................................................ 16
4.1 Affirmative Covenants of the Company Other Than Reporting Requirements..................... 16
4.2 Negative Covenants of the Company.......................................................... 18
4.3 Reporting Requirements..................................................................... 21
ARTICLE V REMEDIES ON DEFAULT.................................................................................. 22
5.1 Acceleration............................................................................... 22
5.2 No Waivers or Election of Remedies, Expenses, etc.......................................... 23
ARTICLE VI DEFINITIONS AND ACCOUNTING TERMS.................................................................... 23
6.1 Certain Defined Terms...................................................................... 23
6.2 Accounting Terms........................................................................... 37
6.3 Knowledge.................................................................................. 37
ARTICLE VII FORM, REGISTRATION, TRANSFER AND EXCHANGE OF SECURITIES; LOST SECURITIES........................... 37
7.1 Generally.................................................................................. 37
7.2 Other Transfers............................................................................ 38
7.3 Further Assurances......................................................................... 38
ARTICLE VIII SUBORDINATION OF THE NOTES........................................................................ 39
ARTICLE IX MISCELLANEOUS....................................................................................... 45
9.1 No Waiver; Cumulative Remedies............................................................. 45
9.2 Amendments, Waivers and Consents........................................................... 45
9.3 Addresses for Notices...................................................................... 46
9.4 Costs, Expenses and Taxes.................................................................. 46
9.5 Binding Effect; Assignment................................................................. 47
9.6 Survival of Representations and Warranties................................................. 47
9.7 Prior Agreements........................................................................... 47
9.8 Severability............................................................................... 47
9.9 Governing Law; Jury Waiver................................................................. 47
9.10 Headings................................................................................... 48
9.11 Counterparts; Facsimile Transmission....................................................... 48
9.12 Further Assurances......................................................................... 48
9.13 Confidentiality............................................................................ 48
9.14 Indemnification............................................................................ 48
9.15 Taxes...................................................................................... 51
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ARTICLE X AGENT.........................................................
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SCHEDULES:
Schedule I List of Purchasers
EXHIBITS
Exhibit A Collateral
Exhibit 1.1A Form of Note
Exhibit 1.1B Form of Warrant
Exhibit 1.6(d) Subordination Agreement
Exhibit 2.2(h) Opinion of U.S. Counsel
Exhibit 3.1 Foreign Qualifications
Exhibit 3.4 Litigation
Exhibit 3.5 Invention Assignment and Nondisclosure Agreements
Exhibit 3.6 Compliance with Other Instruments
Exhibit 3.7 Material Contracts
Exhibit 3.9 Transactions with Affiliates
Exhibit 3.10 Guaranties
Exhibit 3.11 Investments in Other Persons
Exhibit 3.15 Capitalization; Status of Capital Stock
Exhibit 3.18(b) Intellectual Property
Exhibit 3.18(c) Compensation for Use of Intellectual Property Rights
Exhibit 3.21 Undisclosed Liabilities
Exhibit 3.22 Technology
Exhibit 3.23 Indebtedness
Exhibit 3.24 Securities Issuances
Exhibit 4.2(k) Permitted Investments
Exhibit P-1 Permitted Liens
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This SECURITIES PURCHASE AGREEMENT, dated as of May 25, 2004 (this
"Agreement"), is entered into among PLANETOUT INC. ("Company"), with its chief
executive office located at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and each of the Persons identified on Schedule I attached
hereto (each a "Purchaser," collectively, the "Purchasers").
ARTICLE I
PURCHASE, SALE AND TERMS OF SECURITIES
1.1 The Senior Subordinated Notes and Warrants to Purchase Common Stock.
The Company has authorized the issuance and sale to each Purchaser or its
nominee or designee of the Company's (i) senior subordinated notes (herein,
together with any such notes that may be issued hereunder in substitution or
exchanged therefor, each a "Note" and collectively, the "Notes"), in an
aggregate principal amount of up to $5,000,000, to be dated the date of issuance
thereof, to mature on January 18, 2007, to bear interest on the unpaid balances
thereof from the date thereof until the principal thereof shall be paid in full
at the rate of 11.0% per annum (provided that the interest note shall
automatically increase to 22.0% per annum on January 1, 2007, and shall decrease
to 8% per annum if a holder elects to take a security interest pursuant to the
Security Agreement), based upon a 360 day year for actual days elapsed, and,
from and after the occurrence of an Event of Default, at the Default Rate in
accordance with Section 1.7(a), and to be substantially in the form attached
hereto as Exhibit 1.1A, and (ii) warrants for the purchase of the Company's
Common Stock, with the terms and provisions set forth in the form of Warrant
attached hereto as Exhibit 1.1B (the "Warrants"). All of the Notes shall be
identical in all respects other than their respective principal amounts, the
dates of issuance and the names of the registered holders. All of the Warrants
shall be identical in all respects other than the number of shares of Common
Stock that may be purchased thereunder, the dates of issuance and the names of
the registered holders. The Notes and the Warrants are sometimes referred to
herein as the "Securities."
1.2 The Warrant Shares. The Company has authorized and reserved, and
covenants to continue to reserve, free of preemptive rights and other
preferential rights, a sufficient number of its previously authorized but
unissued shares of Common Stock issuable upon exercise of the Warrants. Any
shares of Common Stock issuable upon exercise of the Warrants, and such shares
when issued, are herein referred to as the "Warrant Shares."
1.3 Sale of Securities. The Company, agrees to issue to each Purchaser,
and each Purchaser, severally and not jointly, agrees to acquire from the
Company, the Notes and Warrants set forth opposite such Purchaser's name on
Schedule I hereto. The aggregate purchase price of the Securities being
purchased by each Purchaser is set forth opposite such Purchaser's name on
Schedule I.
1.4 Effectiveness and Closing. This Agreement shall become effective upon
the date hereof. On the Closing Date, the Company will issue and deliver the
Notes to be sold to each of the Purchasers (or its nominee or designee) against
payment of the full purchase
price therefor by wire transfer of immediately available funds to an account
designated by the Company and the Company will issue and deliver the Warrants to
be issued to each of the Purchasers (or its nominee or designee). The Notes
shall be dated and bear interest from the Closing Date.
1.5 Use of Proceeds. The Company shall use the proceeds from the sale of
the Securities only for purposes approved by the Board of Directors and Finance
Committee of the Company.
1.6 Representations, Warranties, and Covenants by the Purchasers.
(a) Each of the Purchasers represents and warrants, severally,
but not jointly, that (i) it will acquire the Securities to be acquired by it
for its own account and that the Securities are being and will be acquired by it
for the purpose of investment and not with a view to distribution or resale
thereof; (ii) the execution of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of such Purchaser; (iii) this Agreement has been duly
executed and delivered, and constitutes a valid, legal, binding and enforceable
agreement of such Purchaser; (iv) it has taken no action which would give rise
to any claim by any other person for any brokerage commissions, finders' fees or
the like relating to this Agreement or the transactions contemplated hereby; (v)
such Purchaser has had the opportunity to ask questions of and receive answers
from representatives of the Company concerning the terms of the offering of the
Securities and to obtain additional information concerning the Company and its
business; (vi) such Purchaser has the ability to evaluate the merits and risks
of an investment; (vii) by reason of its own business and financial experience
or that of its professional advisors it has the capacity to protect its own
interests in connection with its investment in the Securities and can bear the
economic risks of such investment or any of its officers or directors based on
contacts of a nature and duration such as enable it and the Company (or such of
the Company's officers or directors with whom it has a preexisting person or
business relationship) to be aware of the character, business acumen and general
business and financial circumstances of the other person; (viii) it has a
preexisting personal or business relationship with the Company; and (ix) such
Purchaser is an "Accredited Investor" as such term is defined in Rule 501(a)
promulgated under the Securities Act.
(b) Each of the Purchasers represents and warrants, severally,
but not jointly, that (i) its principal address is outside the United States,
(ii) it was located outside the United States at the time any offer to buy the
Securities was made to it and at the time the buy order was originated by it,
(iii) it is not a "U.S. person" (as defined in Rule 902(k) under the Securities
Act and in the Internal Revenue Code of 1986) (a "Non-U.S. Person"), (iv) any
purchase of the Securities by it will be for its own account or for the account
of one or more other Non-U.S. Persons located outside the United States at the
time any offer to buy the Securities was made and at the time that the buy order
was originated by it, and (v) it will not engage in hedging transactions
involving the Securities or the related Common Stock unless in compliance with
the Securities Act. Each Purchaser shall provide, at or before Closing, a
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duly completed and accurate Form W-8 BEN (or equivalent form) to confirm that it
is not a U.S. Person as defined in the Internal Revenue Code of 1986.
(c) The acquisition by each Purchaser of the Securities
acquired by it shall constitute a confirmation of the representations and
warranties made by each such Purchaser as at the date of such acquisition. Each
Purchaser further represents that it understands and agrees that the Securities
are being offered in a transaction not involving any public offering within the
United States and that, until registered under the Securities Act or transferred
pursuant to the provisions of Rule 144 as promulgated by the Commission, all
Securities and certificates evidencing any of the Warrant Shares, whether upon
initial issuance or upon any transfer thereof, shall bear a legend, prominently
stamped or printed thereon, reading substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR UNDER ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, "U.S. PERSONS" (AS DEFINED IN REGULATION S UNDER
THE SECURITIES ACT) IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION
IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT, AND
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT IT IS NOT A "U.S. PERSON" AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE
TRANSACTION" PURSUANT TO REGULATION S (IN EACH CASE WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT) AND (2) AGREES THAT IT WILL NOT OFFER,
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (B) TO THE COMPANY, (C) OUTSIDE
THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S OR
(D) PURSUANT TO RULE 144 OR (E) PURSUANT TO ANY OTHER EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE) SUBJECT IN EACH OF THE
FOREGOING CASES TO ANY REQUIREMENTS OF LAW THAT THE DISPOSITION OF THE PROPERTY
OF SUCH HOLDER BE AT ALL TIMES WITHIN SUCH HOLDER'S CONTROL AND TO COMPLIANCE
WITH ANY APPLICABLE STATE SECURITIES LAWS; AND (3) AGREES THAT IT WILL DELIVER
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN THE CASE OF ANY TRANSFER REFERRED TO IN CLAUSES
2(D) OR 2(E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY
OR THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS
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OF THE SECURITIES ACT. IN ALL SITUATIONS THE HOLDER WILL NOT, DIRECTLY OR
INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THE SECURITIES
EXCEPT AS PERMITTED BY THE SECURITIES ACT.
and the Notes shall bear the following additional legend, reading substantially
as follows:
THIS NOTE MAY ONLY BE EXCHANGED UPON RECEIPT OF CERTIFICATION OF
BENEFICIAL OWNERSHIP OF THE SECURITIES REPRESENTED BY THIS NOTE BY A NON-U.S.
PERSON OR A U.S. PERSON WHO PURCHASED THE SECURITIES IN A TRANSACTION THAT DID
NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT.
(d) Subordination to Silicon Valley Bank. In the event that
Silicon Valley Bank shall provide Senior Indebtedness to the Company within 6
months of the date hereof, the Purchasers hereby agree to subordinate the
Indebtedness evidenced by this Agreement and the Notes and their security
interest to Silicon Valley Bank by executing a Subordination Agreement
substantially in the form attached hereto as Exhibit 1.6(d).
1.7 Repayments and Prepayments.
(a) Principal and Interest.
(i) The unpaid principal balance of the Notes, together
with any and all interest accrued and unpaid thereon, automatically and
unconditionally shall be due and payable in full on the Maturity Date.
(ii) Interest on the unpaid principal balance of the
Notes (computed on the basis of a 360-day year for actual days elapsed)
shall be payable from and including the date thereof on the unpaid
principal balance thereof outstanding from time to time at the rate of
11.0% per annum until the entire principal balance thereof and all
interest accrued thereunder is paid in full; provided that the interest
rate shall automatically increase to 22.0% per annum on January 1, 2007,
and shall decrease to 8% per annum if a holder elects to take a security
interest pursuant to the Security Agreement. Such interest shall be paid
in cash on each Monthly Payment Date commencing on July 1, 2004 and on the
Maturity Date. Any interest that is not timely paid shall be compounded
monthly and added to the principal amount of the Notes (but any failure to
pay interest within 5 days of when due shall in any event be an Event of
Default under clause (a)(ii) of the definition of Event of Default). From
and after the occurrence of an Event of Default, and thereafter during the
continuance of such Event of Default, all principal, interest, or other
amounts evidenced by the Notes shall bear interest at the Default Rate.
(iii) Any payment on or in respect of the Notes shall be
made by wire transfer of immediately available funds, in currency of the
▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ as at the time of payment is legal tender for
payment of public and private debts, to such accounts as shall be
designated to the Company by the holders of the Notes.
(b) Optional Prepayment. The Notes shall be subject to
prepayment, at the option of the Company, in whole or in part at any time and
from time to time. To exercise such right of prepayment, the Company must
provide the holders of the Notes with a written notice of any such prepayment at
least 10 Business Days, but not more than 25 Business Days, prior to the
proposed prepayment date, which notice shall specify the proposed prepayment
date (such date the "Optional Prepayment Date"). On the Optional Prepayment
Date, the Company shall be obligated to prepay in cash the portion of the
aggregate principal amount of the Notes that the Company has specified is to be
prepaid on such date plus accrued and unpaid interest on such principal amount
to the date of the prepayment, plus the Applicable Prepayment Premium.
(c) Mandatory Prepayment. The Company shall within 30 days
following the consummation of (i) a Change of Control, (ii) a sale, transfer or
lease of all or substantially all of the Assets of the Company in a single
transaction or a series of related transactions (an "Asset Sale"), (iii) a
liquidation of the Company, or (iv) an Initial Public Offering which generates
net cash proceeds of not less than $30 million, prepay in cash the aggregate
principal amount of the Notes plus accrued and unpaid interest on such principal
amount to the date of the prepayment, plus the Applicable Prepayment Premium.
(d) Other Prepayment Terms. Partial prepayments shall first be
applied to accrued and unpaid interest, and then principal and the Applicable
Prepayment Premium. Any prepayment (together with any premium and interest)
shall be allocated among the Notes so that the amount prepaid with respect to
the Notes is pro rata based upon the then aggregate outstanding principal
thereof. Any such prepayment shall be made by wire transfer of immediately
available funds, in currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts, to such
accounts as shall be designated to the Company by the holders of the Notes.
(e) Cancellation of Notes. The Company immediately will cancel
all Notes acquired by the Company (whether pursuant to any payment, prepayment,
or purchase of Notes pursuant to any provision of this Agreement, or otherwise),
and no Notes may be issued in substitution or exchange for any such Notes. If,
the foregoing notwithstanding, the Company shall fail to cancel such Notes then,
such Notes shall be deemed not to be outstanding for any purpose under this
Agreement.
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ARTICLE II
CONDITIONS TO THE PURCHASERS' OBLIGATION
2.1 Conditions to the Purchase of Securities. The obligation of any
Purchaser to purchase and pay for the Securities to be purchased by it is
subject to the satisfaction of the following conditions, each of which shall
have been satisfied on or before the Closing Date:
2.1.1 Representations and Warranties. Each of the representations
and warranties of the Company set forth in Article III hereof shall have been
true and correct as of the Closing Date.
2.1.2 Documentation. The Purchasers shall have received all of the
following documents or instruments, or evidence of completion thereof, each in
full force and effect and otherwise in form and substance satisfactory to the
Purchasers and their counsel:
(a) this Agreement;
(b) the Warrants;
(c) the Notes;
(d) the Guaranty;
(e) the Security Agreement,
(f) A copy of the Certificate of Incorporation of the Company
(the "Company Certificate of Incorporation"), certified by the appropriate
officer of the jurisdiction of organization of the Company, a copy of the
resolutions of the Board of Directors evidencing approval of this Agreement and
the other Financing Documents to which it is a party, the issuance of the Notes
and the Warrants and the other matters contemplated hereby, and a copy of the
bylaws of the Company, all of which shall have been certified by the Secretary
of the Company to be true, complete and correct copies thereof, and certified
copies of all documents evidencing other necessary corporate or other action and
governmental approvals obtained by the Company, if any, with respect to this
Agreement and the Securities;
(g) A copy of the Certificate of Incorporation of the
Guarantor (collectively, the "Guarantor Certificates of Incorporation"),
certified by the appropriate officer of the jurisdiction of organization of such
Guarantor, a copy of the resolutions of the board of directors (or other similar
body) of such Guarantor evidencing approval of each Financing Document to which
it is a party, and the matters contemplated thereby, and a copy of the By-laws
of such Guarantor, all of which shall have been certified by the Secretary of
the applicable Guarantor to be true, complete and correct copies thereof, and
certified copies
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of all documents evidencing other necessary corporate or other action and
governmental approvals obtained by such Guarantor, if any, with respect to the
Guaranty;
(h) The opinion of Howard, Rice, Nemerovski, Canady, ▇▇▇▇ &
▇▇▇▇▇▇, a Professional Corporation, counsel to the Company and the Guarantor, in
the form of Exhibit 2.2(h) attached hereto;
(i) A certificate of the Secretary of the Company which shall
certify the names of the officers of the Company authorized to sign this
Agreement and the other Financing Documents to which it is a party, and the
other documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers. The Purchasers may conclusively rely on such
certificate until they shall receive a further certificate of the Secretary or
an Assistant Secretary of the Company canceling or amending the prior
certificate and submitting the signatures of the officers named in such further
certificate;
(j) A certificate of the Secretary of the Guarantor which
shall certify the names of the officers of such Guarantor authorized to sign the
Guaranty, and the other documents, instruments or certificates to be delivered
pursuant to this Agreement by such Guarantor or any of its officers, together
with the true signatures of such officers. The Purchasers may conclusively rely
on such certificate until they shall receive a further certificate of the
Secretary or an Assistant Secretary of such Guarantor canceling or amending the
prior certificate and submitting the signatures of the officers named in such
further certificate;
(k) A certificate of the Chief Executive Officer or Chief
Financial Officer of the Company stating that the representations and warranties
of the Company contained in Article III hereof and in the other Financing
Documents are true and correct and that all conditions required to be performed
prior to or at the Closing Date have been performed as of such date;
(l) Certificates of Good Standing for the Company from the
states of Delaware and California, and each other jurisdiction in which the
failure to be duly qualified or licensed would result in a Material Adverse
Effect upon the Company and its Subsidiaries, in each case, dated within 10 days
of the Closing Date;
(m) Certificates of Good Standing for the Guarantor from the
jurisdiction of organization of such Guarantor, and each other jurisdiction in
which the failure to be duly qualified or licensed would result in a Material
Adverse Effect upon the Company and its Subsidiaries, in each case, dated within
10 days of the Closing Date;
(n) The Company shall have paid all of the costs and expenses
identified in Section 9.4 to the extent invoices therefor have been presented to
the Company at least one day prior to the Closing Date;
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(o) (i) The Company and the Guarantor shall have obtained all
consents or waivers, if any, that are necessary to execute and deliver this
Agreement and the other Financing Documents, issue the Notes and the Warrants
and to carry out the transactions contemplated hereby and thereby; (ii) all such
consents and waivers shall be in full force and effect; (iii) all corporate and
other actions and governmental filings necessary to effectuate the terms of this
Agreement, the Notes, the Warrants, the other Financing Documents, and other
agreements and instruments executed and delivered by the Company or any
Guarantor in connection herewith shall have been made or taken, except for any
post-sale filing that may be required under federal or state securities laws;
(p) Purchasers shall have reviewed to their satisfaction
results of UCC-1, lien and claim searches with .respect to the Company and
Guarantor conducted in DE & CA.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of the Purchasers
as follows as of the date hereof and as of the Closing Date:
3.1 Organization and Standing. Each of the Company and its Subsidiaries is
duly organized or formed and validly existing corporation or other entity in
good standing under the laws of the jurisdiction of its organization and has all
requisite power and authority for the ownership and operation of its properties
and for the carrying on of its business as now conducted or as now proposed to
be conducted. The Company and each of its Subsidiaries is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in all jurisdictions wherein the character of the property owned or
leased, or the nature of the activities conducted, by it makes such licensing or
qualification necessary as set forth in Exhibit 3.1, except where the failure to
so qualify would not reasonably be expected to have a material adverse effect on
the business, operations, properties or condition of the Company and its
Subsidiaries taken as a whole, or which might call into question the validity of
this Agreement, any of the Securities, or any action taken or to be taken
pursuant hereto or thereto (a "Material Adverse Effect").
3.2 Corporate Action. The Company and each of its Subsidiaries has all
necessary power and has taken all organizational action required to enter into
and perform this Agreement, the Notes, the Warrants, the Guaranties, the
Security Agreement and any other agreements and instruments executed in
connection herewith (collectively, the "Financing Documents"). The Financing
Documents are valid and binding obligations of the Company and the Guarantor,
enforceable in accordance with their terms except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether enforcement is sought by proceedings in equity or at
law). The issuance, sale and delivery of the Securities
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in accordance with this Agreement and the issuance, sale and delivery of the
Warrant Shares have been duly authorized and reserved for issuance by all
necessary corporate action on the part of the Company. Sufficient authorized but
unissued shares of Common Stock have been reserved by appropriate corporate
action in connection with the prospective exercise of the Warrants, and the
issuance of the Securities is not, and the issuance of the Warrant Shares upon
the exercise of the Warrants will not be, subject to preemptive rights or other
preferential rights in any current stockholders of the Company and will not
conflict with any provision of any contract set forth on Exhibit 3.7.
3.3 Governmental Approvals. Except for the filing of any notice subsequent
to the Closing Date that may be required under applicable state and/or federal
securities laws (which, if required, shall be filed on a timely basis and a copy
of which shall be provided to the Purchasers and their counsel), no
authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for the execution and delivery by the Company and the Guarantor of any Financing
Document to which they are a party, for the offer, issue, sale and delivery of
the Securities and the Warrant Shares, or for the performance by the Company and
the Guarantor of their respective obligations under any of the Financing
Documents.
3.4 Litigation. Except as set forth in Exhibit 3.4, there is no litigation
or governmental proceeding or investigation pending or, to the knowledge of the
Company and its Subsidiaries, threatened against the Company or any of its
Subsidiaries, affecting any of their respective Assets, or against any officer
or Key Employee relating to such person's performance of duties for the Company
or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is
in default with respect to any order, writ, injunction, decree, ruling or
decision of any court, commission, board or other governmental agency
specifically naming the Company, any of its Subsidiaries, or an officer of the
Company or any of its Subsidiaries. Except as set forth in Exhibit 3.4, there
are no actions or proceedings pending or, to the knowledge of the Company and
its Subsidiaries, threatened against the Company or any of its Subsidiaries
which would reasonably be expected to result, either in any case or in the
aggregate, in any Material Adverse Effect. The foregoing sentences include,
without limiting their generality, actions pending or, to the knowledge of the
Company and its Subsidiaries, threatened, involving the prior employment of any
of the Company's or any of its Subsidiaries' respective officers or employees
(including any Key Employees) or their use in connection with the Company's or
its Subsidiaries' business of any information or techniques allegedly
proprietary to any of their former employers.
3.5 Certain Agreements of Officers and Key Employees.
(a) To the knowledge of the Company and its Subsidiaries, no
officer or Key Employee of the Company or any of its Subsidiaries is in
violation of any term of any employment contract, patent disclosure agreement,
proprietary information agreement, noncompetition agreement, or any other
contract or agreement or any restrictive covenant relating to the employment of
any such officer or Key Employee by the Company
9
or any of its Subsidiaries, as applicable, the nature of the business conducted
or to be conducted by the Company or its Subsidiaries, or relating to the use of
trade secrets or proprietary or confidential information of others. Neither the
Company nor any of its Subsidiaries has any reason to believe that the
employment of the Company's or its Subsidiaries' officers and Key Employees will
subject the Company, any of its Subsidiaries, or any Purchaser to any liability
to third parties. Except as set forth on Exhibit 3.5, the Company and its
Subsidiaries have entered into invention assignment and nondisclosure agreements
with each of their respective employees.
(b) To the knowledge of the Company and its Subsidiaries, no
officer of the Company or any of its Subsidiaries, nor any Key Employee of the
Company or any of its Subsidiaries, whose termination, either individually or in
the aggregate, would have a Material Adverse Effect, has expressed any present
intention of terminating his employment with the Company or any of its
Subsidiaries, as applicable.
3.6 Compliance with Other Instruments. Except as set forth on Exhibit 3.6,
each of the Company and its Subsidiaries is in compliance in all respects with
the terms and provisions of this Agreement, the other Financing Documents, and
of its respective constitutional documents, and in all material respects with
the terms and provisions of all contracts listed on Exhibit 3.7. Each of the
Company and its Subsidiaries is in compliance with all judgments, decrees,
governmental orders, statutes, rules or regulations by which it is bound or to
which any of its Assets are subject, except where the failure to so comply would
not reasonably be expected to have a Material Adverse Effect. Neither the
execution and delivery of this Agreement or the other Financing Documents or the
issuance of the Securities, nor the consummation of any transaction contemplated
by this Agreement or the other Financing Documents, has constituted or resulted
in or will constitute or result in a default or violation of any term or
provision of any of the foregoing documents, instruments, judgments, agreements,
decrees, orders, statutes, rules and regulations.
3.7 Material Contracts.
(a) Except as set forth on Exhibit 3.7, each of the Company,
its Subsidiaries and their respective properties and Assets is not a party to or
bound by any (i) executory contract not made in the ordinary course of business,
or involving a future payment by the Company or any of its Subsidiaries in
excess of $100,000 or, in the Company's belief, otherwise material to the
business of the Company and its Subsidiaries; (ii) contract among stockholders
or granting a right of first refusal or for a partnership or a joint venture or
for the acquisition, sale or lease of any Assets or capital stock of the
Company, any of its Subsidiaries, or any other Person or involving a sharing of
profits; (iii) mortgage, pledge, conditional sales contract, security agreement,
factoring agreement or other similar contract with respect to any real or
tangible personal property of the Company or any of its Subsidiaries; (iv) loan
agreement, credit agreement, promissory note, guarantee, subordination
agreement, letter of credit or any other similar type of contract; (v) contract
with any governmental agency; or (vi) binding commitment or agreement to enter
into any of the foregoing. The Company has delivered or otherwise made available
to the Purchasers
10
true, correct and complete copies of the contracts listed on Exhibit 3.7 (except
as noted thereon), together with all amendments, modifications, supplements or
side letters affecting the obligations of any party thereunder.
(b) (i) Each of the contracts listed on Exhibit 3.7 is valid
and enforceable in accordance with its terms (except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether enforcement is sought by proceedings in equity of at
law)), and there is no default under any contract listed on Exhibit 3.7 by the
Company or any of its Subsidiaries or, to the knowledge of the Company and its
Subsidiaries, by any other party thereto, and no event has occurred that with
the lapse of time or the giving of notice or both would constitute a default
thereunder, except where such default, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect, and (ii) no
previous or current party to any contract has given written notice to the
Company or any of its Subsidiaries of or made a written claim with respect to
any breach or default thereunder and the Company has no knowledge of any notice
of or claim with respect to any such breach or default that would reasonably be
expected to have a Material Adverse Effect.
(c) With respect to the contracts listed on Exhibit 3.7 that
were assigned to the Company or any of its Subsidiaries by a third party, all
necessary consents to such assignment have been obtained.
3.8 ERISA. Neither the Company, nor any of its Subsidiaries, maintains or
contributes to, nor has any present intention to establish, any employee pension
benefit plans for its employees that would be subject to ERISA.
3.9 Transactions with Affiliates. Except as set forth on Exhibit 3.9, as
contemplated hereby or consented to by the Purchasers in accordance with this
Agreement, neither the Company nor any of its Subsidiaries is a party to any
transaction, including, without limitation, any loans or extensions of credit or
royalty agreements, with any officer or director of the Company or any
Subsidiary or holder of 5% or more of any class of capital stock of the Company,
or any member of their respective immediate families or any corporation or other
entity directly or indirectly affiliated with one or more of such officers.
3.10 Assumptions or Guaranties of Indebtedness of Other Persons. Except as
set forth on Exhibit 3.10, neither the Company nor any of its Subsidiaries has
assumed, guaranteed, endorsed or otherwise become directly or contingently
liable on (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in the debtor or otherwise to assure the creditor
against loss), any obligation or liability of any other Person.
3.11 Investments in Other Persons. Except as set forth on Exhibit 3.11,
neither the Company nor any of its Subsidiaries has made any loan or advance to
any Person which is outstanding on the date of this Agreement, nor is it
committed or obligated to make any such
11
loan or advance, nor does the Company or any of its Subsidiaries own any capital
stock, Assets comprising the business of, obligations of, or any interest in,
any Person except as disclosed in this Agreement.
3.12 Securities Laws. Except for the filing of any notice subsequent to
the Closing Date that may be required under applicable state and/or federal
securities laws, the Company has complied with all applicable federal and state
securities laws in connection with the offer, issuance and sale of the
Securities. Prior to the Closing Date, neither the Company, nor any of its
Subsidiaries, nor anyone acting on its behalf has sold, offered to sell or
solicited offers to buy the Securities or similar securities to, or solicit
offers with respect thereto from, or entered into any preliminary conversations
or negotiations relating thereto with, any Person, so as to bring the issuance
and sale of the Securities under the registration provisions of the Securities
Act and applicable state securities laws.
3.13 Disclosure. Neither this Agreement nor any other agreement, document,
certificate or written statement furnished to the Purchasers or their counsel by
or on behalf of the Company or any of its Subsidiaries in connection with the
transactions contemplated hereby, when taken together with the draft of the
registration statement of the Company on Form S-1 that was filed with the
Securities and Exchange Commission on April 29, 2004, contains any untrue
statement of a material fact or omits to state a material fact relating directly
to the Company or any of its Subsidiaries necessary in order to make the
statements contained herein or therein not misleading. There is no fact within
the knowledge of the Company or any of its Subsidiaries that has not been
disclosed herein or in writing to the Purchasers and which taken by itself would
constitute a circumstance having a Material Adverse Effect.
3.14 Brokers or Finders. No Person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or valid claim
against or upon the Company or any of its Subsidiaries for any commission, fee
or other compensation as a finder or broker because of any act or omission by
the Company, any of its Subsidiaries, or any of their respective agents.
3.15 Capitalization; Status of Capital Stock. (a) Set forth on Exhibit
3.15, is a complete and accurate description of the authorized capital stock of
the Company by class, and a description of the number of shares of each such
class that are issued and outstanding that is accurate in all material respects
as of the date hereof; provided that the Purchasers agree that such description
shall be deemed accurate in all material respects notwithstanding the inaccuracy
of any particular number so long as the total number of shares set forth in such
description (on a common equivalent basis) does not exceed 154,000,000. All the
outstanding shares of capital stock of the Company have been duly authorized,
and are validly issued, fully paid and non-assessable. The Warrant Shares, when
issued and delivered in accordance with the terms hereof and after payment of
the purchase price therefor, will be duly authorized, validly issued, fully paid
and non-assessable.
12
(b) Set forth on Exhibit 3.15 is a complete and accurate list
of the Company's direct and indirect Subsidiaries showing: (i) the jurisdiction
of their formation, (ii) the number of shares of each class of common and
preferred stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by the Company. All of the issued and outstanding capital stock of
each such Subsidiary has been validly issued and is fully paid and
non-assessable.
(c) Except as otherwise set forth in Exhibit 3.15, no options,
warrants, subscriptions or purchase rights of any nature to acquire from the
Company, or from any of its Subsidiaries, shares of capital stock or other
securities are authorized, issued or outstanding, nor is the Company or any of
its Subsidiaries obligated in any other manner to issue shares of its capital
stock or other securities except as contemplated by this Agreement.
(d) Except as set forth in Exhibit 3.15, there are no
restrictions on the transfer of shares of capital stock of the Company other
than those imposed by relevant federal and state securities laws and as
otherwise contemplated by this Agreement, the Certificate of Incorporation, and
the Rights Agreement. Other than as provided in this Section, there are no
agreements, understandings, trusts or other collaborative arrangements or
understandings concerning the voting of the capital stock of the Company. The
offer and sale of all capital stock and other securities of the Company issued
before the Closing Date complied with or were exempt from all applicable federal
and state securities laws and no stockholder has a right of rescission with
respect thereto.
3.16 Registration Rights. Except for the rights granted to the Purchasers
and certain other parties pursuant to the Rights Agreement, no Person has demand
or other rights to cause the Company or any of its Subsidiaries to file any
registration statement under the Securities Act relating to any securities of
the Company or any securities of its Subsidiaries, or any right to participate
in any such registration statement.
3.17 Books and Records. The books of account, ledgers, order books,
records and documents of the Company and each of its Subsidiaries accurately and
completely reflect in all material respects all material information relating to
the business of the Company and its Subsidiaries, the location and collection of
its Assets, and the nature of all transactions giving rise to the obligations or
accounts receivable of the Company or its Subsidiaries.
3.18 Title to Assets; Intellectual Property.
(a) The Company and each of its Subsidiaries has good and
marketable title in fee to such of its fixed assets, if any, as are real
property, and good and marketable title to all of its other Assets, free of any
Liens other than Permitted Liens. The Company and each of its Subsidiaries
enjoys peaceful and undisturbed possession under all leases under which it is
operating, and all said leases are valid and subsisting and in full force and
effect.
13
(b) The Company does not know of any claim, previously
asserted, pending, threatened or which may otherwise be asserted against the
Company or any of its Subsidiaries ("Claim") that would interfere with, or
adversely impact upon, the Company's or its Subsidiaries' unencumbered right to
use, make, sell, license, distribute, promote, apply, develop and make
derivative works of ("Use"), the patents, patent rights, permits, licenses,
trade secrets, trademarks (registered or unregistered), trademark rights, trade
names, trade name rights, franchises, copyrights (registered or unregistered),
inventions (regardless of whether patentable or not), software, confidential
information, innovations and other intellectual property rights being used to
conduct their business as now operated and as now proposed to be operated, or in
the development, manufacture, use, distribution or licensing of the Company's or
its Subsidiaries' proprietary technology, information, products, processes, or
services (collectively, the "Intellectual Property Rights") (a list of all
material patents, trademarks, trade names, copyrights, permits, and licenses in
Use by the Company and its Subsidiaries is attached hereto as Exhibit 3.18(b));
and the Company does not have any reason to believe that the Use of the
Intellectual Property Rights infringes, conflicts or will conflict with valid
rights of any other Person. No claim is known by the Company to be pending or
threatened to the effect that, and the Company has no reason to believe that,
any such Intellectual Property Right is invalid or unenforceable by the Company
or any of its Subsidiaries. Except as set forth in Exhibit 3.18(b), neither the
Company nor any of its Subsidiaries has any obligation to compensate any Person
for the use of any such Intellectual Property Rights, and except in the ordinary
course of business or as set forth in Exhibit 3.18(c), neither the Company nor
any of its Subsidiaries has granted any Person any license or other rights to
use in any manner any of the Intellectual Property Rights of the Company or any
Subsidiary thereof, whether requiring the payment of royalties or not.
(c) Each Debtor has good title to its respective Collateral,
free of Liens except Permitted Liens. Neither Debtor has notice of any actual or
imminent Insolvency Proceeding or any account debtor with respect to the
Accounts that constitute Collateral pursuant to the Security Agreement. All
Inventory is in all material respects of good and marketable quality, free from
material defects. Each of the Debtors is the sole owner of its respective
Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business.
3.19 Payment of Taxes. Except to the extent permitted by Section 4.1(a)
hereof, (a) all tax returns and reports of the Company and its Subsidiaries
required to be filed by them have been duly and timely filed, and (b) all taxes,
assessments, fees, and other governmental charges upon the Company or its
Subsidiaries, or upon their respective Assets, income, and franchises that are
due and payable have been paid when due and payable. There is no actual or, to
the Company's knowledge, proposed tax assessment against the Company or its
Subsidiaries that, in any of the foregoing cases either individually or in the
aggregate, has had or reasonably could be expected to have a Material Adverse
Effect.
3.20 Financial Statements. The Company has provided to ▇▇▇▇▇▇ copies of
the audited balance sheet of the Company and its Subsidiaries as of December 31,
2003, the statements of income and retained earnings of the Company and its
Subsidiaries for the
14
period then ended, and the statements of cash flows of the Company and its
Subsidiaries for the period then ended (the "Audited Financials"). The Company
has provided ▇▇▇▇▇▇ with copies of the unaudited balance sheet of the Company
and its Subsidiaries as of March 31, 2004, the statements of income and retained
earnings of the Company and its Subsidiaries for the period then ended, and the
statements of cash flows of the Company and its Subsidiaries for the period then
ended (the "Unaudited Financials", and together with the Audited Financials, the
"Financial Statements"). Each of the Financial Statements was prepared in good
faith, has been prepared in accordance with GAAP (subject to normal year-end
audit adjustments and, in the case of the Unaudited Financials, the absence of
footnotes, and any adjustment for charges relating to any stock based
compensation) and in conformity with the practices consistently applied by the
Company and its Subsidiaries and presents fairly, in all material respects, the
financial position, results of operations and cash flows of the Company and its
Subsidiaries, as of the dates and for the periods indicated.
3.21 No Undisclosed Liabilities. Except as set forth on Exhibit 3.21 or in
the Financial Statements and except for such liabilities or obligations incurred
by the Company or any of its Subsidiaries in the ordinary course of business
consistent with past practice since March 31, 2004, neither the Company nor any
of its Subsidiaries has any material liabilities or obligations (whether
absolute or contingent, liquidated or unliquidated or due or to become due).
3.22 Technology. Except as set forth in Exhibit 3.22, the products,
processes, proprietary technology, and other proprietary know-how owned or used
by the Company and its Subsidiaries were completely developed by the Company's,
or its Subsidiaries', full-time employees only (or independent contractors or
consultants who have entered into an appropriate assignment thereof); the
concepts, inventions and original works of authorship owned or used by the
Company, or its Subsidiary, were developed or conceived by such employees,
contractors, or consultants within the scope of their employment or engagement,
as the case may be, by the Company or the Subsidiary of the Company and are
connected with the Company's, or its Subsidiaries', underlying products,
processes and proprietary technology.
3.23 Indebtedness. Set forth on Exhibit 3.23 is a true and complete list
of all indebtedness of the Company outstanding on the date hereof that is to
remain outstanding after the Closing Date and such Schedule accurately reflects
the aggregate principal amount of such indebtedness and the principal terms
thereof.
3.24 Private Offering.
(a) Assuming the truth and correctness of the representations
and warranties set forth in Section 1.6, the sale of the Securities hereunder is
exempt from the registration and prospectus delivery requirements of the
Securities Act. In the case of each offer or sale of the Securities, no form of
general solicitation or general advertising was used by any of Company or any of
its Subsidiaries or their respective representatives, including, but not limited
to, advertisements, articles, notices or other communications published in any
15
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf have engaged in any
directed selling efforts (as defined in Rule 902(c) under Regulation S) with
respect to the Securities.
(b) The Purchasers are the sole purchasers of the Securities.
Except as set forth on Schedule 3.24, no securities have been issued and sold by
the Company within the six-month period immediately prior to the date hereof.
None of the securities issued within such six-month period, if any, could be
integrated with the issuance of the Securities as a single offering for purposes
of the Securities Act, and Company agrees that neither it, nor anyone acting on
its behalf, will offer or sell the Securities, or any portion of them, if such
offer or sale might bring the issuance and sale of the Securities to any
Purchaser hereunder within the provisions of Section 5 of the Securities Act nor
offer any similar securities for issuance or sale to, or solicit any offer to
acquire any of the same from, or otherwise approach or negotiate with respect
thereto with, anyone if the sale of the Securities and any such securities could
be integrated as a single offering for the purposes of the Securities Act,
including without limitation Regulation D thereunder. It is not necessary, in
connection with the transactions contemplated hereby, to qualify an indenture
under the Trust Indenture Act of 1939, as amended.
ARTICLE IV
COVENANTS OF THE COMPANY
4.1 Affirmative Covenants of the Company Other Than Reporting
Requirements. Without limiting any other covenants and provisions hereof, the
Company covenants and agrees that until the outstanding principal amount of the
Notes (together with all interest and any premiums thereon) shall have been
repaid in full, it will perform and observe the following covenants and
provisions, and will cause each Subsidiary, if and when such Subsidiary exists,
to perform and observe such of the following covenants and provisions as are
applicable to such Subsidiary:
(a) Payment of Taxes and Claims; Tax Consolidation. Duly and
timely file all tax returns and reports required to be filed in compliance with
all applicable laws, regulations, rules, and procedures and pay all taxes,
assessments, and other governmental charges imposed upon the Company or any of
its Subsidiaries or any of the Assets of the Company or any of its Subsidiaries
or in respect of any franchises, business, income, or Assets of the Company or
any of its Subsidiaries before any penalty or interest accrues thereon, and all
claims (including claims for labor, services, materials, and supplies) that have
become due and payable and that by law have or may become a Lien (other than
Permitted Liens) upon any of such Assets, prior to the time when any material
penalty or fine shall be incurred with respect thereto except where the failure
to so file or pay such taxes, assessments, or other governmental charges or
claims could not reasonably expected to have a Material Adverse Effect;
provided, however, that no such tax, assessment, charge, claim, or
16
Lien need be paid if it is being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if such reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor.
(b) Maintenance of Insurance. At its expense, the Company and
its Subsidiaries shall maintain with a reputable insurance company or
association insurance in such amounts and covering its Assets and such risks as
ordinarily are insured against by other persons engaged in the same or similar
businesses and owning similar properties in the same general areas in which the
Company or any Subsidiary operates for the type and scope of its properties and
businesses.
(c) Preservation of Corporate Existence. Preserve and
maintain, and cause each Subsidiary to preserve and maintain, its corporate
existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each Subsidiary to
qualify and remain qualified, as a foreign corporation in each jurisdiction in
which such qualification is necessary or desirable in view of its business and
operations or the ownership or lease of its properties, except where the failure
to be so qualified could not reasonably be expected to have a Material Adverse
Effect. The Company shall use commercially reasonable efforts to secure,
preserve and maintain, and cause each Subsidiary to use commercially reasonable
efforts to secure, preserve and maintain, all licenses and other rights to use
patents, processes, licenses, permits, trademarks, trade names, inventions,
intellectual property rights or copyrights, owned or possessed by it and deemed
by the Company to be material to the conduct of its business or the business of
any Subsidiary.
(d) Compliance with Laws. Comply, and cause all Subsidiaries
to comply, with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority, where noncompliance would reasonably be
expected to have a Material Adverse Effect.
(e) Maintenance of Properties; Material Assets. Use
commercially reasonable efforts to maintain and preserve, and cause each
Subsidiary to use commercially reasonable efforts to maintain and preserve, all
of its Assets in good repair, working order and condition, ordinary wear and
tear excepted, including, without limitation, the maintenance and preservation
of any material patents, trademarks, copyrights, licenses, permits or agreements
being used by the Company, or any of its Subsidiaries, in its business as now
operated and as now proposed to be operated.
(f) Keeping of Records and Books of Account. 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 any Subsidiary, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, returns of
merchandise, obsolescence, amortization, taxes, bad debts and other purposes in
connection with its business shall be made.
17
(g) Inspection. The Company and its Subsidiaries will permit
any authorized representatives designated in writing by a Purchaser to visit and
inspect any of the Assets of the Company or any of its Subsidiaries, including
their respective financial and accounting records, and to make copies and take
extracts therefrom, and to discuss their respective affairs, finances, and
accounts with their respective officers and independent and certified public
accounts, all upon reasonable prior written notice and at such times during
business hours and as often as may be reasonably requested; provided that after
the occurrence and during the continuance of an Event of Default, a Purchaser
may conduct such an inspection without notice and as frequently as deemed
necessary by such Purchaser.
(h) Quick Ratio and Net Worth Reports. Within thirty days
after the last day of each calendar month, the Company will deliver to
Purchasers a report showing the Company's Quick Ratio and Tangible Net Worth as
of the last day of such month signed by the principal financial or accounting
officer of the Company.
4.2 Negative Covenants of the Company. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that until the
outstanding principal amount of the Notes (together with all interest thereon)
shall have been repaid in full, it will comply with and observe the following
covenants and provisions, and will cause each Subsidiary, if and when such
Subsidiary exists, to comply with and observe such of the following covenants
and provisions as are applicable to such Subsidiary, and will not:
(a) Limitation on Indebtedness. Create, incur, assume or
permit to exist any Indebtedness except Permitted Indebtedness.
(b) Restricted Payments. Declare or pay any dividends,
purchase, repurchase, redeem, retire, or otherwise acquire for value any of its
capital stock (or rights, options or warrants to purchase such shares) now or
hereafter outstanding, return any capital to its stockholders as such, or make
any distribution of Assets to its stockholders as such, and will not make any
payment in cash, securities or other property on or in respect of, or purchase,
repurchase, redeem, retire or otherwise acquire for value prior to scheduled
maturity, any Indebtedness of the Company that by the express terms governing
repayment is subordinated to, or pari passu with, the Notes, or permit any
Subsidiary to do any of the foregoing (such transactions being hereinafter
referred to as "Restricted Payments"), except that any such Subsidiary may
declare and make payments of cash and stock dividends, return capital and make
distributions of Assets to the Company; provided, however, that nothing herein
contained shall prevent the Company from:
(i) effecting a stock split or declaring or paying any
dividend consisting of shares of any class of capital stock to the holders
of shares of such class of capital stock, or
(ii) declaring any dividends in the form of an
adjustment to the liquidation preference of the Company's preferred stock
in accordance with the Company's certificate of incorporation, or
18
(iii) redeeming any stock of a deceased stockholder out
of insurance held by the Company on that stockholder's life, or
(iv) repurchasing shares of the Company's capital stock,
in an aggregate amount not to exceed $200,000 in any fiscal year, at no
more than the original cost thereof from officers, employees, directors or
consultants of the Company pursuant to an option to repurchase such shares
to repurchase such shares upon the occurrence of certain events, including
the termination of employment,
if in the case of any such transaction the Restricted Payment can be made in
compliance with the other terms of this Agreement.
(c) Dealings with Affiliates and Others. Other than as
contemplated by this Agreement, and other than transactions in the ordinary
course of business involving less than $50,000, enter into any transaction,
including, without limitation, any loans or extensions of credit or royalty
agreements, with any officer or director of the Company or any Subsidiary or
holder of 5% or more of any class of capital stock of the Company, or any member
of their respective immediate families or any corporation or other entity
directly or indirectly affiliated with one or more of such officers, directors
or stockholders or members of their immediate families unless such transaction
is approved in advance by a majority of the disinterested members of the Board
of Directors, or absent such Board of Directors approval, by the Majority
Holders.
(d) Merger, Consolidation; Etc. Except for Permitted
Transactions, sell, convey, transfer or lease all or substantially all of its
Assets in a single transaction or a series of related transactions to any
Person, or consolidate with or merge with or into any other entity; unless:
(i) the resulting or surviving Person (the "Successor
Company") is organized under the laws of the United States;
(ii) the Successor Company (if not the Company)
expressly assumes all obligations of the Company under the Notes; and
(iii) no Default or Event of Default shall have occurred
and be continuing or will occur upon giving effect to the transaction.
(e) Limitation on Liens. Directly or indirectly create, incur,
assume or suffer to exist any Lien, or file or authorize the filing of any
financing statement or other document, on or with respect to any of its Assets,
of any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens.
(f) Acquisitions. Except for Permitted Acquisitions,
consummate any Acquisition.
19
(g) ERISA. Establish any defined benefit plans for its
employees that would be subject to ERISA.
(h) Conduct of Business. Engage in any business other than the
business currently conducted by them as of the date hereof and reasonable
extensions thereof and other lines of business reasonably incidental,
complementary or related thereto (including, without limitation, the print
publication business).
(i) Upstream Limitations. Enter into any agreement, contract,
or arrangement restricting the ability of any Subsidiary of Company to pay or
make dividends or distributions in cash or kind, to make loans, advances, or
other payments of whatsoever nature or to make transfers or distributions of all
or any part of its Assets to Company or to any Subsidiary of the Company.
(j) Layered Debt. Without prejudice to the limitations on
Indebtedness and Liens in Section 4.2(a) and 4.2(e), the Company will not
create, assume, incur, guarantee or suffer to exist any Indebtedness, other than
Indebtedness evidenced by the Notes, that is subordinate by its terms in right
of payment to the Senior Indebtedness unless such Indebtedness, by its terms or
the terms of the instrument creating or evidencing it, is pari passu with the
Notes or subordinate in right of payment to the Notes pursuant to subordination
provisions substantially similar to those contained in the Notes.
(k) Investments. Except for (i) Permitted Subsidiary
Investments, (ii) Investments in Subsidiaries that are Guarantors and
Investments in the Company, (iii) Investments in cash or Cash Equivalents, (iv)
Investments existing on the date hereof and identified in Exhibit 4.2(k); and
(v) other Investments in an amount not to exceed in the aggregate $500,000, make
or acquire any Investment.
(l) Limitation on Sale of Assets. Except for (i) the sale of
inventory and the non-exclusive licensing of intellectual property in the
ordinary course of business, (ii) the disposition of obsolete Assets that are no
longer used or useful in current or planned business operation of the Company
and its Subsidiaries, (iii) any disposition of Assets arising in connection with
a Permitted Transaction, and (iv) other sales of assets for fair market value
not exceeding in the aggregate 25% of Equity Value, sell or otherwise dispose of
any Assets.
(m) Dividends on Preferred Stock. Permit the Company's
certificate of incorporation or any certificate of designation of the Company
with respect to Disqualified Stock (other than the Company's Series D and Series
E Preferred Stock) to provide that dividends shall be paid or accrued unless
such dividends are otherwise permitted to be paid or accrued pursuant to this
Agreement.
(n) Stay, Extension and Usury Laws. At any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
and will use all reasonable efforts to resist any attempts to claim or take the
benefit of, any stay, extension or usury law wherever enacted, now or at any
time hereafter in force, which may affect the
20
covenants or the performance of its obligations under this Agreement or the
Notes (in each case, to the extent the Company may lawfully so agree), and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the holders of the Notes, but will suffer and permit the execution of
every such power as though no such law has been enacted. In no event shall the
interest rate or rates payable under this Agreement plus any other amounts paid
or consideration received in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. The Company and the Purchasers, in
executing this Agreement, intend expressly and legally to agree upon the rate of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, the Company is and shall
be liable only for the payment of such legal maximum as allowed by law, and
payment received from the Company in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of the Notes, on a
pro rata basis, to the extent of such excess in accordance with this Agreement.
(o) No Further Negative Pledges. Enter into any agreement
(excluding the Financing Documents and the Senior Lender Loan Documents)
prohibiting the creation or assumption of any Lien upon its Assets, whether now
owned or hereafter acquired.
(p) Margin Regulations. None of the Company or any of its
Subsidiaries will, directly or indirectly, use any of the proceeds of the issue
and sale of the Securities for the purpose, whether immediate, incidental, or
ultimate, of maintaining, purchasing, or carrying any stock that is currently a
"margin stock" within the meaning of Regulation U of the Federal Reserve Board,
or otherwise take or permit to be taken any action that would result in the
issuance of the Securities or the carrying out of any of the other transactions
contemplated hereby or thereby, being violative of Regulation T, U, or X, or any
other regulation of the Federal Reserve Board. None of the Company or any of its
Subsidiaries owns or intends to acquire any "margin stock" within the meaning of
such Regulations U.
(q) State of Formation. Neither the Company nor the Guarantor
shall, without giving the Purchasers 30 days' prior written notice, change its
state of incorporation.
4.3 Reporting Requirements. Until the consummation of an Initial Public
Offering, the Company will furnish the following to each Purchaser that holds
one or more of the Notes, the Warrants, or the Warrant Shares:
(a) Monthly Reports. As soon as practicable after the end of
the first and second monthly accounting periods in each fiscal quarter of the
Company and in
21
any event within 30 days thereafter, an unaudited consolidated balance sheet of
the Company and its Subsidiaries, if any, as of the end of each such monthly
period, and unaudited consolidated statements of income and consolidated
statements of cash flows of the Company and its Subsidiaries for such period,
prepared in accordance with GAAP, subject to the absence of footnotes and
changes resulting from year-end audit adjustments, all in reasonable detail and
signed by the principal financial or accounting officer of the Company;
(b) Quarterly Reports. As soon as practicable after the end of
the first, second and third quarterly accounting periods in each fiscal year of
the Company and in any event within 45 days thereafter, an unaudited
consolidated balance sheet of the Company and its Subsidiaries, if any, as of
the end of each such quarterly period, and unaudited consolidated statements of
income and consolidated statements of cash flows of the Company and its
Subsidiaries for such period, prepared in accordance with GAAP, subject to the
absence of footnotes and changes resulting from year-end audit adjustments, all
in reasonable detail and signed by the principal financial or accounting officer
of the Company;
(c) Annual Reports. As soon as practicable after the end of
each fiscal year, and in any event within 120 days thereafter, consolidated
balance sheets of the Company and its Subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of income and consolidated
statements of cash flows of the Company and its Subsidiaries for such fiscal
year, prepared in accordance with GAAP and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and audited by the Company's independent public accountants who shall be
a nationally recognized firm;
(d) Stockholders' and Commission Reports. Promptly upon
sending, making available, or filing the same, such reports and financial
statements as the Company or any Subsidiary shall (i) file with the Commission,
or (ii) send or make available to one or more to the holders of any equity
interests in the Company; and
(e) Annual Budgets. As soon as available, but in any event not
later than 30 days prior to the end of any fiscal year, a copy of the Company's
and its Subsidiaries' annual budget for the forthcoming fiscal year, month by
month, including balance sheets and sources and applications of funds statements
and, as soon as prepared, any other budgets or revised budgets prepared by the
Company.
ARTICLE V
REMEDIES ON DEFAULT
5.1 Acceleration.
(a) If an Event of Default with respect to the Company
described in paragraph (f) or (g) of the definition of Event of Default in
Section 6.1 of this Agreement has occurred, all principal amounts owed under the
Notes then outstanding shall automatically become immediately due and payable,
together with (i) accrued and unpaid interest thereon
22
to the date of repayment of principal, (ii) any or all other amounts payable to
the holders of the Notes under or in respect of the Notes, and (iii) the
Applicable Prepayment Premium.
(b) If any other Event of Default has occurred and is
continuing, the Majority Holders may at any time at their option, by notice or
notices to the Company, declare all the Notes then outstanding to be immediately
due and payable, together with (i) accrued and unpaid interest thereon to the
prepayment date, (ii) any or all other amounts payable to the holders of the
Notes under or in respect of the Notes, and (iii) the Applicable Prepayment
Premium.
Upon any Notes becoming due and payable under this Section 5.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus all accrued and unpaid
interest and any premiums thereon (to the full extent permitted by applicable
law), shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby waived.
If any Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under this Section 5.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
5.2 No Waivers or Election of Remedies, Expenses, etc. No course of
dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. The Company will pay to
the holder of each Note on demand such further amount as shall be sufficient to
cover all reasonable costs and expenses of such holder incurred in any
enforcement or collection under this Article V, including, without limitation,
reasonable attorneys fees, expenses and disbursements.
ARTICLE VI
DEFINITIONS AND ACCOUNTING TERMS
6.1 Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Accounts" are all existing and later arising accounts, contract
rights, and other obligations owed a Debtor in connection with its sale or lease
of goods (including
23
licensing software and other technology) or provision of services, all credit
insurance, guaranties, other security and all merchandise returned or reclaimed
by a Debtor and Debtor's Books relating to any of the foregoing.
"Acquisition" means any purchase by the Company of any Person or all
or substantially all of the Assets of any other Person.
"Affiliate" means, with respect to any Person, another Person that
directly or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified; provided,
however, that no Purchaser shall be deemed to be an Affiliate of Company or any
of its Affiliates.
"Agreement" means this Securities Purchase Agreement as from time to
time amended and in effect between the parties, including all Exhibits hereto.
"▇▇▇▇▇▇" means ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇.
"Applicable Prepayment Percentage" means 11% initially, declining at
a rate of 0.3548 % on the first of each month following the date hereof until
December 1, 2006.
"Applicable Prepayment Premium" means, as of any date of
determination, an amount equal to (a) during the period of time from and after
the date of the execution and delivery of this Agreement up to November 30,
2006, the Applicable Prepayment Percentage multiplied by the then outstanding
principal balance of the Notes (without giving effect to the prepayment to be
made on such date), (b) during the period of time from and including December 1,
2006 to the Maturity Date, zero; provided that, in the event of a mandatory
prepayment pursuant to Section 1.7(c), the Applicable Prepayment Percentage will
be zero.
"Asset" means any interest in any kind of property or asset, whether
real, personal, or mixed, and whether tangible or intangible.
"Bankruptcy Code" means the United States Bankruptcy Code, as in
effect from time to time.
"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Business Day" means any day other than a Saturday, Sunday, or any
day that either is a legal holiday under the laws of the State of California or
is a day on which banking institutions located in such State are authorized or
required by law or other governmental action to close.
"Capital Lease" means leases required to be capitalized in
accordance with applicable Statements of Financial Accounting Standards,
determined by discounting all such payments at the interest rate determined in
accordance with applicable Statements of Financial Accounting Standards.
24
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within 1 year from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within 1 year from the date of acquisition
thereof and, at the time of acquisition, having the highest rating obtainable
from either Standard & Poor's Ratings Group, a division of The McGraw Hill
Corporation ("S&P") or ▇▇▇▇▇'▇ Investors Service, Inc. ("Moody's"), (or, if at
any time neither such rating service shall be rating such obligations, then from
such other nationally recognized rating services acceptable to the Majority
Holders), (c) commercial paper maturing no more than 1 year from the date of
creation thereof and, at the time of acquisition, having the highest rating
obtainable from either S&P or Moody's (or, if at any time neither such rating
service shall be rating such obligations, then from such other nationally
recognized rating services acceptable to the Majority Holders), (d) certificates
of deposit (domestic or eurodollar), bankers' acceptances, or time deposits
maturing within 1 year from the date of acquisition thereof issued by commercial
banks organized under the laws of the United States of America or any state
thereof or the District of Columbia, each having combined capital and surplus of
not less than $500,000,000 ("Qualifying Banks"), (e) repurchase agreements and
reverse repurchase agreements with Qualifying Banks, provided that the terms of
such agreements comply with the guidelines set forth in the Federal Financial
Institutions Examination Council Supervisory Policy -- Repurchase Agreements of
Depository Institutions with Securities Dealers and Others as adopted by the
Comptroller of the Currency on October 31, 1985 (the "Supervisory Policy"), and
provided further that possession or control of the underlying securities is
established as provided in the Supervisory Policy, and (f) investments in money
market funds or money market deposit accounts that invest solely in Cash
Equivalents described in clauses (a) through (e) above.
"Change of Control" shall mean (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto representing immediately thereafter (either by remaining outstanding or
by being converted into voting securities of the surviving or acquiring entity)
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (b) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (for purposes of this definition,
a "Person") of beneficial ownership of any capital stock of the Company if,
after such acquisition, such Person beneficially owns (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (i) the
then outstanding shares of Common Stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (b), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or
25
(ii) any acquisition by any corporation pursuant to a transaction which results
in all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such transaction beneficially
owning, directly or indirectly, more than 50% of the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such transaction
(which shall include, without limitation, a corporation which as a result of
such transaction owns all or substantially all of the Company's Assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
respectively; (c) any sale of all or substantially all of the Assets of the
Company; or (d) the complete liquidation of the Company.
"Closing Date" means the date on which all of the conditions
precedent to the purchase of the Securities by the Purchasers set forth in
Article II herein have been satisfied or waived by the Purchasers in writing;
provided that the Closing Date shall not be earlier than May 31, 2004 unless
agreed by the Company and each Purchaser.
"Code" is the California Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
"Commission" means the Securities and Exchange Commission (or any
other federal agency administering the securities laws).
"Common Stock" means the Company's common stock, par value $.001.
"Company" means PlanetOut Inc., and its permitted successors and
assigns.
"Consolidated" and "consolidating" when used with reference to any
term defined herein mean that term as applied to the accounts of the Company and
its Subsidiaries consolidated in accordance with GAAP.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the
26
Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "Controlling" and "Controlled" have meanings correlative thereto.
"Copyrights" are all copyright rights, applications or registrations
and like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"Current Liabilities" are the aggregate amount of a Debtor's Total
Liabilities which mature within one (1) year.
"Debtors" means the Company and the Guarantor, collectively, jointly
and severally, and "Debtor" means one of them.
"Debtor's Books" are all of each Debtor's books and records
including ledgers, records regarding such Debtor's assets or liabilities, the
Collateral, business operations or financial condition and all computer programs
or discs or any equipment containing the information.
"Default Notice" means a Non-Payment Default Notice or a Payment
Default Notice.
"Default Rate" shall mean a rate equal to 8.0 percentage points in
excess of the rate otherwise applicable to the amounts evidenced by the Notes.
"Deferred Revenue" is all amounts received in advance of performance
under a contract and not yet recognized as revenue.
"Disqualified Stock" means any capital stock of the Company which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof, in whole or in part, on
or prior to the Maturity Date.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which a Debtor has any interest.
"Environmental Claim" means any claim, action, cause of action,
investigation of which the Company or any of its Subsidiaries, including any of
their respective employees, is aware, or notice (written or oral) by any Person
alleging potential liability (including, without limitation, potential liability
for investigatory costs, cleanup
27
costs, governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (a)
the presence, or release into the environment, of any Material of Environmental
Concern at any location, regardless of whether owned or operated by the Company,
or (b) circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.
"Environmental Laws" means all Federal, state, local and foreign
laws and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"Equity Value" means (a) if the Company's stock is listed or
admitted to trading on a national securities exchange, the Company's market
capitalization as of the date of determination, and (b) at all other times, the
Company's valuation as of the closing of the immediately preceding preferred
stock financing round, calculated by multiplying the price per share in such
round by the then-existing number of shares of Common Stock of the Company
issued or issuable (in one or more steps) upon the full conversion or exercise
of all convertible securities or other rights to acquire capital stock of the
Company.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
An "Event of Default" shall exist if any of the following conditions
or events shall occur and be continuing:
(a) the Company or any Guarantor defaults in the payment of (ii) any
principal or premium amount due under any one or more of the Notes when due; or
(ii) any interest due under any one or more of the Notes and such failure
continues for a period of 5 days after the date such interest became due; or
(b) the Company or any Subsidiary (i) defaults in the observance of
any covenants contained in Sections 4.1(f) or Section 4.2 or (ii) defaults in
the observance of any other covenants contained in this Agreement or any of the
other Financing Documents (other than a covenant that is dealt with elsewhere in
this definition) and such default continues unremedied 30 days after written
notice thereof is sent to the Company; or
(c) the Company or any Subsidiary defaults (after any applicable
grace period) in the payment of any principal or interest or any other amount in
respect of (i) Indebtedness (other than the Notes) of the Company with an
aggregate amount outstanding in excess of $250,000, the effect of which default
is (A) to cause or permit the holder or holders of such indebtedness,
irrespective of whether exercised, to accelerate the maturity of the obligations
thereunder, or (B) to cause the termination of the agreement or instrument
evidencing such Indebtedness; or
28
(e) a final judgment or final order of a court of competent
jurisdiction for the payment of money aggregating in excess of $250,000 (in
excess of the amount covered by insurance) is rendered against the Company or
its Subsidiary which judgment or order remains uncontested, unappealed, unpaid,
unstayed for a period of 60 days; or
(f) any representation or warranty in this Agreement or in any
certificate, financial statement or other document delivered pursuant to this
Agreement shall prove to have been incorrect in any material respect when made;
or
(g) the Company or any Subsidiary shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing; or
(h) an involuntary case or other proceeding shall be commenced
against the Company or any Subsidiary seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect; or
(i) any holder or group of holders having the right to demand
redemption or repurchase by the Company of all or part of a series of preferred
stock of the Company shall make a demand on the Company for such redemption or
repurchase and such demand shall not have been rescinded within ten (10) days of
the date of such demand.
"Financing Documents" shall have the meaning set forth in Section
3.2.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"Guaranties" means those certain guaranties, debentures or other
similar agreements executed by any Guarantor in favor of the Purchasers, which
are in form and substance satisfactory to the Purchasers.
"Guarantor" means PlanetOut USA Inc. and the "Guarantors" means the
Guarantor and any other Subsidiary of the Company that executes a Guaranty of
the Obligations.
29
"Indebtedness" means with respect to any Person, the aggregate
amount of, without duplication, (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (c) all non-contingent reimbursement or payment
obligations with respect to Surety Instruments, (d) all obligations with respect
to Capital Leases, (e) all obligations created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person, (f) all obligations of such Person to pay the deferred purchase
price of property or services (excluding trade payables aged less than 90 days),
(g) all obligations or liabilities of others secured by a lien on any Asset of
such Person, whether or not such obligation or liability is assumed, and (h) all
obligations or liabilities of others of the types set forth in clauses (a)
through (g) above guaranteed by such Person.
"Initial Public Offering" means the sale to the public in an
underwritten public offering pursuant to a registration statement filed with and
declared effective by the Commission under the Securities Act of Common Stock,
such offering to be conducted by a nationally recognized investment banking
firm.
"Insolvency Proceeding" are proceedings by or against any Person
under the United States Bankruptcy Code, or any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, compositions,
extensions generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in
computer software and computer software products now or later existing, created,
acquired or held;
(c) All design rights which may be available to a Debtor now or
later created, acquired or held;
(d) Any claims for damages (past, present or future) for
infringement of any of the rights above, with the right, but not the obligation,
to ▇▇▇ and collect damages for use or infringement of the intellectual property
rights above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"Inventory" is present and future inventory in which a Debtor has
any interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of a Debtor, including inventory temporarily out of its
30
custody or possession or in transit and including returns on any accounts or
other proceeds (including insurance proceeds) from the sale or disposition of
any of the foregoing and any documents of title.
"Investment" means, with respect to any Person, any investment by
such Person in any other Person (including affiliates) in the form of loans,
guarantees, advances, or capital contributions, purchases or other acquisitions
for consideration of indebtedness or stock, and any other items that are or
would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Key Employee" means the President, chief executive officer and
chief financial officer.
"Lien" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any Asset of such Person (including in the case of stock,
stockholders' agreements, voting trust agreements and all similar arrangements).
"Majority Holders" means, as of any date of determination, the
holders of at least a majority of the unpaid principal amount of the Notes then
outstanding.
"Material Adverse Effect" shall have the meaning set forth in
Section 3.1.
"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, industrial, toxic or hazardous wastes, substances or constituents,
petroleum and petroleum products (or any by-product or constituent thereof),
asbestos or asbestos-containing materials, or PCBs.
"Maturity Date" means January 18, 2007.
"Mask Works" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"Monthly Payment Date" means the first day of each month, provided
that, if in any month the first day of such month is not a Business Day, the
Monthly Payment Date for such month shall be the last Business Day of the prior
month.
"Non-Payment Blockage Period" means, with respect to any Non-Payment
Default Event, the period from and including the date of receipt by ▇▇▇▇▇▇ of a
Non-Payment Default Notice relating thereto until the first to occur of (a) the
180th day after receipt of such Non-Payment Default Notice; provided, however,
that if, on or before such date, the holders of the Senior Indebtedness have (i)
accelerated the Senior Indebtedness, and (ii) have commenced and diligently and
in good faith are pursuing a judicial proceeding to collect the Senior
Indebtedness or have given notice of a non-judicial sale of collateral securing
the
31
Senior Indebtedness and diligently are pursuing such non-judicial remedies to
effect the foreclosure and sale of such collateral, then such period shall
continue unless and until the holders of the Senior Indebtedness rescind such
acceleration in writing, abandon, terminate, or fail diligently to pursue such
judicial proceeding, or abandon, terminate, or fail diligently to pursue such
non-judicial remedies to realize upon their collateral, (b) the date on which
the holders of the Senior Indebtedness shall have expressly waived or
acknowledged the cure of such Non-Payment Default Event, in each case, in
writing, or (c) the date on which the holders of the Senior Indebtedness shall
expressly and irrevocably waive the application of Section 8.2.2 hereof in
writing.
"Non-Payment Default Event" has the meaning specified in Section
8.2.2 hereof.
"Non-Payment Default Notice" means a written notice from or on
behalf of the holders of the Senior Indebtedness of the existence of a
Non-Payment Default Event and specifically designating such notice as a
"Non-Payment Default Notice."
"Non-U.S. Person" has the meaning specified in Section 1.6(b).
"Note" or "Notes" shall have the meaning set forth in Section 1.1.
"Obligations" means (a) all loans, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), liabilities, obligations, charges, costs, expenses
(including any expenses that, but for the provisions of the Bankruptcy Code,
would have accrued), guaranties, covenants, and duties of any kind and
description owing by the Company to the Purchasers pursuant to or evidenced by
the Financing Documents and irrespective of whether for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all interest not paid when due and
all expenses that the Company is required to pay or reimburse by the Financing
Documents, by law, or otherwise.
"Optional Prepayment Date" shall have the meaning set forth in
Section 1.7(b).
"Patents" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.
"Payment Blockage Period" means, with respect to any Payment Default
Event, the period from and including the date of receipt by ▇▇▇▇▇▇ of a Payment
Default Notice relating thereto until the first to occur of (a) the 360th day
after receipt of such Payment Default Notice; provided, however, that if, on or
before such date, the holders of the Senior Indebtedness have (i) accelerated
the Senior Indebtedness, and (ii) have commenced and diligently and in good
faith are pursuing a judicial proceeding to collect the Senior Indebtedness or
have given notice of a non-judicial sale of collateral securing the Senior
Indebtedness and diligently are pursuing such non-judicial remedies to effect
the foreclosure
32
and sale of such collateral, then such period shall continue unless and until
the holders of the Senior Indebtedness rescind such acceleration in writing,
abandon, terminate, or fail diligently to pursue such judicial proceeding, or
abandon, terminate, or fail to diligently pursue such non-judicial remedies upon
their collateral, (b) the date on which the holders of the Senior Indebtedness
shall have expressly waived or acknowledged the cure of such Payment Default
Event, in each case in writing, or (c) the date on which the holders of the
Senior Indebtedness shall expressly and irrevocably waive the application of
Section 8.2.1 hereof, in writing.
"Payment Default Event" has the meaning specified in Section 8.2.1
hereof.
"Payment Default Notice" means a written notice from or on behalf of
the holders of the Senior Indebtedness of the existence of a Payment Default
Event and specifically designating such notice as a "Payment Default Notice."
"Permitted Acquisition" means an Acquisition so long as (a) no Event
of Default shall have occurred and be continuing or would result from the
consummation of the proposed Acquisition, (b) the Assets being acquired, or the
Person whose stock is being acquired, are useful in or engaged in, as
applicable, the business of the Company and its Subsidiaries or a business
reasonably related thereto, (c) the Company has provided to the Purchasers prior
written notice thereof not less than 30 days prior to the anticipated closing
date of the proposed Acquisition together with such documentation that the
Purchasers may reasonably request demonstrating that after giving effect to the
subject Acquisition, the Company and its Subsidiaries would not suffer a
Material Adverse Effect, (d) the total consideration payable by the Company and
its Subsidiaries in connection with the proposed Acquisition does not exceed (i)
for an acquisition to be consummated prior to an Initial Public Offering, $15
million, or (ii) for an Acquisition consummated after an Initial Public Offering
20.0% of the Equity Value of the Company and its Subsidiaries, and (e) after
giving effect to the proposed Acquisition, the total consideration paid by the
Company and its Subsidiaries in connection with all Permitted Acquisitions does
not exceed (i) for an acquisition to be consummated prior to an Initial Public
Offering, $20 million, or (ii) for an Acquisition consummated after an Initial
Public Offering 40.0% of the Equity Value of the Company and its Subsidiaries.
"Permitted Indebtedness" shall mean and include (a) Indebtedness of
the Company with respect to the Notes, (b) Indebtedness existing on the date
hereof and set forth on the Disclosure Schedule, (c) Indebtedness of the Company
or a Guarantor to the Company or any other Guarantor, (d) Indebtedness secured
by a Lien permitted under clause (n) of the definition of Permitted Liens in an
aggregate amount not to exceed $2,000,000 during the period ending December 31,
2004, and $4,000,000 thereafter, (e) Indebtedness of a Subsidiary constituting
Permitted Subsidiary Investments, (f) Senior Indebtedness in amount not to
exceed $3,000,000; and (g) other Indebtedness aggregating not in excess of
$500,000 at any time.
33
"Permitted Liens" means the following types of Liens: (a) Liens for
taxes, assessments, or governmental charges or claims the payment of which is
not at the time required by Section 4.1(a) hereof; (b) statutory Liens of
landlords and depository institutions and Liens of carriers, warehousemen,
mechanics, materialmen, and other Liens imposed by law incurred in the ordinary
course of business for sums not yet delinquent or being contested in good faith
by appropriate proceedings diligently pursued; provided, however, that the
Company or its Subsidiary shall have made such reserve or other provisions
therefor as may be required by GAAP; (c) Liens (other than any Liens imposed by
ERISA) incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance, and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts or
permits, performance and return-of-money bonds, and other similar obligations
(exclusive of obligations for the payment of borrowed money); (d) easements,
rights-of-way, zoning, and similar restrictions and other encumbrances affecting
real property that do not in any case materially interfere with the ordinary
conduct of the business of the Company, or any of its Subsidiaries; (e) leases
or subleases, not otherwise prohibited by this Agreement, granted to others not
interfering in any material respect with the business of the Company or any of
its Subsidiaries; (f) Liens arising from filing UCC financing statements
regarding operating leases; (g) any interest or title of a lessor under any
lease permitted by this Agreement (including any Lien granted by such lessor on
the assets of such lessor) under which the Company or any of its Subsidiaries is
lessee; (h) Liens existing on the date hereof, that are set forth on Exhibit P-1
attached hereto and renewals and extensions thereof; (i) Liens in the nature of
the subordination of the leasehold interest of the Company or any of its
Subsidiaries in any real property to a mortgage or comparable Lien upon such
real property; (j) Liens in favor of customs and revenue authorities to secure
the payment of customs duties in connection with the importation of goods in the
ordinary course of business and other similar Liens arising in the ordinary
course of business; (k) Liens in favor of a trustee under any indenture securing
commercially reasonable amounts relating to fees due to the trustee in
connection with its services under such indenture; (l) Liens arising by virtue
of common law, statutory or contractual provisions relating to bankers' liens,
rights of set-off or similar rights and remedies as to deposit accounts or
securities accounts maintained in the ordinary course of business; (m) licensing
agreements executed by the Company or any of its Subsidiaries as licensor for
the use of intellectual property entered into in the ordinary course of business
and consistent with past practice; (n) Liens upon any equipment acquired by the
Company after the date hereof, provided, that the Lien (i) attaches within 90
days after the date on which the Company obtains possession of such equipment,
(ii) attaches solely to the equipment so acquired, and (iii) only secures the
purchase price thereof, or the obligations under a Capital Lease therefor, and
the purchase price of, or the Capital Lease obligations relating to, other
equipment similarly secured; (o) Liens securing Senior Indebtedness; and (p) any
extension, renewal, or replacement (or successive extensions, renewals, or
replacements), in whole or in part, of any Lien referred to in the foregoing
clauses, provided, that such extension, renewal or replacement Lien shall be
limited to all or a part of the property which secured the Lien so extended,
renewed, or replaced (plus improvements on such property).
34
"Permitted Subsidiary Investments" means (i) Investments by the
Company in its Subsidiaries that are not Guarantors existing on the date hereof
and (ii) additional Investments by the Company in such Subsidiaries which, taken
as a whole, do not exceed $500,000 in the aggregate in any fiscal year.
"Permitted Transactions" means (a) any merger, consolidation, or
reorganization (i) between any solvent wholly-owned Subsidiary of the Company
and the Company or a Guarantor so long as the Company or such Guarantor, as
applicable, is the surviving entity in such transaction, or (ii) between any two
Guarantors, and (b) any transfer of Assets (i) by the Company to any Guarantor,
or (ii) by any Subsidiary of the Company to the Company or a Guarantor.
"Person" means an individual, corporation, partnership, joint
venture, trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Purchaser" and "Purchasers" shall have that meaning attributable to
those words in Section 1.3 of this Agreement.
"Quick Assets" is, on any date, the Company's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable, as
determined according to GAAP.
"Quick Ratio" is, on any date, the Company's Quick Assets divided
by: (i) Current Liabilities minus (ii) Deferred Revenue minus (iii) any portion
of the Obligations that is Current Liabilities plus (iv) any portion of
outstanding Senior Indebtedness that is not Current Liabilities.
"Regulation S" means Regulation S under the Securities Act.
"Rights Agreement" means that certain Amended and Restated
Investors' Rights Agreement, dated as of February 27, 2002, as amended, among
the Company and such other Persons identified on the signature pages thereof, in
form and substance satisfactory to the Purchasers.
"Scheduled Payment" has the meaning specified in Section 8.2.1
hereof.
"Scheduled Payment Date" has the meaning specified in Section 8.2.1
hereof.
"Securities" shall have the meaning set forth in Section 1.1 of this
Agreement.
"Securities Act" means the Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Security Agreement" means the security agreement among the Company
and the Purchasers dated the date hereof.
35
"Senior Indebtedness" means all Indebtedness (including
reimbursement obligations in respect of letters of credit) of the Company under
the Senior Lender Loan Documents in an amount not to exceed $3,000,000.
"Senior Lender Loan Documents" means a credit agreement and other
related agreements, documents and instruments, entered into with a bank or other
institutional commercial lender, which are in form and substance reasonably
satisfactory to Purchasers, with respect to Indebtedness (including for purposes
of this definition any contingent obligations under Surety Instruments) in an
aggregate principal amount, not in excess of $3,000,000 at any one time.
"Standstill Period" means, with respect to any Payment Default Event
or Non-Payment Default Event, the period from and including the date of receipt
by ▇▇▇▇▇▇ of a Default Notice relating thereto until the first to occur of (a)
the 100th day after receipt of such Default Notice, (b) the date on which the
holders of the Senior Indebtedness shall have expressly waived or acknowledged
the cure of such Payment Default Event or Non-Payment Default Event, in each
case, in writing, (c) the date on which there is commenced, either by or against
the Company or any of its Subsidiaries, any Insolvency Proceeding, and (d) the
date on which the holders of the Senior Indebtedness shall expressly and
irrevocably waive the application of Sections 8.2.1 and 8.2.2 hereof in writing.
"Subordinated Debt" means Indebtedness, the terms and conditions of
which (including the subordination provisions applicable thereto) are acceptable
to the Majority Holders.
"Subordinated Obligations" has the meaning specified in Article 8
hereof.
"Subsidiary" or "Subsidiaries" means any corporation, partnership,
trust or other entity of which the Company and/or any of its other Subsidiaries
(as herein defined) directly or indirectly owns at the time a majority of the
outstanding shares of every class of equity securities of such corporation,
partnership, trust or other entity.
"Surety Instruments" shall mean all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"Tangible Net Worth" is, on any date, the consolidated total assets
of Company and its Subsidiaries minus, (a) any amounts attributable to (i)
goodwill and (ii) intangible items such as unamortized debt discount and
expense, Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, minus (b) Total Liabilities, plus
(c) the Obligations, plus (d) the amount of any non-cash equity-based
compensation expense.
"Total Liabilities" is on any day, obligations that should, under
GAAP, be classified as liabilities on Company's consolidated balance sheet,
including all Indebtedness.
36
"Trademarks" are trademark and servicemark rights, registered or
not, applications to register and registrations and like protections, and the
entire goodwill of the business of Assignor connected with the trademarks.
"Transfer" means the sale, pledge, assignment, or other transfer of
the Securities, in whole or in part, and of the rights of the holder thereof
with respect thereto and under this Agreement.
"Transferee" means any direct or indirect transferee of all or any
part of any Securities permitted under Section 7.2 hereof.
"Warrant" shall have the meaning attributable to it in Section 1.1
of this Agreement.
"Warrant Shares" shall have that meaning attributable to it in
Section 1.2 of this Agreement.
6.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP consistently applied, and all
financial data submitted pursuant to this Agreement shall be prepared in
accordance with such principles.
6.3 Knowledge. All references to the actual knowledge or awareness of the
Company and its Subsidiaries shall mean the knowledge of any director or Key
Employee of the Company or any of its Subsidiaries after reasonable inquiry and
investigation.
ARTICLE VII
FORM, REGISTRATION, TRANSFER AND EXCHANGE OF SECURITIES;
LOST SECURITIES
7.1 Generally
The Company shall keep at its principal office a register in which
the Company shall provide for the registration of the Securities and of
Transfers of the Securities. Upon surrender for registration of Transfer of any
Security at the principal office of the Company, the Company shall, at its
expense, execute and deliver one or more new Securities of like tenor and of a
like aggregate principal amount or number of Warrant Shares, as applicable,
which Securities shall be registered in the name of such Transferee or
Transferees. At the option of the holder of any Security, such Security may be
exchanged for Securities of like tenor and of differing denominations, of a like
aggregate principal amount or number of Warrant Shares, as applicable, upon
surrender of the Security to be exchanged at the principal office of the
Company. Whenever any Securities are so surrendered for exchange, the Company
shall, at its expense, execute and deliver the Securities that the holder making
the exchange is entitled to receive. Every Security surrendered for registration
of Transfer or exchange shall be duly endorsed, or be accompanied by a written
37
instrument of transfer duly executed, by the holder of such Security or such
holder's attorney duly authorized in writing. Any Security or Securities issued
in exchange for any Security or upon Transfer thereof shall carry the rights
carried by the Security so exchanged or transferred (including without
limitation, any rights to unpaid interest and interest to accrue which were
carried by the Note so exchanged or transferred, so that neither gain nor loss
of interest shall result from any such transfer or exchange). Upon receipt of
written notice from the holder of any Security and, in the case of any such
loss, theft, or destruction, upon receipt of any unsecured indemnity agreement,
or other indemnity reasonably satisfactory to the Company from such holder, or
in the case of any such mutilation, upon surrender and cancellation of such
Security, the Company will make and deliver a new Security, of like tenor, in
lieu of the lost, stolen, destroyed, or mutilated Security. Notwithstanding this
Section 7.1, (i) the Company shall refuse to register any transfer of the
Securities or the Warrant Shares not made in accordance with Regulation S
pursuant to registration under the Securities Act or pursuant to an available
exemption from registration, (ii) the Notes will not be exchangeable until the
expiration of 40 days after the Closing Date and thereafter only upon
certification of beneficial ownership of the Notes by a Non-U.S. person or a
U.S. person who purchased the Notes in a transaction that did not require
registration under the Securities Act and (iii) the transfer of the Notes may be
effected only through the actual surrender of the Notes and the re-issuance of
the Notes by the Company to the tranferee.
7.2 Other Transfer Conditions. Any holder of a Security may make a
Transfer to any Person provided (i) such Transfer is made only in accordance
with the provisions of Regulation S under the Securities Act, pursuant to
registration under the Securities Act, or pursuant to an available exemption
from registration and otherwise in compliance with applicable federal, state and
foreign securities laws, (ii) such holder of a Security has provided the Company
with such information as to such Purchaser's compliance with applicable
securities laws as reasonably may be requested by the Company, including an
opinion of counsel if reasonably requested by the Company (provided that no
opinion of counsel shall be required if the Transfer complies with Rule 144 of
the Act), (iii) such Transfer is in compliance with Section 7.1 above, and (iv)
such proposed Transferee is not a direct competitor of the Company. The Company
shall cooperate with any such Transfer including providing such information to
any holder of a Security or such holder's proposed Transferee as, in the
reasonable opinion of counsel to the transferor, may be necessary to satisfy the
requirements of Rule 144A of the Securities Act in connection with any Transfer
to a `Qualified Institutional Buyer' under such rule. Upon any transfer, the
Transferee shall, to the extent of such Transfer, be entitled to exercise the
rights of the Purchaser making such Transfer and shall thereafter be deemed a
"Purchaser" under this Agreement.
7.3 Further Assurances. The Company shall, from time to time at the
request of a Purchaser, execute and deliver to such Purchaser or to such party
or parties as such Purchaser may designate, all further instruments as may, in
such Purchaser's reasonable opinion, be necessary or advisable to give full
force and effect to any Transfer and shall provide to Purchaser or to such party
or parties as such Purchaser may designate all such information as such
Purchaser reasonably may request.
38
ARTICLE VIII
SUBORDINATION OF THE NOTES
8.1 Anything in this Agreement or the Notes to the contrary
notwithstanding, Purchaser and each Transferee of a Note by its acceptance of a
Note agrees that the Indebtedness evidenced by this Agreement and the Notes and
any guarantee of payment with respect thereto, including the payment of
principal, premium, or interest on the Notes and any other Indebtedness,
obligations or liabilities, now existing or hereafter created, arising under or
in connection with this Agreement, the Financing Documents, and the Notes,
including all expenses, fees, interest, and other amounts now or hereafter
payable hereunder or thereunder (all of the foregoing, the "Subordinated
Obligations") are and shall be subordinate and junior, to the extent set forth
below, and subject in right of payment to the prior payment in full of all
Senior Indebtedness.
8.2 The expression "payment in full" or "paid in full" or any similar term
or phrase when used in this Article 8 with respect to Senior Indebtedness shall
mean the payment in full of all such Senior Indebtedness in cash and the
termination of all financing commitments, or, in the case of Senior Indebtedness
consisting of contingent obligations in respect of letters of credit or other
reimbursement obligations, the setting apart of cash sufficient to discharge
such portion of Senior Indebtedness in an account for the exclusive benefit of
the holders thereof, in which account such holders shall be granted by Company a
first priority perfected security interest in a manner reasonably acceptable to
such holders.
8.2.1 If (a) Company or any of its Subsidiaries shall default in the
payment of any Senior Indebtedness (whether principal, interest, or other
payment) when the same becomes due and payable, whether at maturity or at a date
fixed for scheduled payment or by declaration or acceleration or otherwise (a
"Payment Default Event"), and (b) ▇▇▇▇▇▇ shall have received a Payment Default
Notice, then Company shall not make, and shall not permit any of its
Subsidiaries to make, and no holder of the Subordinated Notes shall accept or
receive any direct or indirect payment or distribution of any kind or character
(whether in cash, securities, Assets, by set-off, or otherwise) on account of
the Subordinated Obligations during the Payment Blockage Period applicable to
such Payment Default Event; provided, however, that in the case of any payment
on or in respect of any Subordinated Obligation that would (in the absence of
any such Payment Default Notice) have been due and payable on any date (a
"Scheduled Payment Date") during such Payment Blockage Period, the provisions of
this Section 8.2.1 shall not prevent the making of such payment (a "Scheduled
Payment") on or after the date immediately following the termination of such
Payment Blockage Period. The foregoing provisions of this subsection to the
contrary notwithstanding, the failure by Company to make a Scheduled Payment on
a Scheduled Payment Date during a Payment Blockage Period shall nevertheless
constitute an Event of Default. If (i) ▇▇▇▇▇▇ shall have received a Payment
Default Notice from or on behalf of the holders of the Senior Indebtedness, and
(ii) no Payment Default Notice or Non-Payment Default Notice shall have been
given within the 360-day period immediately preceding the
39
giving of such Payment Default Notice, then each holder of the Notes during the
Standstill Period applicable thereto shall be prohibited from accelerating the
Indebtedness evidenced thereby and shall be prohibited from enforcing any of
their default remedies (other than the imposition of a default rate of interest,
but including the right to accelerate such Indebtedness and exercise set-off
rights) with respect thereto (including any right to ▇▇▇ Company or any of its
Subsidiaries, to exercise remedies under the Security Documents, or to file or
participate in the filing of an involuntary bankruptcy petition against Company
or any of its Subsidiaries) until such Standstill Period shall cease to be in
effect; provided, however, that if a holder of a Note had initiated an
enforcement action prior to the commencement of such Standstill Period at a time
when such holder was entitled to do so, then such holder shall not be prevented
during such Standstill Period from taking those steps, but no others, with
respect to such pending enforcement action as are required by a mandatory
provision of law. Each holder of the Notes, upon the termination of any
Standstill Period applicable thereto, may, at its sole election, exercise any
and all remedies (including the acceleration of the maturity of the Notes)
available to it under this Agreement, the Notes, or applicable law.
In the event that, notwithstanding the foregoing, Company or any of its
Subsidiaries shall make any payment to any holder of the Notes prohibited by the
foregoing provisions of this Section 8.2.1, then and in such event such payment
shall be segregated by such holder and held in trust for the benefit of and
immediately shall be paid over to the holders of the Senior Indebtedness or the
agent for such holders (in the same form received, with all necessary
endorsements) for application against the Senior Indebtedness remaining unpaid
until the Senior Indebtedness is paid in full. Any Payment Default Notice shall
be deemed received by ▇▇▇▇▇▇ upon the earlier of: (x) the date of actual receipt
by ▇▇▇▇▇▇ of such Payment Default Notice in writing, or (y) the date on which
the holder of the Senior Indebtedness or the agent for the holders of the Senior
Indebtedness, as applicable, shall have telephonically notified ▇▇▇▇▇▇ of the
occurrence of a Payment Default Event and indicated that it was sending a
written Payment Default Notice to ▇▇▇▇▇▇, which such Payment Default Notice may
be sent by messenger, over-night courier service, telefacsimile, or certified
mail return receipt requested, but if such written Payment Default Notice is not
received by ▇▇▇▇▇▇ within 2 Business Days of the date of the telephonic notice
then such Payment Default Notice shall be deemed never to have been given.
8.2.2 Except under circumstances when the terms of Sections 8.2.1 or
8.2.4 are applicable, if (i) an event of default shall have occurred and be
continuing under the Senior Loan Documents (a "Non-Payment Default Event"), and
(ii) the ▇▇▇▇▇▇ shall have received a Non-Payment Default Notice, then Company
shall not make, and shall not permit any of its Subsidiaries to make, and no
holder of the Notes shall accept or receive any direct or indirect payment or
distribution of any kind or character (whether in cash, Assets, securities, by
set-off, or otherwise) on account of the Subordinated Obligations during the
Non-Payment Blockage Period applicable to such Non-Payment Default Event;
provided, however, that in the case of any Scheduled Payment on or in respect of
any Subordinated Obligation that would (in the absence of any such Non-Payment
Default Notice) have been due and payable on any Scheduled Payment Date during
such Non-Payment Blockage Period, the provisions of this Section 8.2.2 shall not
prevent the making of such Scheduled
40
Payment on or after the date immediately following the termination of such
Non-Payment Blockage Period. The foregoing provisions of this Section 8.2.2 to
the contrary notwithstanding, the failure by Company to make a Scheduled Payment
on a Scheduled Payment Date during a Non-Payment Blockage Period shall
nevertheless constitute an Event of Default. If (i) ▇▇▇▇▇▇ shall have received a
Non-Payment Default Notice from or on behalf of the holders of the Senior
Indebtedness, and (ii) no Payment Default Notice or Non-Payment Default Notice
shall have been given within the 360-day period immediately preceding the giving
of such Non-Payment Default Notice, then each holder of the Notes, during the
Standstill Period applicable thereto, shall be prohibited from accelerating the
Indebtedness evidenced thereby and shall be prohibited from enforcing any of its
default remedies (other than the imposition of a default rate of interest, but
including the right to accelerate such Indebtedness and exercise set-off rights)
with respect thereto (including any right to ▇▇▇ Company or any of its
Subsidiaries, to exercise remedies under the Security Documents, or to file or
participate in the filing of an involuntary bankruptcy petition against Company
or any of its Subsidiaries) until such Standstill Period shall cease to be in
effect; provided, however, that if a holder of a Note had initiated an
enforcement action prior to the commencement of such Standstill Period at a time
when such holder was entitled to do so, then such holder shall not be prevented
during such Standstill Period from taking those steps, but no others, with
respect to such pending enforcement action as are required by a mandatory
provision of law. Each holder of the Subordinated Notes, upon the termination of
any Standstill Period applicable thereto, may, at its sole election, exercise
any and all remedies (including the acceleration of the maturity of the Notes)
available to it under this Agreement or applicable law.
In the event that, notwithstanding the foregoing, Company or any of its
Subsidiaries shall make any payment to any holder of the Notes prohibited by the
foregoing provisions of this Section 8.2.2, then and in such event such payment
shall be segregated by such holder and held in trust for the benefit of and
immediately shall be paid over to the holders of the Senior Indebtedness or the
agent for such holders (in the same form received, with any necessary
endorsements) for application against the Senior Indebtedness remaining unpaid
until the Senior Indebtedness is paid in full. Any Non-Payment Default Notice
shall be deemed received by ▇▇▇▇▇▇ upon the earlier of: (x) the date of actual
receipt by ▇▇▇▇▇▇ of such Non-Payment Default Notice in writing, or (b) the date
on which the holder of the Senior Indebtedness or the agent for the holders of
the Senior Indebtedness, as applicable, shall have telephonically notified
▇▇▇▇▇▇ of the occurrence of a Non-Payment Default Event and indicated that it
was sending a written Non-Payment Default Notice to ▇▇▇▇▇▇, which such
Non-Payment Default Notice may be sent by messenger, over-night courier service,
telefacsimile, or certified mail return receipt requested, but if such written
Non-Payment Default Notice is not received by ▇▇▇▇▇▇ within 2 Business Days of
the date of the telephonic notice then such Non-Payment Default Notice shall be
deemed never to have been given.
8.2.3 Anything contained in Section 8.2.1 or 8.2.2 to the contrary
notwithstanding: (a) no holder of a Note shall exercise any of its default
remedies (other than the imposition of a default rate of interest, but including
any judicial or non-judicial action to accelerate or enforce the Indebtedness
evidenced thereby, any exercise of remedies
41
under the Security Documents, any exercise of set-off rights, and any right to
▇▇▇ Company or any of its Subsidiaries or to file or participate in the filing
of an involuntary bankruptcy petition against Company or any of its
Subsidiaries) with respect to an Event of Default prior to 10 Business Days
after the receipt by or on behalf of the holders of the Senior Indebtedness of a
written notice from ▇▇▇▇▇▇ stating that an Event of Default has occurred and is
continuing, specifying in reasonable detail the nature of such Event of Default,
and specifically designating such notice as a "Junior Default Notice"; and (b)
the aggregate number of days that any holder of the Notes shall be subject to
one or more Non-Payment Blockage Periods shall not exceed 180 days in any 360
consecutive day period, provided, however, that if the Senior Indebtedness is
accelerated, and the holders of the Senior Indebtedness have commenced and
diligently and in good faith are pursuing a judicial proceeding to collect the
Senior Indebtedness or diligently and in good faith are pursuing non-judicial
remedies to effect the foreclosure and sale of the collateral securing the
Senior Indebtedness, then, in any such case, any applicable Non-Payment Blockage
Period may continue beyond the maximum number of days set forth in this clause
(b) unless and until the holders of the Senior Indebtedness rescind such
acceleration in writing, or abandon, terminate, or fail diligently to pursue
such judicial or non-judicial remedies.
8.2.4 In the event of (a) the institution of any insolvency,
bankruptcy, liquidation, reorganization, or other similar proceedings, or any
receivership proceedings in connection therewith, relative to Company, its
Subsidiaries, or their property, (b) any proceedings for voluntary liquidation,
dissolution, or other winding up of Company or any of its Subsidiaries, whether
involving insolvency or bankruptcy proceedings, or (c) an assignment for the
benefit of creditors, or an arrangement, adjustment, composition or relief of
Company or any of its Subsidiaries or their respective debts or any marshaling
of the assets of Company or any of its Subsidiaries, then, in each case, (i) all
Senior Indebtedness shall first be paid in full before any payment is made by or
on behalf of Company or any of its Subsidiaries on the Subordinated Obligations;
(ii) any payment or distribution of any kind or character (whether in cash,
securities, Assets, by set-off, or otherwise) to which the holders of the Notes
would be entitled but for the provisions of this Section 8.2.4 (including,
without limitation, any payment or distribution which may be payable or
deliverable to such holders by reason of the payment of any other Indebtedness
of Company or its Subsidiaries being subordinated to payment of the Subordinated
Obligations) shall be paid or delivered by the Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver, a liquidating
trustee, or otherwise, directly to the agent or other representative of the
holders of the Senior Indebtedness, for the benefit of the holders of the Senior
Indebtedness, as their interest may appear, to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid; provided, however,
that no such delivery of stock or obligations that are issued pursuant to a plan
of reorganization pursuant to applicable bankruptcy law shall be required to be
made to the agent or other representative of the holders of the Senior
Indebtedness, if such stock or obligations are subordinate and junior at least
to the extent provided in this Article 8 to the payment of all Senior
Indebtedness then outstanding and to the payment of any stock or obligations
which are issued in exchange or substitution for any Senior Indebtedness then
outstanding. In the event that, in the circumstances contemplated by this
Section 8.2.4, and notwithstanding the foregoing
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provisions of this Section 8.2.4 (but after giving effect to the proviso in this
Section), the holders of the Notes shall have received any such payment or
distribution of any kind or character (whether in cash, securities, Assets, by
setoff, or otherwise) that they are not entitled to receive by the foregoing
provisions, before all Senior Indebtedness is paid in full, then and in such
event such payment or distribution shall be segregated and held in trust for the
benefit of and immediately shall be paid over to the agent or other
representative of the holders of the Senior Indebtedness, for the benefit of the
holders of the Senior Indebtedness, as their interest may appear, for
application against the payment of all Senior Indebtedness remaining unpaid
until all such Senior Indebtedness shall have been paid in full.
8.2.5 If the holders of the Notes do not file a proper claim or
proof of debt or other document or amendment thereof in the form required in any
proceeding under the Bankruptcy Code prior to 30 days before the expiration of
time to file such claim or other document or amendment thereof, then the agent
or other representative of the holders of the Senior Indebtedness shall have the
right (but not the obligation) in such proceeding, and hereby irrevocably is
appointed lawful attorney of the holders of the Notes for the purpose of
enabling the agent or other representative of the holders of the Senior
Indebtedness to demand, ▇▇▇ for, collect, receive and give receipt for the
payments and distributions in respect of the Subordinated Obligations that are
made in such proceeding and that are required to be paid or delivered to the
holders of the Senior Indebtedness as provided in Section 8.2.4, and to file and
prove all claims therefor and to execute and deliver all documents in such
proceeding in name of the holders of the Notes or otherwise in respect of such
claims, as the agent or other representative of the holders of the Senior
Indebtedness reasonably may determine to be necessary or appropriate.
8.3 Lien Subordination.
8.3.1 Purchasers hereby acknowledge and agree that (i) any Liens in
their favor in and to the Assets of the Company and the Guarantor shall under
all circumstances be junior in priority and subordinated to the Liens granted at
any time and from time to time pursuant to the Senior Lender Loan Documents and
that the Purchasers shall have no claim to or in respect of such Assets, or any
proceeds or realization of such Assets, on a parity with or prior to the claim
of the holders of the Senior Indebtedness or any agent on behalf thereof, (ii)
any Lien at any time granted to or otherwise obtained by the holders of the
Senior Indebtedness or any agent on behalf thereof with respect to such Assets
shall have priority over, and shall be senior to, any Lien therein at any time
granted to or otherwise obtained by the Purchasers, and (iii) until the Senior
Indebtedness have been paid in full, the exercise of rights and remedies in
respect of the Liens granted to the Purchasers under the Security Documents and
applicable law shall be limited to the extent set forth in, and shall be
governed by this Agreement.
8.3.2 The priority agreement set forth above in Section 8.3.2 shall
be applicable irrespective of the order, time or method of the creation,
attachment, or perfection of the Permitted Liens granted pursuant to the Senior
Lender Loan Documents, or the order or time of filing or recordation of any
document or instrument for perfecting such Permitted
43
Liens, and notwithstanding any conflicting terms or conditions that may be
contained in the Security Documents.
8.4 No right of any present or future holder of Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of Company or
any of its Subsidiaries, or by any non-compliance by Company or any of its
Subsidiaries or by any holder of any Note with the terms, provisions, and
covenants of this Agreement or the Notes, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of the Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the holders of the Notes, without incurring
responsibility to the holders of the Notes, and without impairing or releasing
the subordination provided in this Article 8 or the obligations of the holders
of the Notes to the holders of the Senior Indebtedness, do any one or more of
the following: (a) change the manner, place, or terms of payment (including any
change in the rate of interest) or extend the time of payment of, or renew,
amend, modify, alter, or grant any waiver or release with respect to, or consent
to any departure from, any Senior Indebtedness or any instrument evidencing the
same or any agreement evidencing, governing, creating, guaranteeing or securing
any Senior Indebtedness; (b) sell, exchange, release, or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Indebtedness; (c)
release any Person liable under or in respect of the Senior Indebtedness; (d)
fail or delay in the perfection of Liens securing the Senior Indebtedness; (e)
exercise or refrain from exercising any rights against Company and any other
Person; or (f) amend, or grant any waiver or release with respect to, or consent
to any departure from, any guarantee for all or any of the Senior Indebtedness.
8.5 The provisions of this Article 8 are for the purpose of defining the
relative rights of the holders of Senior Indebtedness on the one hand, and the
holders of the Notes on the other hand, and nothing herein shall impair, as
between Company and the Guarantor, on the one hand, and the holders of the
Notes, on the other hand, the obligation of Company and the Guarantor, which is
unconditional and absolute, to pay to the holders thereof the principal thereof
and premium, if any, and interest thereon in accordance with their terms and the
provisions hereof, nor shall anything herein prevent the holders of the Notes
from exercising all remedies otherwise permitted by applicable law or hereunder
upon default hereunder or under the Notes (including the right to demand payment
and ▇▇▇ for performance hereof and of the Notes and to accelerate the maturity
thereof), subject to the rights, if any, of holders of Senior Indebtedness under
this Agreement. Upon payment in full of the Senior Indebtedness and the
termination of all obligations of the holders of the Senior Indebtedness under
the Senior Lender Loan Documents, the holders of the Notes shall be subrogated
to the rights of the holders of the Senior Indebtedness to receive payments or
distributions of Assets of Company or any of its Subsidiaries made on Senior
Indebtedness (and any security therefor) until the Subordinated Obligations
shall be paid in full, and, for the purposes of such subrogation, no payments to
the holders of Senior Indebtedness of any cash, Assets, or obligations to which
the holders of the Notes would be entitled except for the provisions of
44
Section 8.4 above shall, as between Company and its Subsidiaries, their
respective creditors (other than the holders of the Senior Indebtedness), and
the holders of the Notes, be deemed to be a payment by Company or any of its
Subsidiaries to or on account of Senior Indebtedness.
8.6 The agreements contained in this Article 8 shall continue to be
effective or shall be automatically reinstated, as the case may be, if at any
time any payment (or any part of any payment) on the Senior Indebtedness shall
be returned by any holder of Senior Indebtedness: (a) under any state or federal
law upon or following the insolvency, bankruptcy, or reorganization of Company
or any of its Subsidiaries or otherwise; or (b) by reason of any settlement or
compromise of any claim against such holder for repayment or recovery of any
amount on account of any Senior Indebtedness; in each case, as though such
payment had not been made.
8.7 The foregoing provisions of this Article 8 shall constitute a
continuing offer to all Persons who, in reliance upon such provisions, become
holders of Senior Indebtedness, and such provisions are made for the benefit of,
and may be enforced directly by, holders of Senior Indebtedness, who hereby are
expressly stated to be intended beneficiaries of this Article 8, notwithstanding
any rescission of this Agreement by the parties hereto.
ARTICLE IX
MISCELLANEOUS
9.1 No Waiver; Cumulative Remedies. No failure or delay on the part of any
party to this Agreement in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
9.2 Amendments, Waivers and Consents. Any provision in this Agreement to
the contrary notwithstanding, and except as hereinafter provided, changes in or
additions to this Agreement or the Notes may be made, and compliance with any,
covenant or provision set forth herein may be omitted or waived, if the Company
(i) shall obtain consent thereto in writing from the Majority Holders, and (ii)
shall deliver, copies of such consent in writing to any holders who did not
execute such consent. The foregoing notwithstanding, no change, addition,
omission or waiver which causes any change in or extension of the time of
payment of the principal amount or interest, or the reduction of the rate of
interest on, or in any way affects or impairs the obligation of the Company in
respect of the principal of or interest on, any Note, or causes any change in
the provisions of Section 3 of any Note, or impairs or affects the right to
institute suit for payment of the Notes or causes any change in this Section
9.2, shall be made without the written consent of all of the holders the Notes.
Any waiver or consent may be given subject to the satisfaction of any conditions
stated therein and any
45
waiver or consent shall be effectively only in the specific instance and for the
specific purpose for which given.
9.3 Addresses for Notices. All notices, requests; demands and other
communications provided for hereunder shall be in writing and mailed, faxed or
delivered to each Purchaser at the address set forth in Schedule I hereto or at
such other address as to which such party may inform the other parties in
writing in compliance with the terms of this Section:
If to any other holder of the Securities: at such, holder's address
for notice as set forth in the register maintained by the Company, or, as to
each of the foregoing, at the addresses set forth on Schedule I hereto or at
such other address as shall be designated by such Person in a written notice to
the other parties complying as to delivery with the terms of this Section.
If to the Company: at the address set forth on page 1 hereof, or at
such other address as shall be designated by the Company in a written notice to
the other parties complying as to delivery with the terms of this Section.
All such notices, requests, demands and other communications shall
be sent by first class mail (postage prepaid), express overnight courier
service, registered mail (return receipt requested) or transmitted by facsimile
and shall be effective three days after deposited in the mails, or upon
transmission by facsimile, or the next business day if sent by express overnight
courier service, respectively, addressed as aforesaid, unless otherwise provided
herein.
9.4 Costs, Expenses and Taxes. The Company agrees to pay (i) in connection
with the preparation, execution and delivery of this Agreement and the issuance
of the Securities, the reasonable out-of-pocket expenses of Agent and its
Affiliates (including legal, accounting and other expenses); provided, that,
without the consent of the Company, the Company's maximum obligation for all
such expenses incurred in connection with the preparation, execution and
delivery of this Agreement shall not exceed an amount equal to $35,000; and (ii)
all reasonable out-of-pocket fees and expenses (including legal, accounting and
other expenses), incurred by Agent, the Purchasers and their Affiliates in
connection with the enforcement or attempted enforcement of this Agreement or
any of the Obligations or in preserving any of their rights and remedies
(including, without limitation, all such fees and expenses incurred in
connection with any "workout" or restructuring affecting the Financing Documents
or the Obligations or any bankruptcy or similar proceeding involving the Company
or any of its Affiliates). In addition, the Company shall pay any and all stamp
and other taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement, the issuance of the Securities and the
other instruments and documents to be delivered hereunder or thereunder, and
agrees to save the Purchasers harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes.
46
9.5 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Company and the Purchasers and their respective
heirs, successors and assigns, except that the Company shall not have the right
to delegate any of its respective obligations hereunder or to assign its
respective rights hereunder or any interest herein without the prior written
consent of the Majority Holders.
9.6 Survival of Representations and Warranties. All representations,
warranties, and agreements made in this Agreement or any of the other Financing
Documents shall survive the execution and delivery hereof or thereof and until
the payment in full in cash of all amounts due under the Notes.
9.7 Prior Agreements. This Agreement and the other Financing Documents
constitute the entire agreement between the parties and supersede any prior
understandings or agreements concerning the purchase and sale of the Securities.
9.8 Severability. The provisions of this Agreement and the Securities 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 a provision
contained in this Agreement or the Securities 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 or the terms of the Securities; but this Agreement and the
terms of the Securities, as the case may be, shall be reformed and construed as
if such invalid or illegal or unenforceable provision, or part of a provision,
had never been contained herein, and such provisions or part reformed so that it
would be valid, legal and enforceable to the maximum extent possible.
9.9 Governing Law; Jury Waiver. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of California.
TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE COMPANY AND EACH PURCHASER HEREBY
EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION,
CLAIM, DEMAND, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS AGREEMENT, OR
IN ANY WAY CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE DEALINGS OF THE
COMPANY AND THE PURCHASERS WITH RESPECT TO THIS AGREEMENT, OR THE TRANSACTIONS
RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. TO THE MAXIMUM
EXTENT PERMITTED BY LAW, THE COMPANY AND EACH PURCHASER HEREBY AGREE THAT ANY
SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING SHALL BE DECIDED BY A
COURT TRIAL WITHOUT A JURY AND THAT EITHER PARTY MAY FILE A COPY OF THIS SECTION
WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER
PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
47
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA.
COMPANY AND EACH PURCHASER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 9.9.
9.10 Headings. Article, Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
9.11 Counterparts; Facsimile Transmission. 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. Delivery of an executed counterpart
of this Agreement by electronic delivery of a facsimile shall be equally
effective as delivery of an executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by electronic delivery of a
facsimile also shall deliver an original executed counterpart of this Agreement
but the failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
9.12 Further Assurances. From and after the date of this Agreement, upon
the request of any Purchaser or the Company, the Company and the Purchasers
shall execute and deliver such instruments, 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 and the Securities.
9.13 Confidentiality. Each Purchaser agrees that he or it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Purchaser may obtain from the Company pursuant to
this Agreement and which the Company has advised such Purchaser is protected
information, unless such information is known, or until such information becomes
known, to the public; provided, however, that such information may be disclosed
by such Purchaser (i) to counsel for and other advisors, accountants, and
auditors to such Purchaser and (ii) to comply with applicable laws or
governmental regulations, in any court proceeding, or in any action such
Purchaser must take to protect and enforce its rights under this Agreement,
provided that the Purchaser provides prior written notice of such disclosure to
the Company and takes reasonable and lawful action to avoid or minimize the
extent of such disclosure.
9.14 Indemnification.
(a) In addition to all other sums due hereunder or provided
for in this Agreement or any of the other Financing Documents and any and all
obligations of the Company to indemnify any Purchaser hereunder or under any of
the other Financing
48
Documents, the Company hereby agrees, without limitation as to time, to
indemnify each Purchaser, each Affiliate of a Purchaser and each director,
officer, employee, counsel, agent or representative of such Purchaser and its
Affiliates (collectively, the "Indemnified Parties") against, and hold it and
them harmless from, to the fullest extent lawful, all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys fees and disbursements) and expenses, including expenses of
investigation (collectively, "Losses"), incurred by it or them and arising out
of or in connection with this Agreement, the other Financing Documents, or the
transactions contemplated hereby or thereby (or any other document or instrument
executed herewith or pursuant hereto or thereto), regardless of whether the
transactions contemplated by this Agreement are consummated and regardless of
whether any Indemnified Party is a formal party to any proceeding; provided,
however, that the Company shall not be liable to any Indemnified Party for any
Losses to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or review) that such
Losses arose from the gross negligence or willful misconduct of such Indemnified
Party. The Company agrees to reimburse any Indemnified Party promptly for all
such Losses as they are incurred by such Indemnified Party (regardless of
whether it is or may be ultimately determined that an Indemnified Party is not
entitled to indemnification hereunder). The obligations of the Company to each
Indemnified Party hereunder shall be separate obligations, and the Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 9.14 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
redemption or otherwise, the redemption or repurchase of the Warrants purchased
by any Purchaser, any transfer of the Securities by any Purchaser and the
termination of this Agreement or any of the other Financing Documents.
(b) In addition, the Company shall, without limitation as to
time, indemnify, reimburse, defend, and hold harmless the Indemnified Parties
for, from, and against all Losses asserted against, resulting to, imposed on, or
incurred by any of the Indemnified Parties, directly or indirectly, in
connection with any of the following: (i) any pollution or threat to human
health or the environment that is related in any way to the management, use,
control, ownership or operation of the business or property in connection with
the business of the Company or any of its Subsidiaries, by the Company or any of
its Subsidiaries, or any Person for whom any of them is or may be responsible by
law or contract, including, without limitation, all on-site and off-site
activities involving Materials of Environmental Concern, and that occurred,
existed, arose out of conditions or circumstances that occurred or existed, or
was caused, in whole or in part, on or before the date of this Agreement; (ii)
any Environmental Claim against any Person whose liability for such
Environmental Claim the Company or any of its Subsidiaries has assumed or
retained either contractually or by operation of law, including without
limitation, any pollution or threat to human health or the environment, or any
Federal, state, local or foreign approvals; or (iii) the breach of any
environmental representation or warranty set forth or incorporated by reference
herein.
49
(c) In case any action, claim or proceeding shall be brought
against any Indemnified Party with respect to which indemnity may be sought
against the Company hereunder, such Indemnified Party shall promptly notify the
Company in writing and the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Party and
payment of all fees and expenses incurred in connection with the defense
thereof. The failure to so notify the Company shall not affect any obligation it
may have to any Indemnified Party under this Agreement or otherwise except to
the extent that (as finally determined by a court of competent jurisdiction
(which determination is not subject to review or appeal)) such failure
materially and adversely prejudiced the Company. Each Indemnified Party shall
have the right to employ separate counsel in such action, claim or proceeding
and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of each Indemnified Party unless: (i) the
Company has agreed to pay such expenses; or (ii) the Company has failed promptly
to assume the defense and employ counsel reasonably satisfactory to such
Indemnified Party; or (iii) the named parties to any such action, claim or
proceeding (including any impleaded parties) include any Indemnified Party and
the Company or an Affiliate of the Company, and such Indemnified Party shall
have been advised by counsel that either (x) there may be one or more legal
defenses available to it which are different from or in addition to those
available to the Company or such Affiliate or (y) a conflict of interest may
exist if such counsel represents such Indemnified Party and the Company or its
Affiliate; provided that, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel in the circumstances described
in clause (i), (ii) or (iii) above, the Company shall not have the right to
assume the defense thereof and such counsel shall be at the expense of the
Company; provided, however, that the Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the fees and expenses
of more than one such firm of separate counsel (in addition to any local
counsel), which counsel shall be designated by such Indemnified Party. The
Company shall not be liable for any settlement of any such action effected
without its written consent (which shall not be unreasonably withheld). The
Company agrees that it will not, without the Indemnified Party's prior written
consent, consent to entry of any judgment or settle or compromise any pending or
threatened claim, action or proceeding in respect of which indemnification or
contribution may be sought hereunder unless the foregoing contains an
unconditional release, in form and substance reasonably satisfactory to such
Indemnified Party, of such Indemnified Party from all liability and obligation
arising therefrom.
(d) If the indemnification provided for in this Section 9.14
is unavailable to, or insufficient to hold harmless, any Indemnified Party in
respect of any Losses referred to herein, then the Company shall have an
obligation to contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses in such proportion as is appropriate to reflect the
relative fault of the Company, its Subsidiaries and Affiliates, on the one hand,
and such Indemnified Party, on the other hand, in connection with the actions
which resulted in such Losses as well as any other relevant equitable
considerations. The amount paid or payable by any such Person as a result of the
Losses
50
referred to above shall be deemed to include, subject to the limitations set
forth in this Section 9.14, any legal or other fees or expenses reasonably
incurred by such Person in connection with any investigation, lawsuit or legal
or administrative action or proceeding, other than legal expenses incurred after
the Company assumes the defense in accordance with the immediately preceding
paragraph if the proviso in such paragraph with respect to engagement of
separate counsel for the Indemnified Party is not applicable.
(e) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9.14 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who is not guilty of such fraudulent misrepresentation.
9.15 Taxes. All payments made by the Company hereunder or under any Note
will be made without setoff, counterclaim, or other defense, except as required
by applicable law other than for Taxes (as defined below). All such payments
will be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any jurisdiction (other
than the United States) or by any political subdivision or taxing authority
thereof or therein (other than of the United States) with respect to such
payments (but excluding, any tax imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein (i) measured by or based on
the net income or net profits of a Purchaser, or (ii) to the extent that such
tax results from a change in the circumstances of a Purchaser, including a
change in the residence, place of organization, or principal place of business
of such Purchaser) and all interest, penalties or similar liabilities with
respect thereto (all such non-excluded taxes, levies, imposts, duties, fees,
assessments or other charges being referred to collectively as "Taxes"). If any
Taxes are so levied or imposed, the Company agrees to pay the full amount of
such Taxes, and such additional amounts as may be necessary so that every
payment of all amounts due under this Agreement or under the Notes, including
any amount paid pursuant to this Section 9.15 after withholding or deduction for
or on account of any Taxes, will not be less than the amount provided for
herein; provided, however, that the Company shall not be required to increase
any such amounts payable to a Purchaser if the increase in such amount payable
results from such Purchaser's own willful misconduct or gross negligence. The
Company will furnish to Purchasers as promptly as possible after the date the
payment of any Taxes is due pursuant to applicable law certified copies of tax
receipts evidencing such payment by Company.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
PLANETOUT INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Financial Officer & Secretary
[Signature page continues]
[Signature Page to Securities Purchase Agreement]
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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[Signature Page to Securities Purchase Agreement]
SCHEDULE I
(PURCHASERS)
PURCHASER COMMITMENT NOTES WARRANTS
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ $5,000,000 $5,000,000 500,000 - 1,000,000
Seaview, Chancery ▇▇▇▇
▇▇▇▇▇▇ Church, Barbados, WI
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
TOTAL $5,000,000 $5,000,000 500,000 - 1,000,000
EXHIBITS
[INTENTIONALLY OMITTED]
