EXHIBIT 1
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT is made
as of the 4th day of September, 2003, by and among INSCI Corp., a Delaware
corporation (the "Company") and SCP Private Equity Partners II, L.P., a Delaware
limited partnership (the "Investor").
IN CONSIDERATION OF THE MUTUAL PROMISES HEREINAFTER SET FORTH, THE
PARTIES HERETO, EACH INTENDING TO BE LEGALLY BOUND HEREBY, AGREE AS FOLLOWS:
1. Purchase and Sale.
1.1 Sale and Issuance of Series C Convertible Preferred Stock.
(a) The Company shall adopt and file with the Secretary of State
of Delaware, on or before the Closing (as defined below), a Certificate of
Designation in the form attached hereto as Exhibit A (the "Designation").
(b) Subject to the terms and conditions of this Agreement, the
Investor agrees to purchase, and the Company agrees to sell and issue to the
Investor, 1,546,711 shares of the Company's Series C Convertible Preferred
Stock, par value $0.01 per share (the "Series C Preferred Stock") at a price per
share of $1.9396, for an aggregate purchase price of $3,000,000 (the "Purchase
Price"). The rights, privileges and preferences of the Series C Preferred Stock
shall be as stated in the Designation. As used herein, the term "Securities"
means the shares of Series C Preferred Stock to be issued and sold hereunder.
1.2 Closing. The initial purchase, sale and issuance of the Securities
shall take place at the offices of Xxxx Xxxxx LLP, Centre Square West, 0000
Xxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxxxxxxx XX 00000-0000 at 10:00 a.m. on September
4, 2003, or at such other place and time as the Company and the Investor
mutually agree upon (which time is designated as the "Closing").
1.3 Consideration. At the Closing, the Company shall deliver to the
Investor, a certificate representing 515,571 shares of the Securities against
payment of $1,000,000 of the Purchase Price by wire transfer. The remainder of
the Securities shall be sold and issued to the Investor as follows: (a) 257,785
shares of the Securities against payment of $500,000 of the Purchase Price
thirty days after the date of Closing (the "Closing Date"); (b) 257,785 shares
of the Securities against payment of $500,000 of the Purchase Price sixty days
after the Closing Date; (c) 257,785 shares of the Securities against payment of
$500,000 of the Purchase Price ninety days after the Closing Date; and (d)
257,785 shares of the Securities against payment of $500,000 of the Purchase
Price one hundred twenty days after the Closing Date (each such payment of the
Purchase Price, a "Post-Closing Payment"). The due date of any Post-Closing
Payment (and the corresponding sale and issuance of Securities) may be changed
to an earlier date with the written consent of the Investor and the approval of
a majority of the members of the
Board of Directors of the Company (the "Board"). The Investor's obligation to
make each Post-Closing Payment is conditioned upon the Investor's receipt of (i)
a certificate, dated as of the date of such Post-Closing Payment, and signed by
an executive officer of the Company, certifying that the representations
contained in Section 2 of this Agreement, are true and correct at and as of such
date; and (ii) a certificate representing the Securities being purchased on the
date of such Post-Closing Payment.
2. Representations and Warranties regarding the Company. The Company hereby
represents and warrants to the Investor that, except as set forth on the
Disclosure Schedule attached hereto as Schedule A (the "Disclosure Schedule"),
which exceptions shall be deemed to be representations and warranties as if made
hereunder, and except with respect to certain subsidiaries which are inactive as
set forth on the Disclosure Schedule:
2.1 Organization, Good Standing and Qualification. Each of the Company
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the state of its formation and has all requisite
corporate power and authority to carry on its business as now conducted and as
proposed to be conducted. Each of the Company and its subsidiaries is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
assets, properties, financial condition, operating results, prospects or
business (as such business is presently conducted and as it is proposed to be
conducted).
2.2 SEC Reports; Financial Statements. The Company's Common Stock,
$0.01 par value per share (the "Common Stock") is registered under Section 12(b)
or (g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the Company is in compliance with its reporting and filing obligations under
the Exchange Act. The Company has made available to the Investor (a) its annual
reports to stockholders and its Annual Reports on Form 10-KSB for its last two
fiscal years and (b) all of its Quarterly Reports on Form 10-QSB and each other
report, registration statement or definitive proxy statement filed with the
Securities and Exchange Commission (the "SEC") since the beginning of such two
fiscal years (collectively, the "SEC Reports"). The SEC Reports do not (as of
their respective dates) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The audited and unaudited financial statements of the
Company included in the SEC Reports (the "Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as stated in such Financial Statements or the notes
thereto) and fairly present the financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended. Since
the end of the most recent accounting period for which an SEC Report has been
filed, there has been no material adverse change in the assets, properties,
financial condition, operating results, prospects or business (as such business
is presently conducted and as it is proposed to be conducted) of the Company and
its subsidiaries taken together, and there is no existing condition, event or
series of events which reasonably would be expected to have a material adverse
effect on the assets, properties, financial condition, operating results,
prospects or business (as such business is presently conducted and as it is
proposed to be conducted) of the Company and its subsidiaries taken together, or
the ability of the Company to perform its obligations under this Agreement or
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the Amended and Restated Registration Rights Agreement to be executed and
delivered in connection herewith in the form attached hereto as Exhibit B (the
"Amended and Restated Registration Rights Agreement").
2.3 Capitalization and Voting Rights
(a) As of the date hereof, the authorized capital of the Company
is as set forth in Section 2.3 of the Disclosure Schedule. All of the issued and
outstanding shares of capital stock of the Company are owned as set forth in
Section 2.3 of the Disclosure Schedule. The capitalization of the Company on a
fully-diluted basis is as set forth on Section 2.3 of the Disclosure Schedule.
(b) All outstanding shares of capital stock of the Company's
subsidiaries are owned beneficially and of record by the Company, free and clear
of any liens, security interests, encumbrances, charges or other adverse claims
("Liens"). The Company and its subsidiaries do not presently own or control,
directly or indirectly, any interest in any other corporation, association or
other business entity. Neither the Company nor its subsidiaries are participants
in any joint venture, partnership, or similar arrangement.
(c) All outstanding shares of capital stock of the Company and
its subsidiaries have been duly and validly authorized and issued, are fully
paid and nonassessable and were issued in accordance with the registration or
qualification provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and any relevant state securities laws or pursuant to valid
exemptions therefrom.
(d) There are no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from the Company or any of its subsidiaries of any shares of their capital
stock, except as provided in Section 2.3 of the Disclosure Schedule.
2.4 Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery by the Company of this Agreement, the Independent Board
of Directors Authorization, the Fairness Opinion, the Amended and Restated
Registration Rights Agreement, the performance of all obligations of the Company
hereunder and thereunder, and the authorization, issuance (or reservation for
issuance) and delivery of the Securities and the Common Stock issuable upon
conversion of the Securities (the "Conversion Shares"), has been taken, and this
Agreement and the Amended and Restated Registration Rights Agreement constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, and (b) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
2.5 Stockholder Approval. Approval by the stockholders of the Company
is not required for the authorization, execution and delivery of this Agreement
and the Amended and Restated Registration Rights Agreement, the performance of
all obligations of the Company
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hereunder and thereunder, and the authorization, issuance (or reservation for
issuance) and delivery of the Securities and the Conversion Shares.
2.6 Valid Issuance of Stock. The Securities, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Amended and Restated
Registration Rights Agreement and under applicable state and federal securities
laws. The Conversion Shares purchased under this Agreement have been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Designation, will be duly and validly issued, fully paid, and nonassessable,
and will be free of restrictions on transfer other than restrictions on transfer
under this Agreement, the Amended and Restated Registration Rights Agreement and
under applicable state and federal securities laws.
2.7 Governmental Consents. Other than those that have been duly
obtained or filings which are required under applicable securities laws, which
filings, if any, will be made within the applicable periods required by such
laws, and other than the filing of the Designation, no consent, approval, order
or authorization of, or registration, qualification, designation, declaration or
filing with, any local, state or federal governmental authority, on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Amended and Restated Registration Rights
Agreement.
2.8 Offering. Subject in part to the truth and accuracy of the
Investor representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Securities as contemplated by this Agreement are exempt
from the registration requirements of the Securities Act and applicable state
securities laws, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption. The issuance of the Conversion Shares upon conversion of the
Securities will be exempt from the registration requirement of the Securities
Act and applicable state securities laws.
2.9 Compliance with Certain Matters. Neither the Company nor any of
its subsidiaries is in violation or default under or in breach of any provision
of its Certificate of Incorporation, bylaws or other organizational document,
any contract, covenant, agreement, instrument, document or Order to which it is
a party or by which it is bound or any statute, law, rule or regulation
applicable to it. The execution, delivery and performance of this Agreement and
the Amended and Restated Registration Rights Agreement and the consummation of
the transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision, contract,
covenant, agreement, instrument, document, Order, statute, law, rule or
regulation or an event that results in the creation of any Liens upon any assets
of the Company or any of its subsidiaries or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company or any of its subsidiaries,
their business or operations or any of their assets or properties.
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2.10 Litigation. There is no action, suit, proceeding or investigation
pending or, to the best of the Company's knowledge, currently threatened against
the Company or any of its subsidiaries that questions the validity of this
Agreement or the Amended and Restated Registration Rights Agreement or the right
of the Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the assets, properties,
financial condition, operating results, prospects or business of the Company or
any of its subsidiaries (as such business is presently conducted and as it is
proposed to be conducted), or any change in the current equity ownership of the
Company or any of its subsidiaries, except as otherwise disclosed in the SEC
Reports. The foregoing includes, without limitation, actions, suits, proceedings
or investigations pending or, to the best of the Company's knowledge, threatened
involving the prior employment of any of the Company's or any of its
subsidiaries' employees or consultants, their use in connection with the
Company's or any of its subsidiaries' business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. Neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or any administrative or
governmental agency, authority or instrumentality ("Order"). There is no action,
suit, proceeding or investigation by the Company or any of its subsidiaries
currently pending or that the Company or any of its subsidiaries intends to
initiate, except as otherwise disclosed in the SEC Reports.
2.11 Nondisclosure and Inventions Agreements. Each employee, officer
and consultant of the Company or any of its subsidiaries has executed a
Nondisclosure and Inventions Agreement in the form attached hereto as Exhibit C.
The Company, after reasonable investigation, is not aware that any of the
Company's or its subsidiaries' employees, officers or consultants are in
violation of the agreements specified in this Section 2.11, and the Company and
its subsidiaries will use their best efforts to prevent any such violation.
2.12 Patents and Trademarks. The Disclosure Schedule contains a
complete and accurate list of all (a) patented or registered Intellectual
Property Rights (as defined below) owned or used by the Company or any of its
subsidiaries, (b) pending patent applications and applications for registrations
of other Intellectual Property Rights filed by the Company or any its
subsidiaries and (c) unregistered trade names and corporate names owned or used
by the Company or any of its subsidiaries. The Disclosure Schedule also contains
a complete and accurate list of all licenses and other rights granted by the
Company or any of its subsidiaries to any third party with respect to any
Intellectual Property Rights and all licenses and other rights granted by any
third party to the Company or any of its subsidiaries with respect to any
Intellectual Property Rights, in each case identifying the subject Intellectual
Property Rights but not including licenses arising from the purchase of standard
"off the shelf" products. The Company or a subsidiary of the Company owns all
right, title and interest in and to all of the Intellectual Property Rights
listed on the Disclosure Schedule free and clear of all Liens, except as
otherwise disclosed in the SEC Reports. The Company or a subsidiary of the
Company owns all right, title and interest to, or has the right to use pursuant
to a valid license, all Intellectual Property Rights, as they currently exist,
necessary for the operation of the business of the Company and its subsidiaries
as presently conducted and as presently proposed to be conducted, free and clear
of all Liens, except as otherwise disclosed in the SEC Reports. The Company and
its subsidiaries have taken all necessary and desirable actions to maintain and
protect the
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Intellectual Property Rights that each of them own. To the best of the Company's
knowledge, the owners of any Intellectual Property Rights licensed to the
Company or any of its subsidiaries have taken all necessary and desirable
actions to maintain and protect the Intellectual Property Rights that are
subject to such licenses. There have been no claims made against the Company or
any of its subsidiaries asserting the invalidity, misuse or unenforceability of
any of such Intellectual Property Rights, and to the best of the Company's
knowledge, there are no valid grounds for the same. Neither the Company nor any
of its subsidiaries has received any notices of, and the Company is not aware of
any facts which indicate a likelihood of, any infringement or misappropriation
by, or conflict with, any third party with respect to such Intellectual Property
Rights (including, without limitation, any demand or request that the Company or
any of its subsidiaries license any rights from a third party). To the best of
the Company's knowledge, the conduct of the Company's and each of its
subsidiaries' business has not infringed, misappropriated or conflicted with and
does not infringe, misappropriate or conflict with any Intellectual Property
Rights of others, nor to the best of the Company's knowledge would any future
conduct as presently contemplated infringe, misappropriate or conflict with any
Intellectual Property Rights of others. To the best of the Company's knowledge,
the Intellectual Property Rights owned by or licensed to the Company or any of
its subsidiaries have not been infringed upon, or misappropriated by or conflict
with others. The transactions contemplated by this Agreement will have no
material adverse effect on the Company's or any of its subsidiaries' right,
title and interest in and to the Intellectual Property Rights listed on the
Disclosure Schedule. To the best of the Company's knowledge, none of the
Company's nor any of its subsidiaries' employees is obligated under any
contract, covenant, agreement, instrument or commitment or subject to any Order
that would interfere with the use of his or her best efforts to promote the
interests of the Company or any of its subsidiaries or that would conflict with
the Company's or any of its subsidiaries' business as presently conducted and to
the best of the Company's belief as presently proposed to be conducted. Neither
the execution of this Agreement nor the transactions contemplated by this
Agreement nor the carrying on of the Company's or each of its subsidiaries'
business by the employees of the Company and each of its subsidiaries, nor the
conduct of the Company's or each of its subsidiaries' business as presently
conducted or presently proposed to be conducted, will, to the best of the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant, agreement or instrument under which any of such employees is now
obligated. For purposes of this Agreement, "Intellectual Property Rights" means
all (i) patents, patent applications, patent disclosures and inventions, (ii)
trademarks, service marks, trade dress, trade names, logos and corporate names
and registrations and applications for registration thereof together with all of
the goodwill associated therewith, (iii) copyrights (registered and
unregistered) and copyrightable works and registrations and applications for
registration thereof, (iv) mask works and registrations and applications for
registration thereof, (v) computer software, data, data bases and documentation
thereof, (vi) trade secrets and other confidential information (including,
without limitation, ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, financial and marketing plans and customer and supplier lists and
information), (vii) other intellectual property rights and (viii) copies and
tangible embodiments thereof (in whatever form or medium).
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2.13 Agreements; Action.
(a) The SEC Reports list all material agreements, understandings,
instruments and contracts, whether written or oral, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective assets and properties are bound.
(b) There are no agreements, understandings or proposed
transactions between the Company or any of its subsidiaries and any of their
respective officers, directors, affiliates or any affiliate thereof, except as
otherwise disclosed in the SEC Reports.
(c) Except as otherwise disclosed in the SEC Reports, there are
no agreements, understandings, instruments, contracts, proposed transactions or
Orders to which the Company or any of its subsidiaries is a party or by which it
is bound that may involve (i) obligations (contingent or otherwise) of, or
payments to, the Company or any of its subsidiaries in excess of $50,000, (ii)
the license of any patent, copyright, trade secret or other proprietary right to
or from the Company or any of its subsidiaries, other than licenses arising from
the purchase of "off the shelf" or other standard products, (iii) provisions
restricting or affecting the development, manufacture or distribution of the
Company's or any of its subsidiaries' products or services, (iv) a warranty with
respect to its services rendered or its products sold or leased other than in
the ordinary course of business, or (v) indemnification by the Company or any of
its subsidiaries with respect to infringements of proprietary rights.
(d) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
material indebtedness for money borrowed or any other liabilities, (iii) made
any material loans or advances to any person, other than advances for travel
expenses and other customary employment-related advances made in the ordinary
course of business, or (iv) sold, exchanged or otherwise disposed of any
material amount of its assets or rights, other than the sale of its inventory in
the ordinary course of business, except as otherwise disclosed in the SEC
Reports.
(e) For the purposes of subsections (c) and (d) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(f) All of the contracts, agreements and instruments set forth on
the Disclosure Schedule pursuant to this Section 2.13 are valid, binding and
enforceable in accordance with their respective terms and there has been no
material change to or amendment to a material contract, covenant, agreement or
instrument by which the Company or any of its subsidiaries or any of their
respective assets or properties is bound or subject. Each of the Company and
each of its subsidiaries has performed all material obligations required to be
performed by it and is not in material default under or in material breach of
nor in receipt of any claim of default or breach under any contract, covenant,
agreement or instrument and neither the Company nor any of its subsidiaries have
any present expectation or intention of not fully
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performing all such obligations. No event has occurred which with the passage of
time or the giving of notice or both would result in a material default, breach
or event of noncompliance by the Company or any of its subsidiaries under any
contract, covenant, agreement or instrument. None of the Company nor any of its
subsidiaries has knowledge of any breach or anticipated breach by the other
parties to any contract, covenant, agreement or instrument, except as otherwise
disclosed in the SEC Reports.
(g) Neither the Company nor any of its subsidiaries is a party to
or is bound by any contract, covenant, agreement or instrument or subject to any
restriction under its charter, bylaws or other organizational document that
materially adversely affects its assets, properties, financial condition,
operating results, prospects or business (as such business is presently
conducted and as it is proposed to be conducted).
2.14 Related-Party Transactions. No employee, consultant, officer, or
director of the Company or any of its subsidiaries, or member of his or her
immediate family is indebted to the Company or any of its the subsidiaries, nor
is the Company or any of its subsidiaries indebted (or committed to make loans
or extend or guarantee credit) to any of them except for compensation, wages and
benefits and travel and customary expenses. Except for employment agreements,
benefit plans, insurance policies and similar matters, no employee, consultant,
officer, or director of the Company or any of its subsidiaries, or member of his
or her immediate family is directly or indirectly interested in any material
contract, covenant, agreement or instrument with the Company or any of its
subsidiaries, except as otherwise disclosed in the SEC Reports.
2.15 Permits. Each of the Company and each of its subsidiaries has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect its assets, properties, financial condition,
operating results, prospects or business (as such business is presently
conducted and as it is proposed to be conducted), and the Company believes that
each of the Company and each of its subsidiaries can obtain, without undue
burden or expense, any similar authority for the conduct of its business as
planned to be conducted. Neither the Company nor any of its subsidiaries is in
default in any material respect under any of such franchises, permits, licenses
or other similar authority, except as otherwise disclosed in the SEC Reports.
2.16 Environmental and Safety Laws. To the Company's knowledge,
neither the Company nor any of its subsidiaries is in violation of any
applicable statute, law, rule or regulation relating to the environment or
occupational health and safety, and to the Company's knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law, rule or regulation.
2.17 Manufacturing and Marketing Rights. Except in the ordinary course
of business, neither the Company nor any of its subsidiaries has granted rights
to manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects its exclusive right
to develop, manufacture, assemble, distribute, market or sell its products.
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2.18 Disclosure. The Company has fully provided the Investor with all
the information that the Investor has requested for deciding whether to purchase
the Securities and to consummate the transactions contemplated by this
Agreement. To the best of the Company's knowledge, none of this Agreement, the
Amended and Restated Registration Rights Agreement, any other statements or
certificates made or delivered in connection herewith or therewith or any other
information supplied by the Company with respect to the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements herein or therein not
misleading.
2.19 Registration Rights. Neither the Company nor any of its
subsidiaries has granted or agreed to grant any registration rights, including
piggyback rights, to any person or entity, except as set forth in Section 2.19
of the Disclosure Schedule.
2.20 Corporate Documents. The Company's Certificate of Incorporation
and bylaws and each of its subsidiaries' charter, bylaws and other organization
documents are in the form previously provided to the Investor.
2.21 Title to Property and Assets. Each of the Company and each of its
subsidiaries owns its property and assets free and clear of all Liens, except
such Liens that arise in the ordinary course of business and do not materially
impair its ownership or use of such property or assets. With respect to the
property and assets it leases, each of the Company and each of its subsidiaries
is in compliance with such leases and holds a valid leasehold interest free and
clear of any Liens.
2.22 Tax Returns, Payments and Elections. Each of the Company and each
of its subsidiaries have filed all tax returns and reports or have filed the
necessary extensions as required by law. These returns and reports are true and
correct in all material respects. Each of the Company and each of its
subsidiaries has paid all taxes and other assessments due, except those
contested by it in good faith that are listed in the Disclosure Schedule.
2.23 Insurance. Each of the Company and each of its subsidiaries has
in full force and effect or will obtain in a reasonable amount of time after the
Closing, fire and casualty insurance policies, with extended coverage in amounts
customary for companies similarly situated. Each of the Company and each of its
subsidiaries has in full force and effect or will obtain in a reasonable amount
of time after the Closing a quote for products liability and errors and
omissions insurance in amounts customary for companies similarly situated. The
parties will use reasonable business judgment in determining whether to
effectuate such policies. Each of the Company and each of its subsidiaries shall
have or will obtain in a reasonable amount of time after the Closing, directors'
and officers' insurance in amounts consistent with past practice; provided that
in no event shall the Company carry less than an aggregate of $1,000,000 in
directors' and officers' insurance coverage for the entire Board.
2.24 Minute Books. The minute books of the Company and each of its
subsidiaries made available to the Investor contain a complete summary of all
meetings of directors and stockholders since the time of incorporation and
reflect all transactions referred to in such minutes accurately in all material
respects.
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2.25 Labor Agreements and Actions. Neither the Company nor any of its
subsidiaries is bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
covenant, agreement, instrument, commitment or arrangement with any labor union,
and no labor union has requested or, to the Company's knowledge, requested or
sought to represent any of its employees, consultants, representatives or
agents. There is no strike or other labor dispute involving the Company or any
of its subsidiaries pending, or to the Company's knowledge, threatened, that
could have a material adverse effect on the assets, properties, financial
condition, operating results, prospects or business of the Company or any of its
subsidiaries (as such business is presently conducted and as it is proposed to
be conducted), nor is the Company aware of any labor organization activity
involving the employees or consultants of the Company or any of its
subsidiaries. The Company is not aware that any officer or key employee or key
consultant, or that any group of key employees or key consultants, intends to
terminate their employment or consulting relationship with the Company or any of
its subsidiaries, nor does the Company or any of its subsidiaries have a present
intention to terminate the employment or consulting relationship of any of the
foregoing nor has there been any material change in any compensation arrangement
or agreement with any employee or consultant. With the exception of those
officers and employees that have executed employment contracts with the Company
or any subsidiary of the Company as listed in the Disclosure Schedule, the
employment of each officer and employee of the Company and each of its
subsidiaries is terminable at the will of the Company or a subsidiary of the
Company, as applicable, and without any required severance payment. The
consulting relationship of each consultant of the Company or any of its
subsidiaries is terminable at the will of the Company or a subsidiary of the
Company, as applicable, and without any required severance payment. To the
knowledge of the Company, each of the Company and each of its subsidiaries have
complied in all material respects with all applicable local, state and federal
equal employment opportunity and other laws related to employment.
2.26 Damage; Loss. Neither the Company nor any of its subsidiaries has
experienced any damage, destruction or loss, whether or not covered by
insurance, that would materially and adversely affect the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted).
2.27 Liens. There has not been any satisfaction or discharge of any
Lien or payment of any obligation by the Company or any of its subsidiaries,
except in the ordinary course of business and that is material to its assets,
properties, financial condition, operating results or business (as such business
is presently conducted and as it is proposed to be conducted).
2.28 Real Property Holding Company. Neither the Company nor any of its
subsidiaries is a real property holding company within the meaning of Section
897 of the Internal Revenue Code of 1986, as amended.
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3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that:
3.1 Authorization. The Investor has full power and authority to enter
into this Agreement and the Amended and Restated Registration Rights Agreement,
and each of them constitutes the valid and legally binding obligation of the
Investor enforceable against the Investor in accordance with its terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally; and (b) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3.2 Purchase Entirely for Own Account. The Securities are being
acquired for investment for the Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof or
the Conversion Shares, and the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. The Investor
does not have any contract, covenant, agreement, undertaking or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person, with respect to any of the Securities or the Conversion Shares.
3.3 Disclosure of Information. The Investor has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Securities. The Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties in Section
2 of this Agreement or the right of the Investor to rely thereon.
3.4 Investment Experience. The Investor is an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Securities. The Investor also
represents it has not been organized for the purpose of acquiring the
Securities.
3.5 Accredited Investor. The Investor is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, as presently in effect.
3.6 Restricted Securities. The Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act, only in certain limited circumstances. In this connection,
the Investor represents that it is familiar with Rule 144 promulgated under the
Securities Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
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3.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Securities or the Conversion Shares
unless and until the transferee has agreed in writing for the benefit of the
Company to be bound by this Section 3 and the applicable provisions of the
Amended and Restated Registration Rights Agreement and:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition and, if requested by the
Company, such Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will not
require registration of such shares under the Act. It is agreed that the Company
will not require opinions of counsel for transactions made pursuant to Rule 144
except in unusual circumstances or unless required by a transfer agent.
Notwithstanding the provisions of subsections (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by an Investor that is a partnership to a partner of such partnership or a
retired partner of such partnership who retires after the date hereof, or to the
estate of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or his or her spouse, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if he or she were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
Securities and the Conversion Shares, may bear one or all of the following
legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the issuer thereof that such registration is not required or
unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by the securities laws of any applicable
jurisdictions.
(c) Any legend required by the Amended and Restated Registration
Rights Agreement or other applicable agreement.
4. Conditions of Investor's Obligations at Closing. The obligations of the
Investor under Sections 1.1 and 1.2 of this Agreement are subject to the
fulfillment on or before the Closing of each of the conditions hereinafter set
forth.
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true in all material respects on
and as of the Closing
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with the same effect as though such representations and warranties had been made
on and as of the Closing Date, unless another date is specified therein.
4.2 Performance. The Company shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.
4.3 Compliance Certificate. An executive officer of the Company shall
deliver to the Investor at the Closing a certificate on behalf of the Company,
stating that the conditions specified in Sections 4.1 and 4.2 have been
fulfilled.
4.4 Secretary's Certificate. The Investor shall have received a
certificate or certificates, dated the Closing Date and signed by the corporate
secretary of the Company (or other authorized officer or representative of the
Company), certifying the truth and correctness of attached copies of the
Company's Certificate of Incorporation, and all amendments thereto, the
Company's bylaws, and all amendments thereto, and resolutions of the Board
approving the Company entering into this Agreement and the consummation of the
transactions contemplated hereby and certifying as to the incumbency of the
officers authorized to execute this Agreement, the Amended and Restated
Registration Rights Agreement, the Designation and other related documents and
agreements.
4.5 Good Standing Certificates. The Company shall have delivered to
the Investor good standing certificates duly issued by the Secretaries of State
of Delaware, Massachusetts and Missouri.
4.6 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities and the other transactions contemplated by this Agreement shall be
duly obtained and effective as of the Closing.
4.7 Proceedings and Documents. All corporate approvals, stockholder
approvals and other proceedings in connection with the transactions contemplated
at the Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Investor and their special counsel,
and they shall have received all such counterpart original and certified or
other copies of such documents as they may reasonably request.
4.8 Amended and Restated Registration Rights Agreement. The Company,
Selway Partners, LLC, a New Jersey limited liability company and Selway
Management, Inc., a Delaware corporation shall have entered into the Amended and
Restated Registration Rights Agreement.
4.9 Written Consent and Waiver. Selway Partners, LLC, a New Jersey
limited liability company, Selway Management, Inc., a Delaware corporation and
CIP Capital, L.P., a Delaware limited partnership shall have executed the
Written Consent and Waiver in the form attached hereto as Exhibit D.
4.10 Stock Certificate. The Company shall have delivered to the
Investor an executed certificate representing the Securities.
-13-
4.11 Nondisclosure and Inventions Agreements. Each employee, officer
and consultant of the Company or any of its subsidiaries shall have entered into
Nondisclosure Agreements as specified in Section 2.11 hereof.
4.12 Board of Directors. Effective as of the Closing, (a) the
following designees of the Investor shall have been elected by the Board to
serve as directors on the Board: Xxxxxxx X. Xxxxxxxxx and Xxxxxx X. Xxxxxxxxx;
and (b) any existing observer rights shall have been terminated.
4.13 Legal Opinion. The Investor shall have received an opinion of
counsel to the Company, in the form attached hereto as Exhibit E.
4.14 Designation. The Company shall have adopted and filed with the
Secretary of State of Delaware the Designation.
4.15 Due Diligence. Completion of the Investor's due diligence
investigation, to the Investor's satisfaction.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company to the Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by the Investor:
5.1 Representations and Warranties. The representations and warranties
of the Investor contained in Section 3 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the Closing Date.
5.2 Performance. The Investor shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 Payment of Purchase Price. The Investor shall have delivered to
the Company the portion of the Purchase Price payable at the Closing pursuant to
Section 1.3.
5.4 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities and the other transactions contemplated by this Agreement shall be
duly obtained and effective as of the Closing.
6. Post-Closing Covenants.
6.1 Reverse Stock Split. The Company agrees to take all necessary
action to effectuate the reverse stock split of the Common Stock previously
approved by the stockholders of the Company and immediately thereafter reserve a
sufficient number of shares of Common Stock to validly issue the Conversion
Shares as contemplated hereunder and under the Designation or to take all such
other action as is necessary to reserve a sufficient number of shares of the
Common Stock for such purposes as soon as possible after the Closing.
-14-
7. Miscellaneous.
7.1 Survival of Warranties. The warranties, representations and
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
7.2 Use of Proceeds. The Company shall use the proceeds from the sale
of the Securities to the Investor hereunder for general corporate purposes.
7.3 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities or any Conversion Shares). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
7.4 Governing Law. The construction, validity and interpretation of
this Agreement will be governed by the internal laws of the State of Delaware
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Delaware.
7.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.7 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
overnight courier (with confirmation of receipt) or sent via facsimile (with
confirmation of receipt), (a) in case of the Company, to the Company at Two
Westborough Business Park, 000 Xxxxxxx Xxxxxxx, Xxxxx 0000, Xxxxxxxxxxx, XX
00000 (Fax: (000) 000-0000), Attn: President, with a copy to Xxxxxxx &
Xxxxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000xxx (b) in the case of SCP
Private Equity Partners II, L.P., to SCP Private Equity Partners II, L.P. at 000
Xxxxx Xxxx Xxxxx, Xxxxxxxx 000, Xxxxx, Xxxxxxxxxxxx 00000 (Fax: (000) 000-0000),
Attention: General Counsel (or at such other address for a party as shall be
specified by like notice), with a copy to Xxxx Xxxxx LLP, Centre Square West,
0000 Xxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxxxxxxx XX 00000-0000 (Fax: (215)
000-0000), Attention: Xxxxxxx X. Xxxx
Notice given by facsimile shall be confirmed by appropriate answer
back and shall be effective upon actual receipt if received during the
recipient's normal business hours, or at the beginning of the recipient's next
business day after receipt if not received during the recipient's normal
business hours. All notices by facsimile shall be confirmed promptly after
-15-
transmission in writing by certified mail or personal delivery. Any party may
change any address to which notice is to be given to it by giving notice as
provided above of such change of address.
7.8 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction.
7.9 Expenses. Irrespective of whether the Closing is effected, the
Company shall pay all costs and expenses incurred by the Investor with respect
to the negotiation, execution, delivery and performance of this Agreement and
any schedules or exhibits hereto (including, but not limited to, all costs and
expenses related to the Investor's due diligence investigation and all of the
Investor's out-of-pocket expenses); provided that the Company shall not be
obligated to reimburse the Investor for legal fees in excess of $20,000.
7.10 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investor. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Securities at the time outstanding, any securities into or for
which such Securities are convertible or exchangeable, each future holder of all
such securities, and the Company.
7.11 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.12 Publicity. Neither the Company nor the Investor shall take any
action, or permit any of its employees, consultants, officers, directors or
stockholders to take any action, which may result in the public disclosure of
the transactions effected hereby or the identity of the Investor, except
pursuant to the Company's filing obligations under applicable securities laws or
unless otherwise required by law. Other than with respect to filing obligations
under applicable securities laws, if the Company determines that it is required
by law to disclose these transactions or the identity of the Investor, it shall,
at a reasonable time before making any such disclosure, consult with the
Investor regarding such disclosure.
7.13 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Series C
Convertible Preferred Stock Purchase Agreement as of the date first above
written.
COMPANY:
INSCI CORP.
By: /s/ Xxxxx X. Xxxxxx
---------------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President, Chief Executive Officer,
Chief Financial Officer and Secretary
INVESTOR:
SCP PRIVATE EQUITY PARTNERS II, L.P.
By: SCP Private Equity II General Partner, L.P.,
its General Partner
By: SCP Private Equity II LLC
By: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: a Manager
SCHEDULE A
DISCLOSURE SCHEDULE
EXHIBIT A
Certificate of Designation
[Attached]
EXHIBIT B
Amended and Restated Registration Rights Agreement
[Attached]
EXHIBIT C
Form of Nondisclosure Agreement
[Attached]
EXHIBIT D
Written Consent and Waiver
EXHIBIT E
Opinion of Counsel
[Attached]
