SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
July 7, 1999, by and among Worldtalk Communications Corporation, a Delaware
corporation, with headquarters located at 0000 Xxx Xxxxxxxxx Xxxxx, Xxxxx Xxxxx,
Xxxxxxxxxx 00000 (the "Company"), and the investors listed on the Schedule of
Buyers attached hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act");
B. The Company has authorized the issuance of between $5
million and $10 million of the Company's common stock, $.01 par value per share
(the "Common Stock") at a purchase price of $3 per share, in the amount
designated by Hilal Capital Management LLC ("Hilal") on the date of the Initial
Closing (as defined below) (which amount at the Initial Closing shall not be
less than $5 million) and the Second Closing (as defined below);
C. The Company has authorized the issuance of Common Stock
Purchase Warrants (the "Warrants"), in the form attached hereto as Exhibit B, to
acquire shares of Common Stock (such shares of Common Stock issued upon exercise
of the Warrants are hereinafter referred to as the "Warrant Shares", and
together with Common Stock purchased hereunder and the Warrants, the
"Securities");
D. The Buyers (which term as used herein shall include those
persons designated by Hilal to purchase Common Stock at the Second Closing, who
became a party to this Agreement by executing the signature page and whose names
and purchase amounts shall be added to the Schedule of Buyers at the Second
Closing) wish to purchase, upon the terms and conditions stated in this
Agreement, an aggregate of between $5 million and $10 million of Common Stock
(as determined by Hilal) in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers; and to receive, in consideration for
such purchase, the Warrants who became a party to this Agreement by executing
the signature page to purchase an additional number of shares of Common Stock
equal to one-half the number of shares of Common Stock that the Buyers purchase,
subject to adjustment as provided in the Warrants; and
E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and the Buyers hereby agree as
follows.
1. INITIAL PURCHASE AND SALE OF COMMON STOCK.
a. Initial Purchase of Common Stock. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 7 and 8 below,
the Company shall issue and sell to the Buyers and the Buyers shall purchase
from the Company an aggregate of not less than $5 million and not more than $10
million of Common Stock (the "Initial Purchase Price") in the respective amounts
as are set forth opposite each Buyer's name on the Schedule of Buyers at an
initial closing (the "Initial Closing"). The per share purchase price (the
"Purchase Price") of the Common Stock shall be $3.00. On the Initial Closing
Date (as defined below) the Company shall deliver to each Buyer a stock
certificate representing the number of shares which such Buyer is then
purchasing (as indicated opposite such Buyer's name on the Schedule of Buyers),
duly executed on behalf of the Company and registered in the name of such Buyer
or its designee (the "Stock Certificates").
b. Initial Closing Date. The date and time of the
Initial Closing (the "Initial Closing Date") shall be 5:00 p.m. Eastern Standard
Time on July 7, 1999, subject to notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 7 and 8 below (or such later
date as is mutually agreed to by the Company and Hilal). The Initial Closing
shall occur on the Initial Closing Date at the offices of Xxxxxxx Xxxx & Xxxxx
LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. Notwithstanding the foregoing,
if on the Initial Closing Date all of the conditions set forth in Sections 7 and
8 are satisfied except for the condition in Section 8(b), such closing shall be
made into escrow pursuant to the terms of Escrow Agreement annexed as Exhibit D
(the "Escrow Agreement") and other appropriate escrow documents, pending
satisfaction of such remaining condition not later than July 14, 1999 (or such
later date as is mutually agreed to by the Company and Hilal). In the event of
such escrow closing, the Initial Closing (and the sale of the securities) shall
not be deemed to have been completed unless and until the condition in Section
8(b) is satisfied in accordance with the terms hereof and of the Escrow
Agreement, but if such condition is timely satisfied, the Initial Closing Date
shall be deemed the date of deposit into escrow.
c. Form of Payment. On the Initial Closing Date
(subject to escrow, if applicable), each Buyer shall pay the Purchase Price to
State Street for the Common Stock to be issued and sold to such Buyer at the
Initial Closing, by wire transfer of immediately available funds in accordance
with the Company's written wire instructions provided in writing to the Buyers
at least two days prior to the Initial Closing Date.
d. Warrants. In consideration of the purchase of the
Common Stock, the Company shall on the Initial Closing Date (subject to escrow,
if applicable) issue and deliver to each Buyer, Warrants to purchase an
additional number of shares of Common Stock equal to one-half the number of
shares of Common Stock that the Buyer purchases at the Initial Closing.
2. SECOND PURCHASE AND SALE OF COMMON STOCK.
a. Second Purchase of Common Stock. If so elected by
Hilal in its sole discretion, and subject to the satisfaction (or waiver) of the
conditions set forth in Sections 7 and 8 below, the Company shall issue and sell
to such additional Buyers as may be designated by
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Hilal and such Buyers shall purchase from the Company at a second closing (the
"Second Closing" and, together with the Initial Closing, the "Closings")
additional shares of Common Stock, at the Purchase Price, provided that the
aggregate amount of Common Stock so purchased shall not be more than the
difference between $10 million and the aggregate purchase price of Common Stock
purchased at the Initial Closing. On the Second Closing Date (as defined below)
the Company shall deliver to each such Buyer a stock certificate representing
the number of shares that such Buyer is then purchasing (as indicated opposite
such Buyer's name on the Schedule of Buyers, as amended), duly executed on
behalf of the Company and registered in the name of such Buyer or its designee.
b. Second Closing Date. The date and time of the
Second Closing (the "Second Closing Date" and, together with the Initial Closing
Date, the "Closing Dates") shall be 10:00 a.m. Eastern Standard Time on the
fifth business day following the later of July 7, 1999 or, if applicable, the
release of the escrow closing upon timely satisfaction of the condition in
Section 8(b), but not later than July 21, 1999, subject to the continuing
satisfaction (or waiver) of the conditions set forth in Sections 7 and 8 below
(or such later date as is mutually agreed to by the Company and Hilal). The
Second Closing shall occur on the Second Closing Date at the offices of Xxxxxxx
Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. Notwithstanding
the foregoing, if on the Second Closing Date all of the conditions set forth in
Sections 7 and 8 are satisfied except for the condition in Section 8(b), such
closing shall be made into escrow pursuant to the Escrow Agreement and other
appropriate escrow documents, pending satisfaction of such remaining condition
not later than July 14, 1999 (or such later date as is mutually agreed to by the
Company and Hilal). In the event of such escrow closing, the Second Closing (and
the sale of the securities) shall not be deemed to have been completed unless
and until the condition in Section 8(b) is satisfied in accordance with the
terms hereof and of the Escrow Agreement, but if such condition is timely
satisfied, the Second Closing Date shall be deemed the date of deposit into
escrow.
c. Form of Payment. On the Second Closing Date
(subject to escrow, if applicable), each Buyer at the Second Closing shall pay
the Company the Purchase Price for the Common Stock to be issued and sold to
such Buyer at the Second Closing, by wire transfer of immediately available
funds in accordance with the Company's written wire instructions provided in
writing to Hilal at least two days prior to the Second Closing Date.
d. Warrants. In consideration of the purchase of the
additional Common Stock, the Company shall on the Second Closing Date (subject
to escrow, if applicable), issue and deliver to each Buyer at the Second
Closing, Warrants to purchase an additional number of shares of Common Stock
equal to one-half the number of shares of Common Stock that such Buyer purchases
at the Second Closing.
3. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer (including each Buyer purchasing at the Second
Closing) represents and warrants with respect to only itself that:
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a. Investment Purpose. Such Buyer (i) is purchasing
the Common Stock and the Warrants and (ii) upon exercise of the Warrants, will
acquire the Warrant Shares then issuable for its own account for investment only
and not with a present view towards, or for resale in connection with, the
public sale or distribution thereof; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands
that the Common Stock and Warrants are being offered and sold to it in reliance
on specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Common Stock and the
Warrants.
d. Information. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Common Stock and the Warrants which have been requested by such Buyer. Such
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below.
e. No Governmental Review. Such Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Securities or the fairness or suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Securities.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of
such securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is
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made) may be deemed to be an underwriter (as that term is defined in the 0000
Xxx) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Securities, and, until such
time as the sale of the Securities have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the certificates or other
documents representing the Securities, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such certificates or other documents):
THE SECURITIES REPRESENTED BY THIS [CERTIFICATE] HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
SUCH LAWS.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Securities upon which it is
stamped, if (i) any such Securities are registered for sale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of any of the Securities may be made without
registration under the 1933 Act, or (iii) any of the Securities can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold. Each Buyer
acknowledges, covenants and agrees to sell any of the Securities from which the
legend has been removed only pursuant to (i) a registration statement effective
under the 1933 Act, or (ii) advice of counsel that such sale is exempt from
registration required by Section 5 of the 1933 Act. In the event the above
legend is removed from any of the Securities, the Company may, upon reasonable
advance notice to the holder, require that the above legend be placed on any of
the Securities that cannot then be sold pursuant to an effective registration
statement or Rule 144(k) under the 1933 Act (or any successor rule thereto).
h. Authorization; Enforcement. This Agreement, the
Warrant and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with their respective
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
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i. Residency. Such Buyer is a resident of the United
States of America.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Buyers, except as disclosed in the letter from the Company to the Buyers of even
date herewith containing certain disclosures (the "Disclosure Letter"), that:
a. Organization and Qualification. The Company and
its sole subsidiary, Xxxxxx Software, Inc., are corporations duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. Each of the
Company and its subsidiary is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on (i) the business, properties, operations, condition (financial or
otherwise), results of operations or prospects of the Company and its
subsidiary, taken as a whole, or (ii) on the ability of the Company to perform
its obligations hereunder or under the agreements or instruments to be entered
into or filed in connection herewith, or under the Securities.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement, the Warrant and the
Registration Rights Agreement (collectively, the "Closing Agreements"), to issue
and sell the Common Stock in accordance with the terms hereof, and to issue the
Warrant Shares upon the exercise of the Warrants, in accordance with the terms
and conditions of the Warrants, (ii) the execution and delivery of the Closing
Agreements by the Company and the consummation by it of the transactions
described herein and therein, including, without limitation, the issuance of the
Common Stock and the Warrants and the reservation for issuance and the issuance
of the Warrant Shares upon exercise of the Warrants have been duly authorized by
the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its stockholders under the
Delaware General Corporation Law, the Company's Certificate of Incorporation or
otherwise, and, (iii) the Closing Agreements have been duly executed and
delivered by the Company, and constitute the valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization and Indebtedness. As of the date
hereof, the authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, of which as of the date hereof 10,947,188 shares are
issued and outstanding, and 6,500,000 shares
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of Preferred Stock, par value $.01 per share (the "Preferred Stock"), none of
which as of the date hereof are issued or outstanding. All of the outstanding
shares of Common Stock have been validly issued and are fully paid and
nonassessable. No shares of Common Stock or Preferred Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
created or agreed to by the Company. As of the date hereof, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments issued by the Company of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or its subsidiary, or contracts, commitments, understandings or
arrangements by which the Company or its subsidiary is or may become bound to
issue additional shares of capital stock of the Company or its subsidiary or to
issue options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or its subsidiary, (ii) there are no
outstanding debt securities, notes, credit agreements, or other agreements,
documents or instruments evidencing indebtedness for borrowed money in excess of
$250,000 of the Company or its subsidiary or by which the Company or subsidiary
is or may become bound and (iii) there are no agreements or arrangements under
which the Company or its subsidiary is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement)
or which conflict in any way with the Registration Rights Agreement. There are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of any of the Securities as described in this
Agreement. The Company has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation, as amended and as in effect on the date
hereof (the "Certificate of Incorporation"), and the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Securities. The Securities are duly
authorized and, upon issuance in accordance with the terms hereof and the
Warrants, as the case may be, shall be validly issued, fully paid and
non-assessable, free from all taxes, liens and charges with respect to the issue
thereof, and are not and shall not be (except to Buyers), as the case may be,
subject to preemptive rights or other similar rights of stockholders of the
Company. The maximum number of shares of Common Stock issuable pursuant to this
Agreement, including those issuable upon exercise of the Warrants as currently
in effect, have been duly authorized and reserved for issuance.
e. No Conflicts. The execution, delivery and
performance of the Closing Agreements by the Company, and the consummation by
the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Securities) do not (i) result in a
violation of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or its subsidiary is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
principal market or exchange on which the
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Common Stock is traded or listed) of any governmental entity applicable to the
Company or its subsidiary or by which any property or asset of the Company or
its subsidiary is bound or named as a party, the violation of, breach of or
conflict with which reasonably could be expected to have a Material Adverse
Effect. Neither the Company nor its subsidiary is in violation of any term of or
in default under its Certificate of Incorporation or By-laws or its
organizational charter or by-laws, respectively, or in material violation of any
term of or in default under any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiary. The business of
the Company and its subsidiary is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, which violation reasonably
could be expected to have a Material Adverse Effect. Except as specifically
described in the Closing Agreements and as required under the 1933 Act and
applicable State securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or NASDAQ in order for it to execute, deliver or
perform any of its obligations under any of the Closing Agreements in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations that the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. Upon consummation of the Initial Closing, the Company will not be in
violation of the listing requirements of the NASDAQ National Market and does not
reasonably anticipate that the Common Stock will be delisted by the NASDAQ
National Market in the foreseeable future. The Company and its subsidiary are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
f. SEC Documents; Financial Statements. Since the
Company's initial public offering, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements and schedules thereto
and documents incorporated by reference therein being hereinafter referred to as
the "SEC Documents"). The Company (i) has delivered or made available to each
Buyer or its representative true and complete copies of the SEC Documents as
each Buyer or its representative has requested from the Company and (ii) agrees
to deliver or make available to each Buyer or its representative true and
complete copies of any additional SEC Documents, upon request. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude
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footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
any Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in Section 3(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are or were made, not misleading.
g. Absence of Certain Changes. Except as expressly
disclosed in SEC Documents filed after December 31, 1998 and prior to the date
hereof, since December 31, 1998, there has been no material adverse change and
no material adverse development in the business, properties, operations,
condition (financial or otherwise) or results of operations or prospects of the
Company and its subsidiary taken as a whole, it being agreed that if the Company
has sales of at least $2.5 million and an operating loss not exceeding $2
million for its second 1999 fiscal quarter, such level of sales as net loss
shall not be deemed to constitute a material adverse change. The Company has not
taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or its subsidiary
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, government agency
or body pending or, to the knowledge of the Company or its subsidiary,
threatened against or affecting the Company or its subsidiary or their
respective directors or officers, or the Common Stock, wherein an unfavorable
decision, ruling or finding, individually or in the aggregate, reasonably could
be expected to have a Material Adverse Effect. The Disclosure Letter contains a
complete list and summary description of any pending, or to the knowledge of the
Company, threatened proceeding against or affecting the Company or its
subsidiary, without regard to whether it could have a Material Adverse Effect.
i. Acknowledgment Regarding Buyers' Purchase of the
Securities. The Company acknowledges and agrees that each of the Buyers is
acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each Buyer
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation by the Company and its representatives.
j. No General Solicitation. Neither the Company, nor
any person acting on its behalf, has engaged in any form of general solicitation
or general advertising (within
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the meaning of Regulation D under the 0000 Xxx) in connection with the offer or
sale of any of the Securities offered hereby.
k. No Integrated Offering. Neither the Company, nor
any person acting on its behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under
circumstances that would require registration of any of the Securities under the
1933 Act or cause the offering of any of the Securities to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the National Association of Securities Dealers Automated
Quotation system ("NASDAQ").
l. Employment Matters; ERISA Matters. The Company and
its subsidiary are in compliance with all federal, state, local and foreign laws
and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours except where failure to be in
compliance would not have a Material Adverse Effect. To the Company's knowledge,
there are no pending investigations involving the Company or its subsidiary by
the U.S. Department of Labor or any other governmental agency responsible for
the enforcement of such federal, state, local or foreign laws and regulations.
To the Company's knowledge, there is no unfair labor practice charge or
complaint against the Company or its subsidiary pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against the Company or its subsidiary. No
collective bargaining agreement or modification thereof is currently being
negotiated by the Company or its subsidiary. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company or its subsidiary. No material labor dispute with the
employees of the Company or its subsidiary exists or, to the knowledge of the
Company, is imminent.
m. Intellectual Property Rights. The Company and its
subsidiary own or possess the requisite rights or licenses to use all
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights currently used and
necessary to conduct their respective businesses (collectively, "Intellectual
Property Rights"). None of the Intellectual Property Rights or other
intellectual property rights are expected to expire or terminate in the near
future to the extent such expiration or termination could reasonably be expected
to have a Material Adverse Effect. The Company does not have any knowledge of
any event, fact or circumstance relating to (i) any infringement by the Company
or its subsidiary of any trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or other similar
rights of others, or (ii) any person or entity now infringing any Intellectual
Property Rights or other similar rights owned or used by the Company or its
subsidiary and, to the Company's knowledge, there is no claim, action or
proceeding being made or brought against, or being threatened against, the
Company or its subsidiary regarding any trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other similar rights of others, or any person or entity now infringing any
Intellectual Property
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Rights or other similar rights; and the Company and its subsidiary are unaware
of any facts or circumstances which could reasonably be expected to give rise to
any of the foregoing. The Company and its subsidiary have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.
n. Environmental Laws. (i) The Company and its
subsidiary (A) are in material compliance with any and all Environmental Laws,
(B) have received all material permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses,
and (C) are in material compliance with all terms and conditions of any such
permit, license or approval. With respect to the Company and/or its subsidiary
(A) there are no past or present releases of any material into the environment,
actions, activities, circumstances, conditions, events, incidents, or
contractual obligations attributable to such entity which may give rise to any
common law environmental liability or any liability under any Environmental Law
by such entity and (B) neither the Company nor its subsidiary has received any
currently effective notice with respect to the foregoing, nor is any action
pending or to the Company's knowledge, threatened in connection with the
foregoing. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were
stored, used or disposed of in compliance with applicable law or those not
attributable to the acts or omissions of the Company or its subsidiary, no
Hazardous Materials are contained on or about any real property currently owned,
leased or used by the Company or its subsidiary, and no Hazardous Materials were
released on or about any real property previously owned, leased or used by the
Company or its subsidiary during the period the property was owned, leased or
used by the Company or its subsidiary.
(iii) There are no underground storage tanks
on or under any real property owned, leased or used by the Company or its
subsidiary that are not in compliance with applicable Environmental Laws.
o. Title. The Company and its subsidiary have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them that is material to the business of
the Company and its subsidiary, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company and its subsidiary. Any real property
and facilities held
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under lease by the Company and its subsidiary are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiary.
p. Insurance. The Company and its subsidiary are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as is prudent and customary in the businesses in
which the Company and its subsidiary are engaged. Neither the Company nor such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not individually or in the aggregate have a
Material Adverse Effect.
q. Regulatory Permits; Compliance. The Company and
its subsidiary possess all franchises, grants, authorizations, licenses permits,
easements, consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to conduct their respective businesses as
currently being conducted (collectively, the "Company Permits"). There is no
action pending, or to the knowledge of the Company, threatened regarding the
suspension or cancellation of any of the Company Permits. Neither the Company
nor its subsidiary is in default or violation of any of the Company Permits.
Neither the Company nor its subsidiary has received any currently effective
notification with respect to its possible default or violation of applicable
laws.
r. Internal Accounting Controls. The Company and its
subsidiary maintain a system of internal accounting controls sufficient, in the
judgment of the Company's board of directors, to provide reasonable assurance
that (i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
s. No Materially Adverse Contracts, Etc. Neither the
Company nor its subsidiary is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation of any court or
governmental agency which in the reasonable judgment of the Company's officers
has or is expected in the future individually or in the aggregate to have a
Material Adverse Effect. Neither the Company nor its subsidiary is a party to
any contract or agreement which in the reasonable judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
t. Tax Status. Each of the Company and its subsidiary
has made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and its subsidiary has
set aside on its books provisions reasonably adequate for the payment of
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all unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to the statute of limitations relating to
the assessment or collection of any foreign, federal, state or local tax. The
Company has not been notified that any of its tax returns is currently being
audited by any taxing authority.
u. Certain Transactions. Except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from
third parties and other than the grant of stock options, none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
v. S-3 Registration. The Company is currently
eligible to register securities, including the resale of the Common Stock and
the Warrant Shares, on a registration statement on Form S-3 under the 1933 Act.
w. Disclosure. All information relating to or
concerning the Company or its subsidiary set forth in this Agreement and
provided to the Buyers pursuant to Section 3(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or
its subsidiary or its or their business, properties, operations or financial
conditions, which, under applicable law, rule or regulation of the SEC, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
x. No Qualified Opinion. The Company has not received
an opinion, report or letter from its auditors qualified in any respect,
including as to the Company's ability to proceed as a going concern in
connection with the Company's financial statements and, provided that the
transactions contemplated hereby are consummated, does not anticipate or know of
any basis upon which its auditors might issue any such opinion, report or
letter.
y. Investment Company Status. The Company is not and
upon consummation of the sale of the Securities (but without regard to the
status of the Buyers under
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the Investment Company Act of 1940, as amended) will not be an "investment
company," as such term is defined in the Investment Company Act of 1940, as
amended.
z. Foreign Corrupt Practices. To the Company's
knowledge, neither the Company nor its subsidiary, nor any director, officer,
agent, employee or other person acting on behalf of the Company or its
subsidiary has, in the course of his actions for, or on behalf of, the Company:
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity; (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977; or (iv) made any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
aa. Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of the Company's and its
subsidiary's (i) computer systems and (ii) equipment containing imbedded
microchips (including systems and equipment supplied by others to the Company or
with which are sold as an integral part of Company's or its subsidiary's
systems) and the testing of such systems and equipment, as so reprogrammed has
been completed. The cost to the Company and its subsidiary of such reprogramming
and testing and of the reasonably foreseeable consequences of year 2000 to the
Company and its subsidiary with respect to the matters referred to in the
previous sentence (including without limitation, reprogramming errors and the
failure of systems or equipment supplied by others to the Company or which are
sold as an integral part of the Company's or its subsidiary's systems) will not
have a Material Adverse Effect. The computer and management information systems
of the Company and its subsidiary are and, with ordinary course upgrading and
maintenance, will continue to be, sufficient to permit the Company and its
subsidiary to conduct its business without a Material Adverse Effect caused
thereby.
5. COVENANTS AND AGREEMENTS.
a. Best Efforts. Each party shall use its best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 7 and 8 of this Agreement.
b. Form D. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before each Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Buyers at such Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to such Closing Date.
c. Reporting Status. Until six months after the date
as of which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Common Stock and Warrant Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto) (the "Registration Period"), the Company (x) shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
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.
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination and (y) will use its best efforts and
take all necessary action to maintain its ability and eligibility to register
securities on Form S-3.
d. Use of Proceeds. The Company will use the proceeds
from the sale of the Common Stock and Warrants for working capital and general
corporate purposes and shall not otherwise, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its direct or indirect
subsidiaries) or for the repurchase, redemption, or retirement of any capital
stock of the Company.
e. Financial Information. The Company agrees to file
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act.
The financial statements of the Company will be prepared in accordance with
generally accepted accounting principles, consistently applied, and will fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries and results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
f. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than the number of shares of Common Stock necessary to
provide for the issuance of the Warrant Shares upon exercise of the Warrants, in
accordance with the terms of this Agreement and the Warrants.
g. Listing. The Company shall promptly secure the
listing of the Common Stock and Warrant Shares upon the NASDAQ National Market
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, the listing of the Common Stock
issued and all Warrant Shares from time to time issuable under the terms of this
Agreement and the Warrants on each national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed. The
Company shall promptly provide to Hilal copies of any notices it receives from
NASDAQ regarding the continued eligibility of the Common Stock for listing on
NASDAQ or other principal exchange or quotation system on which the Common Stock
is listed or traded.
h. Expenses. Each of the Company and the Buyers shall
each pay its respective costs and expenses incurred by such party in connection
with the negotiation, investigation, preparation, execution, delivery and
performance of the Closing Agreements; provided, that at the Closings (or if
sooner upon the deposits into escrow contemplated by Sections 1(b) and 2(b)),
the Company shall reimburse the Buyers for Buyers' attorneys' fees and expenses
incurred in connection with the preparation of the Closing Agreements up to an
aggregate of $25,000.
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i. Additional Issuances of Securities.
(i) Right of Purchase. If at any time the
Company shall desire to issue any Common Stock or any security convertible,
exchangeable or exercisable for Common Stock or any other right to acquire any
Common Stock (the "Convertible Securities") pursuant to Section 4(2) of the 1933
Act or an offering under Regulation D or Regulation S of the 1933 Act or in any
other private placement (other than Exempt Issuances under Section 5(i)(v)
below), then the Company shall comply with the terms of this Section 5(i).
(ii) Notice Requirements. The Company shall
notify, or cause to be notified, the Buyers not less than twenty (20) business
days prior to the time the Company intends to consummate such issuance (the
"Issuance Notice"). The Issuance Notice shall set forth all of the terms of such
proposed issuance.
(iii) Exercise of Right of Purchase. The
right of purchase provided for in this Section 5(i) may be exercised by the
Buyers by delivery of a written notice to the Company (the "Exercise Notice"),
within ten (10) business days following receipt of the Issuance Notice (the
"Exercise Period"). The Exercise Notice shall state that the Buyers (and among
them in such proportion as they may agree) desire to purchase up to that portion
of the proposed issuance of such Common Stock or Convertible Securities as
necessary to maintain the Buyers' pro rata ownership of the outstanding Common
Stock of the Company (assuming conversion of the Convertible Securities, if
applicable) on terms substantially equal to the terms set forth in the Issuance
Notice, which Exercise Notice shall set forth the portion of the issuance so
elected to be purchased.
(iv) Right to Issue Securities. In the event
that the proposed issuance is consummated on terms substantially equal to the
terms set forth in the Issuance Notice within forty-five (45) calendar days
following the termination of the Exercise Period the Company shall sell to the
Buyers concurrently the securities they elected to purchase if such issuance is
not consummated within such 45 day period substantially on the terms described
in the Issuance Notice, no such issuance may be made without again giving notice
to the Buyers and complying with all of the requirements of this Section 5(i).
(iv) Exempt Issuances. The following
issuances of Common Stock or Convertible Securities shall be "Exempt Issuances"
not subject to the right of purchase in this Section 5(i):
(a) any shares of the Company's Common Stock
and/or Convertible Securities issued to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to
incentive agreements or plans approved by the Board of Directors of the
Company;
(b) any securities issuable upon exercise of
any Convertible Securities outstanding on the date of this agreement;
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(c) shares of the Company's Common Stock
issued in connection with any stock split or stock dividend;
(d) securities offered by the Company to the
public pursuant to a registration statement filed under the Securities
Act;
(e) any shares of the Company's Common Stock
(and/or options or warrants therefor) issued or issuable to parties
providing the Company with equipment leases, real property leases,
loans, credit lines, guaranties of indebtedness, cash price reductions
or similar financing;
(f) securities issued pursuant to the
acquisition of another corporation or entity by the Company by
consolidation, merger, purchase of all or substantially all of the
assets, or other reorganization in which the Company acquires, in a
single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or
fifty percent (50%) or more of the voting power of such other c
corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity; or
(g) securities issued to a strategic
business partner who is either a supplier or customer of the Company.
j. Board Representation. The Company shall cause Xxxx
Xxxxx to be elected to serve on the Board of Directors of the Company (or, if
Xxxx Xxxxx is unable to serve, such other person as may be designated by Hilal
who is reasonably acceptable to the Company) for so long as the Buyers in
aggregate hold at least 25% (assuming the exercise of all Warrants) of all
Common Stock issued or issuable to the Buyers pursuant to this Agreement and the
Warrants. The Company shall compensate Xxxx Xxxxx (or such other designees) for
reasonable travel expenses in connection with his duties as a Director, and pay
such person such other compensation as may be paid to any outside Director not
represented by a venture capital investor in such person's capacity as a
Director. The Company also agrees that such person shall be covered by
director/officer liability insurance and indemnification by the Company to the
same extent as any other Director.
k. No Integration. The Company will not conduct any
future offering that will be integrated with the issuance of the Securities for
purposes of the rules promulgated by the SEC.
l. Confidentiality. The Buyers agree to keep
confidential any non-public information heretofore disclosed to them by the
Company, in accordance with customary confidentiality restrictions.
6. TRANSFER AGENT INSTRUCTIONS.
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The Company shall issue irrevocable instructions to its
transfer agent (in the form attached hereto as Exhibit E) to issue certificates,
or at a Buyer's request, to electronically issue such shares (e.g., through DWAC
or DTC), registered in the name of each Buyer or its respective nominee(s), for
the Warrant Shares in such amounts as specified from time to time by each Buyer
to the Company in accordance with the terms of and upon exercise of the Warrants
(the "Irrevocable Transfer Agent Instructions"). Prior to registration of the
Common Stock and the Warrant Shares under the 1933 Act, such certificates shall
bear the restrictive legend specified in Section 3(g) of this Agreement. The
Company warrants that no instruction with respect to the Securities other than
(i) the Irrevocable Transfer Agent Instructions referred to in this Section 6,
and (ii) stop transfer instructions (a) to give effect to Section 3(f) hereof
(in the case of the Common Stock and the Warrant Shares, prior to registration
of the Common Stock and the Warrant Shares under the 1933 Act), (b) to comply
with any SEC or court order, or (c) to suspend use of a then effective
registration statement in the event an amendment or supplement thereto is
necessary, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in the Closing Agreements. Nothing in
this Section 6 shall affect in any way each Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of any of the Securities.
If a Buyer provides the Company with an opinion of counsel, reasonably
satisfactory in form and substance to the Company, that registration of a resale
by such Buyer of any of the Securities is not required under the 1933 Act, the
Company shall permit the transfer, and, in the case of the Common Stock or
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 6 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 6, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Common Stock and Warrants to each Buyer at each Closing is subject to the
satisfaction, with respect to each Buyer, at or before the applicable Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion:
a. Such Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer or the Escrow Agent shall have
delivered to the Company the purchase price for the Common Stock being purchased
by such Buyer at such
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Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of such Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to such Closing Date.
d. The transactions contemplated hereby shall not
violate any law, regulation or order then in effect and applicable to Buyers or
the Company.
e. Such Buyers shall have entered into the Escrow
Agreement.
8. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Common
Stock and Warrants at each Closing is subject to the satisfaction, at or before
the applicable Closing Date, of each of the following conditions, provided that
these conditions are for the Buyers' sole benefit and may be waived by a
Majority of the Buyers (as defined in Section 10(e) hereof) at any time in its
sole discretion:
a. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Buyers.
b. The Common Stock and Warrant Shares shall be
listed and authorized for trading, upon notice of issuance, on the NASDAQ
National Market, and trading in the Common Stock shall not have been suspended
by the SEC or NASDAQ. The Company shall have received and furnished to the
Buyers a letter from NASDAQ confirming its approval of the continued listing of
the Common Stock on NASDAQ-NMS subject to no conditions other than consummation
of the Initial Closing (and subject to NASDAQ's published requirements for
continued listing, all of which shall then be satisfied), and such letter shall
not have been withdrawn or modified.
c. The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 4 above, in which case such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Buyer shall have received a certificate, executed by the Chief
Executive Officer and Chief Financial Officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to board resolutions, incumbency,
charter and
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bylaws, and an update as of the Closing Date regarding the representation
contained in Section 4(c) hereof.
d. The Buyers shall have received the opinion of
Fenwick & West LLP, counsel to Company, dated as of the Closing Date, in form
reasonably satisfactory to Hilal and to the effect set forth in Exhibit F
attached hereto.
e. The Company shall have executed and delivered to
each Buyer the Warrants being purchased by such Buyer at the Closing.
f. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the exercise of the Warrants, an additional number of shares of
Common Stock sufficient to provide for the issuance of the Warrant Shares in
accordance with the terms of this Agreement and the Warrants.
g. The Irrevocable Transfer Agent Instructions, in
the form of Exhibit G attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
h. The transactions contemplated hereby shall not
violate any law, regulation or order then in effect and applicable to Buyers or
the Company.
i. Xxxx Xxxxx shall have been duly elected as a
director of the Company.
j. There shall not have occurred any mutual adverse
change in the business condition (financial or otherwise), results of operations
or prospects of the Company since the date of this Agreement.
9. INDEMNIFICATION.
In consideration of each Buyer's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of Securities and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Buyer
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Buyer Indemnified
Liabilities"), incurred by any Buyer Indemnitee (and shall advance the same) as
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the Closing
Agreements or any other certificate, instrument or document contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Closing Agreements or any other certificate, instrument
or document contemplated hereby or
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thereby, or (c) the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Buyer Indemnitees. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Buyer Indemnified Liabilities which is permissible under applicable law.
This indemnity will survive the Initial Closing or Second Closing for one year
after the date of the Initial Closing and will not apply to any grossly
negligent acts or willful misconduct of any Buyer.
10. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional original executed signature pages to be physically
delivered to the other party within five days of the execution and delivery
hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the documents referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the Company and Buyers purchasing a majority of the Common Stock hereunder (a
"Majority of the Buyers").
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement shall be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile;
(iii) three days after being sent by U.S. certified mail, return receipt
requested, or (iv) one day after deposit with a nationally recognized overnight
delivery service, in
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each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Worldtalk Communications Corp.
0000 Xxx Xxxxxxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer and
Chief Financial Officer
With a copy to:
Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
If to the Transfer Agent:
State Street Bank and Trust
Company of California, N.A.
000 X. 0xx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Transfer Agency Department
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with a copy to:
Xxxxxxx Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxxxxxxx
Each party shall provide five days' prior written notice to
the other party of any change in address or facsimile number.
-22-
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Securities. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of a Majority of the Buyers. A Buyer may assign some
or all of its rights hereunder without the consent of the Company, provided,
however, that (i) any such assignment shall not release such Buyer from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption, and (ii) no Buyer
may assign its rights hereunder in a manner that would cause the offering of
Securities hereunder to be required to be registered under the 1933 Act.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. The representations and warranties of
the Company and the Buyers contained in Sections 4 and 3, respectively, and the
agreements and covenants set forth in Sections 5, 6 and 10, and the
indemnification provisions set forth in Section 11, shall survive the Closing.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
j. Publicity. The Company and Hilal shall have the
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of
Hilal, to make any press release or other public disclosure with respect to such
transactions as is required by applicable law and regulations (although Hilal
shall be consulted by the Company in connection with any such press release or
other public disclosure prior to its release and shall be provided with a copy
thereof), but only to the extent required by such law or regulation.
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. Enforcement. In any litigation between the parties
with respect to or arising under the Closing Agreements, the prevailing party
shall be entitled to payment of its reasonable costs and expenses (including,
without limitation, reasonable legal fees and expenses) in connection therewith
from the other party.
m. Equitable Relief. Each party recognizes that in
the event that it fails to perform, observe, or discharge any or all of its
obligations under this Agreement, any remedy at law may prove to be inadequate
relief to the other parties. Each party therefore agrees that the other parties
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
-23-
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
WORLDTALK COMMUNICATIONS HILAL CAPITAL, LP
CORPORATION
By: Hilal Capital Partners LLC,
General Partner
By: /s/ Xxxxxxx Xxxxxxxxxxxx By: /s/ Xxxxx X. Xxxxx
----------------------------------------- ---------------------------------------
Name: Xxxxxxx Xxxxxxxxxxxx Name: Xxxxx X. Xxxxx, MD
Title: President and Chiefe Executive Officer Title: Managing Member
HILAL CAPITAL QP, LP
By: Hilal Capital Partners LLC,
General Partner
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx, MD
Title: Managing Member
HILAL CAPITAL ASSOCIATES LLC
By: Hilal Capital Partners LLC,
its Managing Member
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx, MD
Title: Managing Member
-24-
HILAL CAPITAL
INTERNATIONAL, LTD
By: Hilal Capital Management LLC,
Investment Manager
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx, MD
Title: Managing Member
/s/ Xxxx Xxxxx
---------------------------------------
Xxxx Xxxxx
HIGHBRIDGE INTERNATIONAL
By: Hilal Capital Management LLC,
Investment Manager
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx, MD
Title: Managing Member
NARRAGANSETT I, LP
By: Narragansett Asset Management, LLC
General Partner
By: /s/ Xxxxxx Xxxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxxx
Title: Managing Member
NARRAGANSETT OFFSHORE LTD.
By: Xxx Holdings, LLC
Investment Adviser
By: /s/ Xxxxxx Xxxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxxx
Title: Managing Member
-25-
SCHEDULE OF BUYERS
Aggregate
Investor Address, Telephone and Purchase Shares of
Investor Name Facsimile Number Price Common Stock Warrants
-------------------------------- ------------------------------- ---------------- ------------ --------
Hilal Capital, LP 00 Xxxx 00xx Xxxxxx $ 526,000.00 175,333 87,667
Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Hilal Capital QP, LP 00 Xxxx 00xx Xxxxxx $1,343,000.00 447,667 223,833
Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Hilal Capital Associates LLC 00 Xxxx 00xx Xxxxxx $3,584,000.00 1,194,667 597,333
Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Hilal Capital International, c/o Hilal Capital Management LLC $1,808,000.00 602,667 301,333
Ltd. 00 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Xxxxxx Xxxxx c/o Hilal Capital Management LLC $ 300,000.00 100,000 50,000
00 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Highbridge International c/o Hilal Capital Management LLC $1,939,000.00 646,333 323,167
00 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Narragansett I, LP c/o Narragansett Asset $ 395,000.00 131,667 65,833
Management LLC
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Narragansett Offshore Ltd. c/o Xxx Holdings, LLC $ 105,000.00 35,000 17,500
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is entered into as of
July 7, 1999 (the "Effective Date"), by and among Worldtalk Communications
Corporation, a Delaware corporation doing business as Worldtalk Corporation
("Worldtalk"), the Investors listed on Exhibit A attached hereto (the
"Investors"), Hilal Capital Management LLC, as representative (the
"Representative") of the Investors and State Street Bank and Trust Company of
California, N.A., as escrow agent (the "Escrow Agent").
A. Worldtalk and the Investors have entered into a Securities
Purchase Agreement of even date herewith (the "Agreement") pursuant to which the
Investors may acquire up to 3,333,334 shares of the Common Stock of Worldtalk
(the "Common Stock") at a purchase price of $3.00 per share and seven-year
warrants for the purchase of up to 1,666,667 shares of such Common Stock that
are exercisable at $7.00 per share (the "Warrants"). The capitalized terms used
in this Agreement and not otherwise defined herein will have the meanings given
them in the Agreement.
B. Pursuant to the Agreement, an aggregate of $10,000,000 in
cash (the "Purchase Price") is to be provided by the Investors for payment to
Worldtalk in return for issuance and sale of the shares of Common Stock and
Warrants, if acquired by the Investors.
C. The Agreement provides that the Purchase Price, the
certificates representing the Common Stock (the "Certificates") and the Warrants
be placed in an escrow account (the "Escrow Account") until satisfaction of the
condition to release of the escrow as set forth in Section 1.2, clause (b)
hereof no later than the close of business on July 14, 1999.
D. The parties hereto desire to establish the terms and
conditions pursuant to which the Purchase Price, the Certificates and the
Warrants (collectively, the "Escrow Assets") will be deposited, held in, and
released from the Escrow Account.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Deposit and Release of Escrow Assets.
1.1 Delivery of Escrow Assets.
(a) On the Effective Date, Worldtalk has
sent the Certificates and the Warrants to Escrow Agent via overnight courier for
deposit in the Escrow Account, the Investors have initiated wire transfers of
the Purchase Price to the Escrow Agent. In the event any of the Escrow Assets
are not received by the Escrow Agent on or before July 8, 1999, it will notify
the party who sent or was to have sent the same and that party will have five
days from the date of such notice to deliver the missing portion of the Escrow
Assets to the Escrow Agent. Within one day after receipt of all of the Escrow
Assets, the Escrow Agent will notify Worldtalk and Representative of such
receipt.
(b) The Escrow Agent shall deposit the
Purchase Price, the Certificates and Warrants in an account at the Escrow Agent
(or an affiliate or custodian acting on its behalf) that will serve as the
Escrow Account. The Escrow Agent shall invest the Purchase Price in the SSgA
U.S. Treasury Money Market Fund, which is a money market mutual fund registered
under the Investment Company Act of 1940, the principal of which is invested
solely in obligations issued or guaranteed by the United States Government. All
interest or any other income earned with respect to such investment shall be
retained by the Escrow Agent as part of Escrow Assets until distributed in
accordance with the other provisions of this Agreement. For tax reporting
purposes, all such income shall be allocated to Worldtalk or otherwise as the
parties may agree in writing.
1.2 Release from Escrow. The Escrow Assets shall be
maintained in the Escrow Agent's Escrow Account until the earlier of (a) the
close of business by Escrow Agent in California on July 14, 1999, which date and
time may be extended or otherwise changed upon the written agreement of the
Representative and Worldtalk received by the Escrow Agent (such date and time,
as so extended or changed, being referred to as the "Termination Time"), or (b)
presentation by Worldtalk and the Representative of their joint instruction for
release of the Escrow Account (the "Release Notice"), which each such party
agrees to execute promptly upon receipt of a letter or other written
notification from The Nasdaq National Market ("Nasdaq") confirming Nasdaq's
approval of the continued listing on Nasdaq of Worldtalk's Common Stock subject
to no conditions other than consummation of the Initial Closing (as defined in
the Agreement) and subject to Nasdaq's published requirements for continued
listing, all of which shall then be satisfied. Worldtalk and the Representative
will be required to execute and deliver the Release Notice to the Escrow Agent
if in their reasonable, good faith opinions the requirements of the preceding
sentence have been met. Upon receipt of the Release Notice prior to the
Termination Time, the Escrow Agent shall forthwith, but no later than two days
thereafter, deliver:
(i) the Purchase Price (less indemnities and expenses, if any,
payable pursuant to Section 4.2) in full to Worldtalk; and
(ii) the Certificates and Warrants to each Investor in the
denominations set forth for each such Investor on Exhibit A to this
Agreement.
If the Release Notice is not received by the Escrow Agent prior to the
Termination Time, Escrow Agent shall forthwith, but no later than two days
thereafter, return:
(y) to each Investor the portion of the Purchase Price
originally deposited into the Escrow Account by such Investor, which
amount is set forth for each such Investor on Exhibit A hereto (less
indemnities and expenses, if any, payable pursuant to Section 4.2); and
(z) to Worldtalk, the Certificates and the Warrants.
Interest on the Purchase Price shall be paid, when it has been received by the
Escrow Agent, to Worldtalk or the Investors, as applicable. Any delivery to
Worldtalk and the Investors of any Certificates and Warrants will be made to
them by overnight courier delivery at their addresses identified in Section 7
below for the purposes of notice, upon which the Escrow Agent may
-2-
conclusively rely. Delivery of the Purchase Price to Worldtalk and the Investors
shall be made by wire transfer initiated by Escrow Agent no later than two days
after the date required for distribution above in accordance with wire transfer
instructions set forth in Section 7 or Exhibit A, as the case may be. All risks
of shipment shall be borne by the intended recipient.
1.3 Certificates. Certificates representing Common
Stock and Warrants shall be registered in the names of the Investors in
accordance with Exhibit A attached hereto. If certificates are issuable to a
person other than the Investors in accordance with Exhibit A, then such
certificates shall be accompanied no later than July 14, 1999 by a fully
executed stock power bearing a "medallion" signature guarantee and the Escrow
Agent shall be deemed to have delivered such certificates when it has delivered
the appropriate stock certificates and stock powers to the transfer agent of the
Common Stock (currently Xxxxxx Trust and Savings Bank) and the Warrants to
Worldtalk, together with instructions as to how the newly-issued certificates
are to be issued. In each case, certificates shall be issued to the Investors at
their addresses set forth in Exhibit A.
1.4 No Encumbrance. No portion of the Escrow Assets or
any beneficial interest therein may be pledged, sold, assigned or transferred,
including by operation of law, by the Investors or Worldtalk or be taken or
reached by any legal or equitable process in satisfaction of any debt or other
liability of the Investors or Worldtalk, other than as provided in this
Agreement.
1.5 Tax Reporting Matters. Worldtalk hereby provides
the Escrow Agent with its tax identification numbers (00-0000000) and will
furnishing form W-9 and other forms and documents that the Escrow Agent may
reasonably request to the Escrow Agent within three days after the date hereof.
In the event that any interest is to be paid to the Investors, each Investor
will provide the Escrow Agent with a form W-9 prior to the delivery by the
Escrow Agent to the Investor of such interest. The parties hereto understand
that, if such tax reporting documentation is not so certified to the Escrow
Agent, the Escrow Agent may be required by the Internal Revenue Code, as it may
be amended from time to time, to withhold a portion of any interest or other
income earned on the investment of monies or other property held by the Escrow
Agent pursuant to this Agreement.
2. Representative.
2.1 Acceptance of Appointment. Each of the Investors
hereby appoints Representative as such Investor's attorney-in-fact for purposes
of entering into any document, amending or terminating this Agreement, giving
any consent and making any waiver under this Agreement. Representative each
hereby accepts its appointment as the Representative by the Investors, and, in
connection therewith, agrees to serve as a representative of the Investors for
purposes of this Agreement and as attorney-in-fact and agent for and on behalf
of each Investor with respect to the subject matter hereof.
2.2 Change in Representative. The Representative may
be changed by the Investors from time to time upon not less than two days' prior
written notice to the Escrow Agent and Worldtalk; provided that a Representative
may not be removed unless Investors contributing more than 50% of the Purchase
Price to the Escrow Account (a "Majority") agree to such removal and to the
identity of the substituted agent. No bond shall be required of the
Representative, and the
-3-
Representative shall not receive compensation for its services. The Escrow Agent
need not inquire into or verify that a successor Representative has been
appointed in accordance with the requirements of this Section 2.2. Rather, the
Escrow Agent may rely on certificates that are delivered to it by any party to
this Agreement and may assume without inquiry or notice to any other person that
any facts stated therein are correct.
2.3 Limitation of Liability. The Representative shall
not be liable for any act done or omitted hereunder as Representative while
acting in good faith and in the exercise of reasonable judgment. The Investors
by or on whose behalf the Purchase Price was contributed shall severally
indemnify the Representative and hold the Representative harmless against any
loss, liability or expense incurred without gross negligence or bad faith on the
part of the Representative and arising out of or in connection with the
acceptance or administration of the Representative's duties hereunder including
the reasonable fees and expenses of any legal counsel retained by the
Representative.
3. Escrow Agent.
3.1 Duties. The Escrow Agent shall only have those
duties as are expressly set forth in this Agreement, and no implied duties shall
be read into this Agreement. The Escrow Agent will incur no liability with
respect to any action taken or suffered by it in reliance upon any notice,
direction, instruction, consent, statement or other document believed by it to
be genuine and duly authorized, nor for any other action or inaction, except its
own willful misconduct or gross negligence. The Escrow Agent will not be
responsible for the validity or sufficiency of this Agreement. In all questions
arising under this Agreement, the Escrow Agent may rely on the advice or opinion
of counsel, including in-house counsel, and for anything done, omitted or
suffered in good faith by the Escrow Agent based on such advice or opinion, the
Escrow Agent will not be liable to anyone. The Escrow Agent will not be required
to take any action hereunder involving any expense unless the payment of such
expense is made or provided for in a manner satisfactory to it. The Escrow Agent
shall not be obligated to take any legal action or other action hereunder which
might, in its judgment, involve any expense or liability unless it shall have
been furnished with acceptable indemnification.
3.2 Conflicting Demands. In the event conflicting
demands are made or conflicting notices are served upon the Escrow Agent with
respect to the Escrow Account, the Escrow Agent will have the absolute right, at
the Escrow Agent's election, to do either or both of the following: (a) resign
so a successor can be appointed pursuant to Section 5 hereof or (b) file a suit
in interpleader and obtain an order from a court of competent jurisdiction
requiring the parties to interplead and litigate in such court their several
claims and rights among themselves. In the event such interpleader suit is
brought, the Escrow Agent will thereby be fully released and discharged from all
further obligations imposed upon it under this Agreement, and Worldtalk will pay
the Escrow Agent (subject to reimbursement from the Investors pursuant to
Section 4.1 hereof) all costs, expenses and reasonable attorney's fees expended
or incurred by the Escrow Agent pursuant to the exercise of Escrow Agent's
rights under this Section 3.
3.3 Notice. The Escrow Agent shall not be deemed to
have notice of any fact, claim or demand with respect hereto unless actually
known by an officer charged with responsibility
-4-
for administering this Agreement or unless in writing received by the Escrow
Agent and making specific reference to this Agreement. If any notice,
certificate or other document is required to be delivered to the Escrow Agent
and any other person, the Escrow Agent may assume without inquiry that any such
document which the Escrow Agent has received has also been received by such
other person.
3.4 Ambiguity or Uncertainty. In the event of any
ambiguity or uncertainty under this Agreement, or in any notice, instruction, or
other communication received by the Escrow Agent hereunder, the Escrow Agent
may, in its discretion, refrain from taking action, and may retain the pledged
collateral until and unless it receives written instruction signed by Worldtalk
and the Representative which eliminates such uncertainty or ambiguity.
3.5 Survival of Indemnifications; Limitations of
Liability. All indemnifications contained in the Agreement and the following
limitations of the Escrow Agent's liability shall apply and shall survive the
resignation or removal of the Escrow Agent, and shall survive the termination of
this Agreement.
(a) The Escrow Agent is not responsible for
the recitals appearing in this Agreement. The recitals shall be deemed
to be statements of the other parties to this Agreement and the Escrow
Agent shall not be charged with knowledge of, or under any obligations
to determine or interpret, the meaning of any terms defined in the
Agreement for purposes of performing or observing its duties hereunder.
(b) The Escrow Agent has no responsibility
for the sufficiency of this Agreement for any purpose. Without limiting
the foregoing, if any security interest is referred to herein, the
Escrow Agent shall have no responsibility for, and makes no
representation or warranty as to, the creation, attachment or
perfection of any such security interest or the sufficiency of this
Agreement.
(c) Nothing in this Agreement shall obligate
the Escrow Agent to qualify to do business or act in any jurisdiction
in which it is not presently qualified to do business, or be deemed to
impose upon the Escrow Agent the duties of a trustee. The duties of the
Escrow Agent under this Agreement are strictly ministerial in nature.
(d) In no event shall the Escrow Agent have
any liability for any failure or inability of any of the other parties
to perform or observe its duties under the Agreement, or by reason of a
breach of this Agreement by any of the other parties hereto. In no
event shall the Escrow Agent be obligated to take any action against
any of the other parties to compel performance hereunder.
(e) The Escrow Agent shall in no instance be
obligated to commence, prosecute or defend any legal proceedings in
connection herewith. The Escrow Agent shall be authorized and entitled,
however, in any instance to commence, prosecute or defend any legal
proceedings in connection herewith, including without limitation any
proceeding it may deem necessary to resolve any matter or dispute, to
obtain a necessary declaration
-5-
of rights, or to appoint a successor upon resignation (and after
failure by Worldtalk to appoint a successor, as provided below).
(f) The Escrow Agent shall in no instance be
under any duty to give any property held by it hereunder any greater
degree of care than it gives its own similar property. In no event
shall the Escrow Agent have any obligation to advance or risk funds.
(g) In no event shall the Escrow Agent be
liable for any indirect, punitive, special or consequential damages.
(h) The Escrow Agent shall have no liability
for the actions or omissions of any book-entry depository, transfer
agent, nominee, correspondent, subagent or subcustodian. The Escrow
Agent shall be permitted to use the services of any recognized
securities depository or clearing agent, such as (without limitation)
The Depository Trust Company and the Federal Reserve Bank book-entry
securities system, as applicable, in connection with any securities or
investments held hereunder.
(i) The Escrow Agent shall not be
responsible or liable for delays or failures in performance resulting
from acts beyond its control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war,
epidemics, laws or governmental regulations changes or superimposed
after the fact, fire, communication line failures, power failures,
computer viruses, earthquakes or other disasters, or to unavailability
of Federal Reserve Bank wire or telex facilities.
(j) The Escrow Agent's duties are limited to
those set forth in this Agreement and applicable laws, and Escrow Agent
is not charged with knowledge of or any duties or responsibilities in
connection with any other document or agreement including without
limitation the Agreement.
4. Fees and Expenses and Indemnity.
4.1 Division of Payment. All fees and expenses of the
Escrow Agent incurred in the acceptance of and in the ordinary course of
performing its responsibilities hereunder will be paid by Worldtalk in
accordance with the schedule of fees attached hereto as Exhibit B. Such fees and
expenses shall be paid by Worldtalk to the Escrow Agent upon receipt of a
written invoice sent to Worldtalk by Escrow Agent. Any extraordinary fees and
expenses shall also be paid by Worldtalk; provided, however, that any fees or
expenses incurred by the Escrow Agent in connection with a dispute over the
release of the Escrow Assets, will be paid by the party (Worldtalk or the
Investors) who does not substantially prevail in such dispute, and if there is
no such party, as determined by the court or by the parties in agreement, such
fees and expenses will be paid 50% by Worldtalk and 50% by the Investors (in
proportion as among themselves to the Purchase Price paid by each such
Investor). The Investors' liability for the fees and expenses of the Escrow
Agent shall be paid by Worldtalk and recovered out of the Escrow Assets to be
delivered to such Investors. To the extent that insufficient Escrow Assets
remain to cover the Investors' liability
-6-
for the fees and expenses of the Escrow Agent, Worldtalk shall indemnify the
Escrow Agent for such fees and expenses.
4.2 Agent Indemnification.
(a) Each of Worldtalk and the Investors, as
provided in Section 4.2(b) below, hereby covenants and agrees to indemnify the
Escrow Agent, its directors, officers, agents and employees, for, and to defend
and hold them harmless from and against, any and every loss, liability, damage,
claim, cost and expense of any nature incurred or suffered by the Escrow Agent
and arising out of or in connection with this Agreement or the administration of
this Agreement or the performance or observance by the Escrow Agent of its
responsibilities or services under this Agreement (including but not limited to
attorneys fees and other costs and expenses of defending or preparing to defend
against any claim or liability), unless and except to the extent such loss,
liability, damage, cost or expense shall be caused by the Escrow Agent's own
willful misconduct or gross negligence ("Indemnifiable Expenses"). The Escrow
Agent shall be entitled to reimbursement on demand for all expenses incurred in
connection with the administration of this Agreement or the escrow created
hereby which are in excess of its compensation for normal services hereunder,
including, without limitation, payment of any legal fees and expenses incurred
by the Escrow Agent in connection with the resolution of any claim by any party
hereunder ("Reimbursable Expenses").
(b) Worldtalk and the Investors agree among
themselves that the Indemnifiable Expenses and the Reimbursable Expenses of the
Escrow Agent will be paid 50% by Worldtalk and 50% by the Investors (in
proportion as among themselves to the Purchase Price paid by each such
Investor); provided, however, if such indemnification or reimbursement
obligations arose out of a dispute between Worldtalk and the Investors, such
Indemnifiable Expenses and Reimbursable Expenses shall be paid by the party
(Worldtalk or the Investors) who does not substantially prevail in such dispute,
as determined by the court or by the parties in agreement. The Escrow Agent may
deduct Indemnifiable Expenses and Reimbursable Expenses, if any, from
distributions that otherwise would be made pursuant to Section 1.2.
4.3 Tax Payments. Worldtalk agrees to assume
any and all obligations imposed now or hereafter by any applicable tax law with
respect to the release of Escrow Assets under this Agreement, and, without
limiting the generality of Section 4.2 above, hereby agrees to indemnify and
hold the Escrow Agent harmless from and against any taxes, additions for late
payment, interest, penalties and other expenses, that may be assessed against
the Escrow Agent on any such payment or other activities under this Agreement.
5. Successor Escrow Agent. In the event the Escrow Agent
becomes unavailable or unwilling to continue in its capacity herewith, the
Escrow Agent may resign and be discharged from its duties or obligations
hereunder by giving notice of its resignation to the parties to this Agreement,
specifying a date not less than ten days' following such notice date of when
such resignation will take effect. Worldtalk and the Representative will
designate a successor Escrow Agent prior to the expiration of such ten-day
period by giving joint written notice to the Escrow Agent as to a mutually
acceptable successor Escrow Agent. The Escrow Agent will promptly deliver the
Escrow Assets to such designated successor. If no successor Escrow Agent is
named by
-7-
Worldtalk and the Representative, the Escrow Agent may apply to a court of
competent jurisdiction for appointment of a successor Escrow Agent.
6. Disputes Involving the Escrow Agent. It is understood and
agreed that should any dispute arise with respect to the delivery, ownership,
right of possession, and/or disposition of the Escrow Assets, or should any
claim be made upon such Escrow Assets by a third party, the Escrow Agent upon
receipt of written notice of such dispute or claim by the parties hereto or by a
third party, is authorized and directed to retain in its possession without
liability to anyone, all or any of said Escrow Assets until such dispute shall
have been settled either by the mutual written agreement of the parties involved
or by a final order, decree or judgment of court in the United States of
America, the time for perfection of an appeal of such order, decree or judgment
having expired. The Escrow Agent may, but shall be under no duty whatsoever to,
institute or defend any legal proceedings that relate to the Escrow Assets.
7. Notices. Any notice, certificate, consent, determination or
other communication required or permitted to be given or made under this
Agreement shall be in writing and shall be effectively given and made if and
when (a) delivered personally, (b) sent by prepaid courier service or mail,
return receipt requested or receipt confirmed from the service, or (c) sent
prepaid by fax and receipt thereof is confirmed, in each case to the applicable
address set out below:
if to the Representative, to: with a copy to:
Hilal Capital Management LLC Xxxxxxx Xxxx & Xxxxx LLP
00 Xxxx 00xx Xxxxxx, Xxxxx 0000 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention:. Xxxx Xxxxx, Portfolio Manager Attention: Xxxx Xxxxxxxxxx, Esq.
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000)000-0000
if to Worldtalk, to: with a copy to:
Worldtalk Communications Corporation Fenwick & West LLP
0000 Xxx Xxxxxxxxx Xxxxx Two Palo Xxxx Xxxxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000 Xxxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxxxxxx, President Attention: Xxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Wire Instructions: Investors Bank and Trust
Company, Boston MA; ABA Number
000000000; For Further Credit to Client Funds
#569530395; Account name - Worldtalk Corp.;
Account Number - 39044-01; Attn: Xxxxxxxx Xxxxx
-8-
If to the Escrow Agent, to:
State Street Bank and Trust Company of California, N.A.
000 X. 0xx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Corporate Trust Administration (Worldtalk/Hilal 1999 Escrow)
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Wire Instructions: State Street Bank and Trust Company of California, N.A.; ABA
#000-00-0000; Los Angeles; General Account 1020; Attn: Xxxxxx Xxxxxxx
000-000-0000; specify this account is an off-line account of the Federal
Reserve and there is no DDA Account number.
If to an Investor, to: Such Investor's address set forth on Exhibit A hereto.
or to such other address as a party may have furnished to the other parties by
written notice given in accordance with this Section 7. Any such communication
so given or made shall be deemed to have been given or made and to have been
received on the day of delivery if delivered, or on the day of faxing or sending
by other means of recorded electronic communication, provided that such day in
either event is a Business Day and the communication is so delivered, faxed or
sent before 4:30 p.m. on such day. As used herein, a "Business Day" shall be any
day which is not a Saturday, Sunday or federal holiday. Otherwise, such
communication shall be deemed to have been given and made and to have been
received on the next following Business Day. Any such communication sent by mail
shall be deemed to have been given and made and to have been received on the
fifth Business Day following the mailing thereof; provided however that no such
communication shall be mailed during any actual or apprehended disruption of
postal services. Any such communication given or made in any other manner shall
be deemed to have been given or made and to have been received only upon actual
receipt; provided that for any notice or other writing required to be delivered
to the Escrow Agent, such notice or other writing shall only be deemed delivered
when actually received. Any Party may from time to time change its address under
this Section 7 by notice to the other party given in the manner provided by this
Section.
8. General.
8.1 Governing Law, Assigns. This Agreement will be
governed by and construed in accordance with the internal laws of the State of
California without regard to conflict-of-law principles and will be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
8.2 Counterparts. This Agreement may be executed in
two or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same agreement.
8.3 Entire Agreement. Except as otherwise set forth
in the Agreement, this Agreement constitutes the entire understanding and
agreement of the parties with respect to the
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subject matter of this Agreement and supersedes all prior agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof.
8.4 Waivers. No waiver by any party hereto of any
condition or of any breach of any provision of this Agreement will be effective
unless in writing. No waiver by any party of any such condition or breach, in
any one instance, will be deemed to be a further or continuing waiver of any
such condition or breach or a waiver of any other condition or breach of any
other provision contained herein.
8.5 Amendment. This Agreement may be amended by the
written agreement of Worldtalk, Representative, the Escrow Agent and a Majority
of the Investors; provided that, if the Escrow Agent does not agree to an
amendment agreed upon by Worldtalk, Representative and the Investors (except an
amendment adversely affecting the rights or protections of the Escrow Agent),
the Escrow Agent will resign and Worldtalk and the Representative will appoint a
successor Escrow Agent in accordance with Section 5 above.
8.6 Consent to Jurisdiction and Service. Worldtalk
and the Investors hereby absolutely and irrevocably consent and submit to the
jurisdiction of the courts in the State of California (and of any federal court
located in said state) in connection with any actions or proceedings brought
against Worldtalk and the Investors by the Escrow Agent arising out of or
relating to this Agreement. In any such action or proceeding, Worldtalk and the
Investors hereby absolutely and irrevocably waive personal service of any
summons, complaint, declaration or other process and hereby absolutely and
irrevocably agree that the service thereof may be made by certified or
registered first-class mail directed to Worldtalk and the Representative, as the
case may be, as their respective addresses in accordance with Section 7 hereof.
8.7 Reproduction of Documents. This Agreement and all
documents relating hereto, including, without limitation, (a) consents, waivers
and modifications which may hereafter be executed and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible as evidence.
[Remainder of page intentionally left blank]
-10-
In Witness Whereof, the parties have duly executed this
Agreement as of the day and year first above written.
WORLDTALK COMMUNICATIONS STATE STREET BANK AND TRUST
CORPORATION COMPANY OF CALIFORNIA, N.A.,
as Escrow Agent
By: /s/ Xxxxxxx Xxxxxxxxxxxx By: /s/ Xxxx Xxxxxx
---------------------------------- --------------------------------
Xxxxxxx Xxxxxxxxxxxx Authorized Signatory
President, and Chief Executive Officer
REPRESENTATIVE:
HILAL CAPITAL MANAGEMENT LLC
By: /s/ Xxxxx X. Xxxxx
----------------------------------
Xxxxx X. Xxxxx, MD
Managing Member
INVESTORS:
HILAL CAPITAL, LP HILAL CAPITAL QP, LP
By: Hilal Capital Partners LLC By: Hilal Capital Partners LLC
General Partner General Partner
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxx X. Xxxxx
---------------------------------- --------------------------------
Xxxxx X. Xxxxx, MD Xxxxx X. Xxxxx, MD
Managing Member Managing Member
HILAL CAPITAL ASSOCIATES LLC HILAL CAPITAL INTERNATIONAL, LTD.
By: Hilal Capital Partners LLC, By: Hilal Capital Management LLC,
Its Managing Member Its Investment Manager
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxx X. Xxxxx
---------------------------------- --------------------------------
Xxxxx X. Xxxxx, MD Xxxxx X. Xxxxx, MD
Managing Member Managing Member
[Signature page to Escrow Agreement]
-00-
XXXXXXXXXX XXXXXXXXXXXXX
By: Hilal Capital Management LLC,
Its Investment Manager
By: /s/ Xxxxx X. Xxxxx /s/ Xxxxxx Xxxxx
---------------------------------- --------------------------------
Xxxxx X. Xxxxx, MD XXXXXX XXXXX
Managing Member
NARRAGANSETT I, LP NARRAGANSETT OFFSHORE LTD
By: Narragansett Asset Management, LLC By: Xxx Holdings, LLC
General Partner Investment Adviser
By: /s/ Xxxxxx Xxxxxxx By: /s/ Xxxxxx Xxxxxxx
---------------------------------- --------------------------------
Xxxxxx Xxxxxxx Xxxxxx Xxxxxxx
Title: Managing Member Title: Managing Member
-------------------------------- ------------------------------
[Signature page to Escrow Agreement]
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EXHIBIT A
List of Investors
Certificate Warrant Purchase
Number of Number of Price
Name, Address and Wire Instructions Shares Shares Contributed
----------------------------------------------------------------- --------------- ------------ ----------------
Hilal Capital, LP............................................. 175,333 87,667 $526,000
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Taxpayer ID Number: _____
Wire Instructions: See Attached
Hilal Capital QP, LP.......................................... 447,667 223,833 $1,343,000
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Taxpayer ID Number: _____
Wire Instructions: See Attached
Hilal Capital Associates LLC.................................. 1,194,667 597,333 $3,584,000
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Taxpayer ID Number: _____
Wire Instructions: See Attached
Hilal Capital International, Ltd.............................. 602,667 301,333 $1,808,000
c/o Hilal Capital Management LLC
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Taxpayer ID Number: _____
Wire Instructions: See Attached
Xxxxxx Xxxxx.................................................. 100,000 50,000 $300,000
c/o Hilal Capital Management LLC
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Taxpayer ID Number: _______
Wire Instructions:_________
Highbridge International...................................... 646,333 323,167 $1,939,000
c/o Hilal Capital Management LLC
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Taxpayer ID Number: _______
Wire Instructions:_________
Narragansett I, LP............................................ 131,667 65,833 $395,000
c/o Narragansett Asset Management LLC
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Taxpayer ID Number: _______
Wire Instructions:_________
Narragansett Offshore, Ltd.................................... 35,000 17,500 $105,000
c/o Xxx Holdings, LLC
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Taxpayer ID Number: _______
Wire Instructions:_________
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