EXHIBIT 10.1
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of July
10, 2001 by and between Network Commerce Inc., a Washington corporation (the
"Company") and Cody Holdings Inc. (the "Purchaser"), a British Virgin Islands
corporation.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Purchaser from
time to time as provided herein, and Purchaser shall purchase, up to $18,000,000
of Common Stock and the Warrant; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
Article 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company, up to an
aggregate of $18,000,000 of Common Stock (the "Commitment Amount") and the
Warrant, subject to the terms herein.
Section 1.2. Purchase Price and Initial Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article I of the Escrow Agreement, attached as Exhibit
B hereto (the "Initial Closing"), shall take place at the offices of Xxxxxxx
Xxxxxx & Green, P.C., 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (i) within
fifteen (15) days from the date hereof, or (ii) such other time and place or on
such date as the Purchaser and the Company may agree upon (the "Initial Closing
Date"). Each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Initial Closing.
Section 1.3. Liquidated Damages. The parties hereto acknowledge and agree
that the sums payable pursuant to this Agreement for late delivery of the Draw
Down Shares and the Registration Rights Agreement for a suspension of the
Registration Statement or the Purchaser's right to resell the Draw Down Shares
thereunder shall constitute liquidated damages and not penalties. The parties
further acknowledge that (a) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (b) the amounts specified in
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such provisions bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Purchaser in
connection with the failure of the Company to deliver the Draw Down Shares in a
timely manner or the suspension of the Purchaser's right to resell the Draw Down
Shares under the Registration Statement, and (c) the parties are sophisticated
businesses and have been represented by sophisticated and able legal and
financial counsel and negotiated this Agreement at arm's length. Article 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. Except as set
forth in the SEC Documents or on the Disclosure Schedule prepared by the Company
and attached hereto, or as contemplated by this Agreement, the Company hereby
makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated validly existing and in good standing under the laws of the
State of Washington and has all requisite corporate authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted. The Company does not have any Subsidiaries and does not own more than
fifty percent (50%) of or control any other business entity. The Company is duly
qualified to do business and is in good standing as a foreign corporation in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify could not have a Material Adverse Effect.
(b) Authorization, Enforcement. (i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations under
the Transaction Documents and to issue the Draw Down Shares pursuant to their
respective terms, (ii) the execution and delivery of the Transaction Documents
by the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required, and (iii) the Transaction Documents have been duly
executed and delivered by the Company and at the Initial Closing shall
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company consists of
200,000,000 shares of Common Stock of which 5,216,905 shares are issued and
outstanding and 5,000,000 shares of preferred stock, of which none are issued
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and outstanding. To the knowledge of the Company, all of the outstanding shares
of the Company's Common Stock have been duly and validly authorized and are
fully paid and non-assessable. No shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding 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. There are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
The Company is not a party to any agreement granting registration rights to any
person with respect to any of its equity or debt securities. The Company is not
a party to, and it has no knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of the Company. The Company has made
available to the Purchaser true and correct copies of the Company's articles or
certificate of incorporation as in effect on the date hereof (the "Charter"),
and the Company's bylaws as in effect on the date hereof (the "Bylaws"). The
Company has not received any notice from the Principal Market questioning or
threatening the continued inclusion of the Common Stock on such market.
(d) Issuance of Shares. The Warrant Shares to be issued upon exercise of
the Warrant have been duly authorized by all necessary corporate action and,
when paid for and issued in accordance with the terms hereof and the Warrant,
the Warrant Shares shall be validly issued and outstanding, fully paid and
non-assessable, and the Purchaser shall be entitled to all rights accorded to a
holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated herein do not and will not (i) violate any provision of the
Company's Charter or Bylaws, (ii) conflict with, 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, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal or state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company are
bound or affected, except, in all cases, for such conflicts, defaults,
termination, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, could not have a Material Adverse Effect.
The business of the Company is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for violations
which singularly or in the aggregate could not have a Material Adverse Effect.
The Company is not required under any federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, or
issue and sell the Shares in accordance with the terms hereof (other than any
filings which may be required to be made by the Company with the SEC or state
securities administrators and any registration statement which may be filed
pursuant hereto); provided, however, that for purpose of -------- ------- the
representations made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchaser
herein.
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(f) SEC Documents, Financial Statements. The Common Stock of the Company is
registered pursuant to Section 12(g) of the Exchange Act, and, the Company is
current with all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act, including material filed pursuant to Section 13(a) or 15(d)
of the Exchange Act. The Company has delivered or is otherwise available to the
Purchaser, through the XXXXX system, true and complete copies of the SEC
Documents filed with the SEC since December 31, 1998. The Company has not
provided to the Purchaser any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as applicable, and the rules and regulations
of the SEC promulgated thereunder applicable to such documents, and, as of their
respective filing dates (or permitted extensions thereof), none of the SEC
Documents 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. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements under GAAP and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with GAAP applied on a consistent
basis 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 not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its Subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) Subsidiaries. The SEC Documents [or Disclosure Schedule attached
hereto] sets forth each Subsidiary of the Company, showing the jurisdiction of
its incorporation or organization and showing the percentage of the Company's
ownership of the outstanding stock or other interests of such Subsidiary. For
the purposes of this Agreement, "Subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
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time owned directly or indirectly by the Company and/or any of its other
Subsidiaries. All of the issued and outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any Subsidiary is a party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
Subsidiary.
(h) No Material Adverse Effect. Since the date of the financial statement
contained in the most recently filed Form 10-Q (or 10-QSB) or Form 10-K (or
10-KSB), whichever is most current, no Material Adverse Effect has occurred or
exists with respect to the Company.
(i) No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any Subsidiary (including the notes thereto) in conformity with GAAP
which are not disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's or its Subsidiaries' respective businesses
since such date and which, individually or in the aggregate, could not have a
Material Adverse Effect on the Company or its Subsidiaries.
(j) No Undisclosed Events or Circumstances. Since the date of the financial
statement contained in the most recently filed Form 10- Q (or 10-QSB) or Form
10-K (or 10-KSB), whichever is most current, no event or circumstance has
occurred or exists with respect to the Company or its businesses, properties,
operations or financial condition, that, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed in the
SEC Documents.
(k) Indebtedness. The SEC Documents or the Disclosure Schedule attached
hereto sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (A) any liabilities for borrowed money or amounts owed in excess of
$500,000 (other than trade accounts payable incurred in the ordinary course of
business), (B) all guaranties, endorsements and contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (C) the present
value of any lease payments in excess of $500,000 due under leases required to
be capitalized in accordance with GAAP. The Company is not in default with
respect to any Indebtedness.
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(l) Title to Assets. Each of the Company and the Subsidiaries has good and
marketable title to all of its real and personal property reflected in the SEC
Documents, free of any mortgages, pledges, charges, liens, security interests or
other encumbrances, except for those that could not have a Material Adverse
Effect. All said real property leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company or any Subsidiary,
threatened against the Company which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. There is no action, suit, claim, investigation or proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any Subsidiary or any of their respective properties or assets,
which action, suit, claim, investigation or proceeding could have a Material
Adverse Effect. There are no outstanding orders, judgments, injunctions, awards
or decrees of any court, arbitrator or governmental or regulatory body against
the Company or any Subsidiary except those orders, judgments, injunctions,
awards or decrees which would not have a Material Adverse Effect.
(n) Compliance with Law. The Company and each of its Subsidiaries has all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of their respective
businesses as now being conducted by them unless the failure to possess such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each of its Subsidiaries has filed all Tax
Returns which it is required to file under applicable laws; all such Tax Returns
are true and accurate in all material respects, and have been prepared in
compliance in all material respects with all applicable laws; the Company has
paid all Taxes due and owing by it or any Subsidiary (whether or not such Taxes
are required to be shown on a Tax Return) and has withheld and paid over to the
appropriate taxing authorities all Taxes which it is required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
parties; and since December 31, 1999, the charges, accruals and reserves for
Taxes with respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are to its knowledge adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction where the
Company does not file tax returns that the Company or any Subsidiary is or may
be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any Subsidiary; no information
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related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any Subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; and (B) has not agreed to or is required to make any adjustments
pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or any of its Subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
The Company has not made an election under ss.341 (f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a Subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments nor is it a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
For purposes of this Section 2.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
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(p) Certain Fees. Except for the fees paid to GKN Securities Corp. Inc.
pursuant to the Escrow Agreement, no brokers, finders or financial advisory fees
or commissions will be payable by the Company or any Subsidiary with respect to
the transactions contemplated by this Agreement.
(q) Operation of Business. The Company and each of the Subsidiaries owns or
possesses all patents, trademarks, service marks, trade names, copyrights,
licenses and authorizations as set forth in the SEC Documents [or the Disclosure
Schedule attached hereto], and all rights with respect to the foregoing, which
to its knowledge would be reasonably necessary for the conduct of its business
as now conducted without any conflict with the rights of others.
(r) Books and Records. The records and documents of the Company and the
Subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the Subsidiaries, the location and
collection of its assets, and the nature of all transactions giving rise to the
obligations or accounts receivable of the Company and the Subsidiaries.
(s) Material Agreements. The Company and each of its Subsidiaries has in
all material respects performed all the obligations required to be performed by
them to date under the Material Agreements, have received no notice of default
and, to the Company's knowledge are not in default under any Material Agreement
now in effect, the result of which would cause a Material Adverse Effect. No
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement of the Company or of any Subsidiary limits or shall limit the
payment of dividends on the Company's Common Stock.
(t) Transactions with Affiliates. There are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions exceeding $250,000 between (A) the Company, any
Subsidiary, or any of their respective customers or suppliers on the one hand,
and (B) on the other hand, any officer, employee, consultant or director of the
Company or any of its Subsidiaries, or any person owning 5% or more of the
capital stock of the Company or any Subsidiary or any member of the immediate
family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(u) Securities Laws. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy the Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser), so as
to bring the issuance and sale of the Shares under the registration provisions
of the Securities Act and applicable state securities laws. Neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Shares.
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(v) Employees. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees. Neither the
Company nor any Subsidiary is in breach of any employment contract, agreement
regarding proprietary information, noncompetition agreement, nonsolicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, to be employed or
engaged by the Company or such Subsidiary. Since the date of the December 31,
2000 Form 10-K (or 10-KSB), no officer, consultant or key employee of the
Company or any Subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company.
(w) Absence of Certain Developments. Since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or Form
10-K (or 10KSB), whichever is most current, neither the Company nor any
Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the current nature and
volume of the Company's or such Subsidiary's business;
(iii)discharged or satisfied any lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than current liabilities paid in
the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other property
to stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or canceled
any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchaser or its representatives;
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(vii)suffered any material losses (except for anticipated losses consistent
with prior quarters) or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;
(viii) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate in
excess of $500,000;
(x) entered into any other material transaction, whether or not in the
ordinary course of business;
(xi) suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;
(xii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or its Subsidiaries.
(x) Governmental Approvals. Except for the filing of any notice prior or
subsequent to any Settlement Date that may be required under applicable federal
or state securities laws (which if required, shall be filed on a timely basis),
including the filing of a registration statement or post-effective amendment
pursuant to this Agreement, no authorization, consent, approval, license,
exemption of, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for, or in connection with, the delivery of the Shares, or for
the performance by the Company of its obligations under this Agreement.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares. The Company
acknowledges and agrees that Purchaser is acting solely in the capacity of arm's
length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser 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
hereunder. The Company further represents to the Purchaser that the Company's
decision to enter into this Agreement has been based solely on (a) the
Purchaser's representations and warranties in Section 2.2, and (b) the
independent evaluation by the Company and its own representatives and counsel.
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Section 2.2. Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the British Virgin Islands.
(b) Authorization and Power. The Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Shares being sold to it hereunder. The execution, delivery and performance
of the Transaction Documents by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and at the Initial Closing shall constitute valid and binding
obligations of the Purchaser enforceable against the Purchaser in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application
(c) No Conflicts. The execution, delivery and performance of this Agreement
by the Purchaser and the consummation by the Purchaser of the transactions
contemplated herein do not and will not (i) violate any provision of the
Purchaser's Charter or Bylaws, (ii) conflict with, 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, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Purchaser is a party, (iii) create or impose a lien, charge or encumbrance on
any property of the Purchaser under any agreement or any commitment to which the
Purchaser is a party or by which the Purchaser is bound or by which any of its
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal or state securities laws and regulations)
applicable to the Purchaser or by which any property or asset of the Purchaser
are bound or affected, except, in all cases, for such conflicts, defaults,
termination, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a material adverse effect on the
business or operations of the Purchaser. The Purchaser is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or to purchase the Shares in
accordance with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is able to bear the
financial risks associated with an investment in the Shares and that it has been
given full access to such records of the Company and the Subsidiaries and to the
officers of the Company and the Subsidiaries as it has deemed necessary or
appropriate to conduct its due diligence investigation. The Purchaser is capable
of evaluating the risks and merits of an investment in the Shares by virtue of
its experience as an investor and its knowledge, experience, and sophistication
in financial and business matters and the Purchaser is capable of bearing the
entire loss of its investment in the Shares.
11
(e) Accredited Investor. The Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) General. The Purchaser understands that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the suitability of the Purchaser to acquire the Shares.
Article 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each applicable Draw Down, the
Company will have authorized and reserved, free of preemptive rights, a
sufficient number of authorized but unissued shares of its Common Stock to cover
the Draw Down Shares to be issued in connection with such Draw Down requested
under this Agreement. The Draw Down Shares to be issued under this Agreement,
when paid for and issued in accordance with the terms hereof, shall be duly and
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock. Anything
in this Agreement to the contrary notwithstanding, (i) at no time will the
Company request a Draw Down which would result in the issuance of an aggregate
number of shares of Common Stock pursuant to this Agreement which exceeds 19.9%
of the number of shares of Common Stock issued and outstanding on the Initial
Closing Date without obtaining stockholder approval of such excess issuance, or
such other amount as would require stockholder approval under rules of the
Principal Market or otherwise without obtaining stockholder approval of such
excess issuance, and (ii) the Company may not make a Draw Down to the extent
that, after such purchase by the Purchaser, the sum of the number of shares of
Common Stock beneficially owned by the Purchaser and its affiliates would result
in beneficial ownership by the Purchaser and its affiliates of more than 9.9% of
the then outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act.
Section 3.2. Securities Compliance. If applicable, the Company shall notify
the Principal Market, in accordance with its rules and regulations, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares and the Warrant
to the Purchaser or subsequent holders.
Section 3.3. Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
12
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the Exchange Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market and shall provide the Purchaser with
copies of any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Purchaser has disposed of all of the
Shares.
Section 3.4. Escrow Arrangement. The Company and the Purchaser shall enter
into an escrow arrangement with Xxxxxxx Xxxxxx & Green, P.C. (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery of
the Shares.
Section 3.5. Registration Rights Agreement. The Company and the Purchaser
shall enter into the Registration Rights Agreement in the Form of Exhibit A
hereto. Before the Purchaser shall be obligated to accept a Draw Down request
from the Company, the Company shall have caused a registration statement to be
filed with the SEC in order for a sufficient number of shares of Common Stock to
be registered to cover the Shares to be issued in connection with such Draw
Down.
Section 3.6. Accuracy of Registration Statement.On each Settlement Date,
the Registration Statement and the prospectus therein shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made; and on such
Settlement Date or date of filing the Registration Statement and the prospectus
therein will not include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement and the
prospectus therein in reliance upon and in conformity with the information
furnished in writing to the Company by the Purchaser specifically for inclusion
in the Registration Statement and the prospectus therein.
Section 3.7. Compliance with Laws. The Company shall comply, and cause each
Subsidiary to comply, with all applicable laws, rules, regulations and orders
except for those which could not have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
13
Section 3.9. Other Agreements. The Company shall not enter into any
agreement the terms of which would restrict or impair the ability of the Company
to perform its obligations under this Agreement.
Section 3.10. Notice of Certain Events Affecting Registration; Suspension
of Right to Request a Draw Down. The Company will promptly notify the Purchaser
in writing upon the occurrence of any of the following events in respect of the
Registration Statement or related prospectus in respect of the Shares: (i)
receipt of any request for additional information from the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement the response to which would require any amendments or
supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) the happening
of any event that makes any statement made in the Registration Statement or
related prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the making
of any changes in the Registration Statement, related prospectus or documents so
that, in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any 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; and (v) the Company's
reasonable determination that the filing of a post-effective amendment to or the
withdrawal of the Registration Statement would be appropriate. The Company shall
not deliver to the Purchaser any Draw Down Notice during the continuation of any
of the foregoing events. The Company shall promptly make available to the
Purchaser any such supplements or amendments to the related prospectus, at which
time, provided that the registration statement and any supplements and
amendments thereto are then effective, the Company may recommence the delivery
of Draw Down Notices.
Section 3.11. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to a Draw
Down Notice sent by the Company pursuant to this Agreement.
Section 3.12. Limitation on Future Financing. The Company agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a discount to the then current market price (including securities
convertible, exchangeable, adjustable or which may be reset at a discount to the
current market price at the time of such conversion, exchange, adjustment or
reset) until the earlier of (i) 18 months from the Effective Date, (ii) sixty
14
(60) days after the entire Commitment Amount has been purchased by the
Purchaser, or (iii) the date this Agreement is terminated pursuant to the terms
herein. The foregoing shall not prevent or limit the Company from engaging in
any sale of securities (i) in a registered public offering by the Company which
is underwritten by one or more established investment banks (not including an
"equity line" type of financing), (ii) pursuant to a private placement where the
investors do not have registration rights, (iii) pursuant to any compensatory
plan for a full-time employee or key consultant, (iv) in connection with a
strategic partnership or other business transaction, the principal purpose of
which is not simply to raise money, or (v) to which Purchaser gives its prior
written consent. During the term of this Agreement, the Purchaser shall have a
right of first refusal to undertake and complete such subsequent transaction in
the case of (i), (ii) and (v) above. Such right of first refusal must be
exercised in writing within five (5) Trading Days of the Purchaser's receipt of
notice of the proposed terms of such financing or the right to participate in
such financing shall be waived.
Section 3.13. Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its Subsidiaries for general corporate purposes.
The Purchaser covenants with the Company as follows:
Section 3.14. Compliance with Law. The Purchaser agrees that its trading
activities with respect to the Shares will be in compliance with all applicable
state and federal securities laws, rules and regulations and rules and
regulations of the Principal Market on which the Company's Common Stock is
listed. Without limiting the generality of the foregoing, the Purchaser agrees
that it will, whenever required by federal securities laws, deliver the
prospectus included in the Registration Statement to any purchaser of Shares
from the Purchaser.
Article 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser is subject to the
satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Initial Closing and as
of each Settlement Date as though made at that time, except for representations
and warranties that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all material covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Initial Closing and as of
each Settlement Date.
15
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Initial Closing as
though made at that time (except for representations and warranties that speak
as of a particular date).
(b) Performance by the Company. The Company shall have performed, satisfied
and complied in all respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Initial Closing.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and to the
knowledge of the Company no investigation by any governmental authority shall
have been threatened, against the Purchaser or the Company or any Subsidiary, or
any of the officers, directors or affiliates of the Company or any Subsidiary
seeking to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser shall
have received an opinion of counsel to the Company, dated as of the Initial
Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall issue to the
Purchaser a warrant to purchase up to 350,000 shares of Common Stock. The
Warrant shall have a term from its initial date of issuance of 5 years. The
exercise price of the Warrant shall be 110% of the average of the VWAPs during
the 15 Trading Days immediately prior to the Initial Closing Date. The Common
Stock underlying the Warrant will be registered in the Registration Statement
referred to in Section 4.3 hereof. The Warrant shall be in the form of Exhibit E
hereto.
16
Section 4.3. Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The Company shall have
satisfied, or the Purchaser shall have waived at the Initial Closing, the
conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration Statement
registering the Shares subject to the Draw Down request shall have been declared
effective by the SEC and shall remain effective on each Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock shall not have
been suspended by the SEC or the Principal Market (except for any suspension of
trading of limited duration agreed to by the Company, which suspension shall be
terminated prior to the delivery of each Draw Down Notice), and, at any time
prior to such Draw Down Notice, trading in securities generally as reported on
the Principal Market shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported on the
Principal Market unless the general suspension or limitation shall have been
terminated prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to perform the
Company's obligations shall have occurred, such occurrences to be determined in
accordance with Section 8.9 herein.
(e) Opinion of Counsel. On the Effective Date, the Purchaser shall have
received (i) a "down-to-date" letter from the Company's counsel, confirming that
there is no change from the counsel's previously delivered opinion, or else
specifying with particularity the reason for any change and an opinion as to the
additional items specified in Exhibit C hereto, and (ii) any other items set
forth in the Escrow Agreement.
Article 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the conditions
set forth in this Agreement, the parties agree as follows:
17
(a) The Company may, in its sole discretion, issue and exercise draw downs
against the Commitment Amount (each a "Draw Down") during the Commitment Period,
which Draw Downs the Purchaser shall be obligated to accept, subject to the
terms and conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing Period.
There shall be a minimum of five (5) Trading Days between Draw Down Pricing
Periods. The number of shares of Common Stock purchased by the Purchaser with
respect to each Draw Down shall be determined as set forth in Section 5.1(e)
herein and settled on:
(i) as to the 1st through the 11th Trading Day during the Draw Down Pricing
Period, on or before the 13th Trading Day after such Draw Down Pricing Period
commences; and
(ii) as to the 12th through the 22nd Trading Day during the Draw Down
Pricing Period commences, on or before the 24th Trading Day after such Draw Down
Pricing Period (such settlement periods and such settlement dates in subsection
(i) and this subsection (ii) each referred to as a "Settlement Period" and a
"Settlement Date", respectively).
(c) In connection with each Draw Down Pricing Period, the Company may set
the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be $100,000 and
the maximum Investment Amount as to each Draw Down shall be the lesser of (i)
$2,000,000, and (ii) 6.0% of the EQY weighted average price field (as reported
on Bloomberg Financial L.P. using the BLPH function) for the Common Stock for
the 60 calendar days immediately prior to the applicable Commencement Date
(defined below) multiplied by the total trading volume in respect of the Common
Stock for such period. Notwithstanding anything herein to the contrary, in the
event the minimum Investment Amount is greater than the maximum Investment
Amount, as to such Draw Down only, the minimum Investment Amount shall equal the
maximum Investment Amount, but in no event shall the minimum Investment Amount
be less than $50,000, such that if the maximum Investment Amount is less than
$50,000, then the Company shall be precluded from exercising a Draw Down at such
time.
(e) The number of Shares of Common Stock to be issued on each Settlement
Date shall be a number of shares equal to the sum of the quotients (for each
trading day within the Settlement Period) of (x) 1/22nd of the Investment
Amount, and (y)the Purchase Price on each Trading Day within the Settlement
Period, subject to the following adjustments:
18
(i) if the VWAP on a given Trading Day is less than the Threshold Price,
then that portion of the Investment Amount to be paid on the immediately pending
Settlement Date shall be reduced by 1/22nd of the Investment Amount and such
Trading Day shall be withdrawn from the Settlement Period;
(ii) if during any Trading Day during the Settlement Period trading of the
Common Stock on the Principal Market is suspended for more than three (3) hours,
in the aggregate, or if any Trading Day during the Settlement Period is
shortened because of a public holiday, then that portion of the Investment
Amount to be paid on the immediately pending Settlement Date shall be reduced by
1/22nd of the Investment Amount and such Trading Day shall be withdrawn from the
Settlement Period; and
(iii) if during any Trading Day during the Settlement Period sales of Draw
Down Shares pursuant to the Registration Statement are suspended by the Company
in accordance with Sections 3(j) or 5(e) of the Registration Rights Agreement
for more than three (3) hours, in the aggregate, during the Settlement Period,
then that portion of the Investment Amount to be paid on the immediately pending
Settlement Date shall be reduced by 1/22nd of the Investment Amount and such
Trading Day shall be withdrawn from the Settlement Period.
(f) The Company must inform the Purchaser by delivering a draw down notice,
in the form of Exhibit D hereto (the "Draw Down Notice"), via facsimile
transmission in accordance with Section 8.4 as to the amount of the Draw Down
(the "Investment Amount") the Company wishes to exercise and the Threshold
Price, before the first day of the Draw Down Pricing Period (the "Commencement
Date"). If the Commencement Date is to be the date of the Draw Down Notice, the
Draw Down Notice must be delivered to and receipt confirmed by the Purchaser at
least one (1) hour before trading commences on such date. At no time shall the
Purchaser be required to purchase more than the maximum Investment Amount for a
given Draw Down Pricing Period so that if the Company chooses not to exercise
the maximum Investment Amount in a given Draw Down Pricing Period the Purchaser
is not obligated to and shall not purchase more than the scheduled maximum
Investment Amount in a subsequent Draw Down Pricing Period.
(g) On or before each Settlement Date, the Shares purchased by the
Purchaser shall be delivered to The Depository Trust Company ("DTC") on the
Purchaser's behalf through DTC's Deposit Withdrawal Agent Commission ("DWAC")
system upon receipt by the Escrow Agent of payment for the Draw Down Shares into
the Escrow Agent's master escrow account, as further set forth in the Escrow
Agreement. The Escrow Agent shall be directed to pay the purchase price to the
Company, net of $1,000 per Settlement as escrow expenses to the Escrow Agent and
any additional fees as set forth in the Escrow Agreement. The Company
understands that a delay in the delivery of the Draw Down Shares into the
Purchaser's DTC account beyond 3 Trading Days after the dates set forth in the
Escrow Agreement could result in economic loss to the Purchaser. Notwithstanding
anything herein to the contrary, as compensation to the Purchaser for such loss,
the Company agrees to pay late payments to the Purchaser for late delivery after
3 Trading Days from such date in accordance with the following schedule (where
"No. Trading Days Late" is defined as the number of Trading Days beyond three 3
Trading Days from the date set forth in the Escrow Agreement on which such Draw
Down Shares are to be delivered into the Purchaser's DTC account via the DWAC
system):
19
Late Payment for Each
$5,000 of Draw Down Shares
No. Trading Days Late Being Purchased
------------------------- -------------------------------
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1,000
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
The Company shall pay any payments incurred under this Section 5.1(g) in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue injunctive relief and/or actual damages for the
Company's failure to issue and deliver the Draw Down Shares to the Company,
including, without limitation, the Purchaser's actual losses occasioned by any
"buy-in" of Common Stock necessitated by such late delivery.
Article 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the date
hereof and shall end 18 months from the Effective Date or as otherwise set forth
in Section 6.2.
Section 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading Day's notice if (i)
an event resulting in a Material Adverse Effect has occurred and has not been
cured for a period of thirty (30) days after giving written notice thereof, (ii)
the Common Stock is de-listed from the Principal Market unless such de-listing
is in connection with the Company's subsequent listing of the Common Stock on
the OTC Bulletin Board, Nasdaq National Market, Nasdaq SmallCap Market, the
American Stock Exchange or the New York Stock Exchange, or (iii) the Company
files for protection from creditors under any applicable law.
20
(b) The Company may terminate this Agreement upon one (1) Trading Day's
notice if the Purchaser shall fail to fund a properly noticed Draw Down within
five (5) Trading Days of the end of the applicable Settlement Period.
Section 6.3. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 6.2 herein, written notice thereof shall forthwith
be given to the other party and the transactions contemplated by this Agreement
shall be terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 or 6.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 8.1, 8.2 and 8.9,
and Article 7 herein. Nothing in this Section 6.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights of the Company or the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
Article 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the Purchaser (and
its directors, officers, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Purchaser as a result of any material inaccuracy
in or breach of the representations, warranties or covenants made by the Company
herein.
(b) The Purchaser agrees to indemnify and hold harmless the Company and its
directors, officers, affiliates, agents, successors and assigns from and against
any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Company as result of any material inaccuracy in
or breach of the representations, warranties or covenants made by the Purchaser
herein. Notwithstanding anything to the contrary herein, the Purchaser shall be
liable under this Section 7.1(b) for only that amount as does not exceed the net
proceeds to the Purchaser as a result of the sale of the Shares.
Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the Indemnified Party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. In the event that the indemnifying party
21
advises an Indemnified Party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the Indemnified Party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the Indemnified Party's costs
(including reasonable attorneys' fees, charges and disbursements) and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification hereunder. The
Indemnified Party shall cooperate fully with the indemnifying party in
connection with any settlement negotiations or defense of any such action or
claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party, which relates to such
action or claim. The indemnifying party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article 7 to the contrary, the indemnifying
party shall not, without the Indemnified Party's prior written consent (which
consent shall not be unreasonably withheld), settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim. The
indemnification required by this Article 7 shall be made by periodic payments of
the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so long as
the Indemnified Party irrevocably agrees to refund such moneys, with interest,
if it is ultimately determined by a court of competent jurisdiction that such
party was not entitled to indemnification. The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
Indemnified Party against the indemnifying party or others, and (b) any
liabilities to which the indemnifying party may be subject.
Article 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Except as set forth in the Escrow
Agreement, each of the parties to this Agreement shall pay its own fees and
expenses related to the transactions contemplated by this Agreement. The Company
shall pay all stamp or other similar taxes and duties levied in connection with
issuance of the Shares pursuant hereto.
22
Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 8.3. Entire Agreement; Amendment. The Transaction Documents contain
the entire understanding of the parties with respect to the matters covered in
the Transaction Documents. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought and no condition to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.
Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: 000 0xx Xxxxxx Xxxxx, Xxxxx 000X
Xxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx Xxxxxx
With copies to: Xxxxxxx Xxxxx & Xxxxx LLP
(which shall not 000 Xxxxx Xxxxxx, xxxxx 5000
constitute notice) Xxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxx Xxxxxx
If to Purchaser: Cody Holdings Inc.
Harbour House, 2nd Floor
Waterfront Drive
Road Town, Tortola
British Virgin Islands
Attn: Xxxxx Xxxx
Fax: (000) 000-0000
23
with copies to: Xxxxxxx Xxxxxx & Green P.C.
(which shall not 000 Xxxx Xxxxxx
xxxxxxxxxx xxxxxx) Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith. Section 8.5. Waivers. No waiver by either party of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provisions, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section 8.6. Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment.
Section 8.8. 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.
Section 8.9. Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions thereof. The Company and
the Purchaser agree to submit themselves exclusively to the in personam
jurisdiction of the state and federal courts situated within the Southern
District of the State of New York with regard to any controversy arising out of
or relating to this Agreement. Any dispute under this Agreement or any Exhibit
attached hereto shall be submitted to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
24
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including reasonable attorneys' fees, from the non-prevailing party.
Section 8.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
Section 8.11. Publicity. Neither the Company nor the Purchaser shall issue
any press release or otherwise make any public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement, without the prior written consent of the other
party. After the Initial Closing, the Company may issue a press release or
otherwise make a public statement or announcement with respect to this Agreement
or the transactions contemplated hereby or the existence of this Agreement;
provided, however, that prior to issuing any such press release, making any such
public statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. The provisions of this Agreement are severable
and, in the event that The Board of Arbitration or any court or officials of any
regulatory agency of competent jurisdiction shall determine that any one or more
of the provisions or part of the provisions contained in this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement and this Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent possible,
so long as such construction does not materially adversely affect the economic
rights of either party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
25
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
Article 9
DEFINITIONS
Section 9.1. Certain Definitions.
(a) "Commencement Date" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(b) "Commitment Amount" shall have the meaning assigned to such term in
Section 1.1 hereof.
(c) "Commitment Period" shall mean the period commencing on the Effective
Date and expiring on the earliest to occur of (i) the date on which the
Purchaser shall have exercised an aggregate amount of Draw Downs equal to the
Commitment Amount, (ii) the date this Agreement is terminated in accordance with
the terms hereof, or (iii) the date occurring eighteen (18) months from the
Effective Date.
(d) "Common Stock" shall mean the Company's common stock, $.001 par value
per share.
(e) "Disclosure Schedule" shall mean the schedules prepared by the Company
and attached hereto.
(f) "Draw Down" shall have the meaning assigned to such term in Section
5.1(a) hereof.
(g) "Draw Down Notice" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(h) "Draw Down Pricing Period" shall mean a period of twenty-two (22)
consecutive Trading Days beginning on the date specified in the Draw Down Notice
(as defined in Section 5.1(f) herein); provided, however, the Draw Down Pricing
Period shall not begin before the day on which receipt of such notice is
confirmed by the Purchaser.
(i) "DTC" shall have the meaning assigned to such term in Section 5.1(g).
(j) "DWAC" shall have the meaning assigned to such term in Section 5.1(g).
26
(k) "Effective Date" shall mean the date the Registration Statement of the
Company covering the Shares being subscribed for hereby is declared effective by
the SEC.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(m) "GAAP" shall mean the United States Generally Accepted Accounting
Principles as those conventions, rules and procedures are determined by the
Financial Accounting Standards Board and its predecessor agencies.
(n) "Initial Closing" shall have the meaning assigned to such term in
Section 1.2 hereof.
(o) "Initial Closing Date" shall have the meaning assigned to such term in
Section 1.2 hereof.
(p) "Investment Amount" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(q) "Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties or financial condition of the Company that is
material and adverse to the Company and its Subsidiaries and affiliates, taken
as a whole and/or any condition, circumstance, or situation that would prohibit
or otherwise materially interfere with the ability of the Company to perform any
of its material obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations under any other Material Agreement.
(r) "Material Agreement" shall mean any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which is required to be filed with the SEC as an exhibit to any of the SEC
Documents.
(s) "Principal Market" shall mean initially the Nasdaq National Market and
shall include the OTC Bulletin Board, American Stock Exchange, the Nasdaq
Small-Cap Market, and the New York Stock Exchange if the Company becomes listed
and trades on such market or exchange after the date hereof.
(t) "Purchase Price" shall mean, with respect to Shares purchased during
each applicable Settlement Period, 90% of the VWAP on the date in question,
provided that the Purchase Price shall be 93% of the VWAP on the date in
question if the company is listed or trades on a Principal Market other than the
OTC Bulletin Board.
(u) "Registration Statement" shall mean the registration statements under
the Securities Act, to be filed with the Securities and Exchange Commission for
the registration of the Shares pursuant to the Registration Rights Agreement
attached hereto as Exhibit A (the "Registration Rights Agreement).
27
(v) "SEC" shall mean the Securities and Exchange Commission.
(w) "SEC Documents" shall mean the Company's latest Form 10-K or Form
10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the time in
question until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
(x) "Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
(y) "Settlement" shall mean the delivery of the Draw Down Shares into the
Purchaser's DTC account via DTC's DWAC System in exchange for payment therefor.
(z) "Settlement Date" shall have the meaning assigned to such term in
Section 5.1(b).
(aa) "Settlement Period" shall have the meaning assigned to such term in
Section 5.1(b).
(bb) "Shares" shall mean, collectively, the shares of Common Stock of the
Company being subscribed for hereunder (the "Draw Down Shares") and the shares
of Common Stock issuable upon exercise of the Warrant (the "Warrant Shares").
(cc) "Threshold Price" shall mean the price per Share designated by the
Company as the lowest VWAP during any Draw Down Pricing Period at which the
Company shall sell its Common Stock in accordance with this Agreement.
(dd) "Trading Day" shall mean any day on which the Principal Market is open
for business.
(ee) "Transaction Documents" shall mean this Agreement, the Registration
Rights Agreement and the Escrow Agreement.
(ff) "VWAP" shall mean the daily volume weighted average price of the
Company's Common Stock on the Principal Market as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:02 p.m.
Eastern Time) using the VAP function on the date in question.
(gg) "Warrant" shall mean the warrant issued to the Purchaser pursuant to
Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
28
[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of this __ day of July,
2001.
NETWORK COMMERCE INC.
By:
--------------------------------------
Xxxxx Xxxx,
Executive Vice President & CFO
CODY HOLDINGS INC.
By:
--------------------------------------
Xxxxx Xxxx, Director
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 10, 2001, between Cody
Holdings Inc. ("Purchaser") and Network Commerce Inc., a Washington corporation
(the "Company").
WHEREAS, simultaneously with the execution and delivery of this Agreement,
the parties shall enter into the Common Stock Purchase Agreement, dated as of
the date hereof, (the "Purchase Agreement") pursuant to which the Purchaser has
committed to purchase up to $18,000,000 of the Company's Common Stock (terms not
defined herein shall have the meanings ascribed to them in the Purchase
Agreement) and the Warrant; and
WHEREAS, the execution and delivery of this Agreement and granting to the
Purchaser of the registration rights set forth herein with respect to the Shares
is a component part of the transaction contemplated under the Purchase
Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term "Registrable
Security" means all Shares that (i) have not been sold under the Registration
Statement, (ii) have not been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) have not been otherwise
transferred to persons who may trade such Shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such Shares not bearing a restrictive legend, or (iv)
may not be sold without any time, volume or manner limitations pursuant to Rule
144(k) (or any similar provision then in effect) under the Securities Act. In
the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be deemed to be made in the definition of "Registrable Security" as is
appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Agreement.
Restrictions on Transfer. The Purchaser acknowledges and understands that
in the absence of an effective Registration Statement authorizing the resale of
the Shares as provided herein, the Shares are "restricted securities" as defined
in Rule 144. The Purchaser understands that no disposition or transfer of the
Shares may be made by Purchaser in the absence of (i) an opinion of counsel to
the Purchaser, in form and substance reasonably satisfactory to the Company,
that such transfer may be made without registration under the Securities Act or
(ii) such registration.
With a view to making available to the Purchaser the benefits of Rule 144,
the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144; and
1
(b) to file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of the Purchaser, make available other information as required
by, and so long as necessary to permit sales of, its Registrable Securities
pursuant to Rule 144.
Registration Rights With Respect to the Shares.
(a) The Company agrees that it will prepare and file with the Securities
and Exchange Commission ("Commission"), within 45 days after the date hereof, a
registration statement (on Form S-3 and/or SB-2, or other appropriate form of
registration statement) under the Securities Act (the "Registration Statement"),
at the sole expense of the Company (except as provided in Section 3(c) hereof),
so as to permit a public offering and resale of the Shares under the Securities
Act by Purchaser.
(b) The Company shall cause the Registration Statement to become effective
within 120 days of the date of filing the Registration Statement. The Company
will notify Purchaser of the effectiveness of the Registration Statement within
one Trading Day of such event.
(c) The Company will maintain the Registration Statement or post-effective
amendment filed under this Section 3 hereof effective under the Securities Act
until the earliest of (i) the date that all the Registrable Securities have been
disposed of pursuant to the Registration Statement, (ii) the date that all of
the Registrable Securities have been sold pursuant to the Registration
Statement, (iii) the date that all of the Registrable Securities have been
otherwise transferred to persons who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such Shares not bearing a restrictive legend,
(iv) the date that all of the Registrable Securities may be sold without any
time, volume or manner limitations pursuant to Rule 144(k) or any similar
provision then in effect under the Securities Act in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to the Purchaser (the
"Effectiveness Period").
(d) All fees, disbursements and out-of-pocket expenses and costs incurred
by the Company in connection with the preparation and filing of the Registration
Statement under subparagraph 3(a) and in complying with applicable securities
and Blue Sky laws (including, without limitation, all attorneys' fees of the
Company) shall be borne by the Company. The Purchaser shall bear the cost of
underwriting and/or brokerage discounts, fees and commissions, if any,
applicable to the Shares being registered and the fees and expenses of its
counsel.
(e) The Purchaser and its counsel shall have a reasonable period, not to
exceed 10 Trading Days, to review the proposed Registration Statement or any
amendment thereto, prior to filing with the Commission, and the Company shall
provide the Purchaser with copies of any comment letters received from the
Commission with respect thereto within 2 Trading Days of receipt thereof.
2
(f) The Company shall make reasonably available for inspection by
Purchaser, any underwriter participating in any disposition pursuant to the
Registration Statement, and any attorney, accountant or other agent retained by
the Purchaser or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the Company's officers, directors and employees to
supply all information reasonably requested by the Purchaser or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material non-public information shall be kept
confidential by the Purchaser and any such underwriter, attorney, accountant or
agent, unless such disclosure is made pursuant to judicial process in a court
proceeding (after first giving the Company an opportunity promptly to seek a
protective order or otherwise limit the scope of the information sought to be
disclosed) or is required by law, or such records, information or documents
become available to the public generally or through a third party not in
violation of an accompanying obligation of confidentiality. If the foregoing
inspection and information gathering would otherwise disrupt the Company's
conduct of its business, such inspection and information gathering shall, to the
maximum extent possible, be coordinated on behalf of the Purchaser and the other
parties entitled thereto by one firm of counsel designed by and on behalf of the
majority in interest of Purchaser and other parties.
(g) The Company shall qualify any of the Shares for sale in such states as
the Purchaser reasonably designates and shall furnish indemnification in the
manner provided in Section 6 hereof. However, the Company shall not be required
to qualify in any state which will require an escrow or other restriction
relating to the Company and/or the sellers, or which will require the Company to
qualify to do business in such state or require the Company to file therein any
general consent to service of process.
(h) The Company at its expense will supply the Purchaser with copies of the
Registration Statement and the final prospectus included therein (the
"Prospectus") and other related documents in such quantities as may be
reasonably requested by the Purchaser.
(i) The Company shall not be required by this Section 3 to include the
Purchaser's Shares in any Registration Statement which is to be filed if, in the
opinion of counsel for both the Purchaser and the Company (or, should they not
agree, in the opinion of another counsel experienced in securities law matters
acceptable to counsel for the Purchaser and the Company) the proposed offering
or other transfer as to which such registration is requested is exempt from
applicable federal and state securities laws and would result in all purchasers
or transferees obtaining securities which are not "restricted securities", as
defined in Rule 144 under the Securities Act.
3
(j) If at any time or from time to time after the effective date of the
Registration Statement, the Company notifies the Purchaser in writing of the
existence of a Potential Material Event (as defined in Section 3(k) below), the
Purchaser shall not offer or sell any Shares or engage in any other transaction
involving or relating to Shares, from the time of the giving of notice with
respect to a Potential Material Event until the Purchaser receives written
notice from the Company that such Potential Material Event either has been
disclosed to the public or no longer constitutes a Potential Material Event (the
"Suspension Period"). Notwithstanding anything herein to the contrary, if a
Suspension Period occurs, at any time during any period commencing on a Trading
Day a Draw Down Notice is deemed delivered and ending ten (10) Trading Days
following the end of the corresponding Draw Down Pricing Period, then the
Company must compensate the Purchaser for any net decline in the market value of
any Shares purchased, or committed to be purchased, by the Purchaser pursuant to
such recent Draw Down Pricing Period through the end of such Suspension Period.
Net decline shall be calculated as the difference between the highest VWAP
during the applicable Suspension Period and the VWAP on the Trading Day
immediately following a properly delivered notice to the Purchaser that such
Suspension Period has ended. If a Potential Material Event shall occur prior to
the date the Registration Statement is filed, then the Company's obligation to
file the Registration Statement shall be delayed without penalty for not more
than thirty (30) calendar days. Subject to any federal or state securities laws,
regulations or rules, the Company must give Purchaser notice in writing of the
existence of a Potential Material Event promptly upon knowledge that such an
event exists and, where possible, at least two (2) days prior to the first day
of a Suspension Period, if lawful to do so.
(k) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information that is not ripe for
disclosure in a registration statement, as determined in good faith by the Chief
Executive Officer or the Board of Directors of the Company or that disclosure of
such information in the Registration Statement would be detrimental to the
business and affairs of the Company; (ii) any material engagement or activity by
the Company which would, in the good faith determination of the Chief Executive
Officer or the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time, which determination shall
be accompanied by a good faith determination by the Chief Executive Officer or
the Board of Directors of the Company that the Registration Statement would be
materially misleading absent the inclusion of such information, or (iii)
pursuant to applicable law, the Company must file a post-effective amendment to
the Registration Statement because the Company experiences a fundamental change,
must change the plan of distribution to the Prospectus, or must update the
information included in the Prospectus pursuant to Section 10(a)(3) of the
Securities Act.
(l) Nothing herein shall preclude the Company from registering shares of
Common Stock of other shareholders under the Registration Statement.
4
Section 4. Cooperation with Company. The Purchaser will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company (which shall
include all information regarding the Purchaser and proposed manner of sale of
the Registrable Securities required to be disclosed in the Registration
Statement) and executing and returning all documents reasonably requested in
connection with the registration and sale of the Registrable Securities and
entering into and performing its obligations under any underwriting agreement,
if the offering is an underwritten offering, in usual and customary form, with
the managing underwriter or underwriters of such underwritten offering. The
Purchaser shall consent to be named as an underwriter in the Registration
Statement. The Purchaser acknowledges that in accordance with current Commission
policy, the Purchaser will be named as the underwriter of the Shares in the
Registration Statement.
Section 5. Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the registration of any of
the Registrable Securities under the Securities Act, the Company shall (except
as otherwise provided in this Agreement), as expeditiously as possible, subject
to the Purchaser's assistance and cooperation as reasonably required:
(a) (i) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the Prospectus as may be necessary
to keep such registration statement effective and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of all
securities covered by such registration statement whenever the Purchaser of such
Registrable Securities shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of securities from
time to time in connection with a registration statement pursuant to Rule 415
promulgated under the Securities Act) and (ii) take all lawful action such that
each of (A) the Registration Statement and any amendment thereto does not, when
it becomes effective, contain an 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 light of the circumstances under which they were made,
not misleading and (B) the Prospectus, and any amendment or supplement thereto,
does not at any time during the Effectiveness Period include an 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 light of the
circumstances under which they were made, not misleading;
(b) (i) prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
the Prospectus (including any supplements thereto), provide draft copies thereof
to the Purchaser and reflect in such documents all such comments as the
Purchaser (and its counsel) reasonably may propose and (ii) furnish to the
Purchaser such numbers of copies of the Prospectus including a preliminary
prospectus or any amendment or supplement to the Prospectus, as applicable, in
conformity with the requirements of the Securities Act, and such other
documents, as the Purchaser may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities;
5
(c) comply with the New York blue sky laws with respect to the Registrable
Securities (subject to the limitations set forth in Section 3(g) above), and do
any and all other acts and things which may be reasonably necessary or advisable
to enable the Purchaser to consummate the public sale or other disposition in
such jurisdiction of the Registrable Securities, except that the Company shall
not for any such purpose be required to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or to file
therein any general consent to service of process;
(d) list such Registrable Securities on the Principal Market, and any other
exchange on which the Common Stock of the Company is then listed, if the listing
of such Registrable Securities is then permitted under the rules of such
exchange or the Principal Market;
(e) notify the Purchaser at any time when the Prospectus is required to be
delivered under the Securities Act, of the happening of any event of which it
has knowledge as a result of which the Prospectus, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and the Company
shall prepare and file a curative amendment or curative supplement under Section
5(a) as quickly as commercially possible and the period beginning on the date of
notice until the curative amendment is effective or a curative supplement is
filed shall be deemed a Suspension Period and the Company shall compensate the
Purchaser as set forth in Section 3(j) herein;
(f) as promptly as practicable after becoming aware of such event, notify
the Purchaser (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the Commission or any state authority of any
stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time and take all lawful action to effect the
withdrawal, rescission or removal of such stop order or other suspension;
(g) take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Purchaser of its Registrable Securities in
accordance with the intended methods therefor provided in the Prospectus which
are customary for issuers to perform under the circumstances;
(h) in the event of an underwritten offering, promptly include or
incorporate in a prospectus supplement or post-effective amendment to the
Registration Statement such information as the managing underwriters reasonably
agree should be included therein and to which the Company does not reasonably
object and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after it is notified of the
matters to be included or incorporated in such prospectus supplement or
post-effective amendment; and
(i) maintain a transfer agent for its Common Stock.
6
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Purchaser and
each person, if any, who controls the Purchaser within the meaning of the
Securities Act ("Distributing Purchaser") against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees), to which the Distributing
Purchaser may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, or any related
preliminary prospectus, the Prospectus or amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances when made not misleading;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, preliminary prospectus, the
Prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Purchaser specifically for use in the preparation thereof. This
Section 6(a) shall not inure to the benefit of any Distributing Purchaser with
respect to any person asserting such loss, claim, damage or liability who
purchased the Registrable Securities which are the subject thereof if the
Distributing Purchaser failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation to such person of the sale of
such Registrable Securities, where the Distributing Purchaser was obligated to
do so under the Securities Act or the rules and regulations promulgated
thereunder. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) Each Distributing Purchaser agrees that it will indemnify and hold
harmless the Company, and each officer, director of the Company or person, if
any, who controls the Company within the meaning of the Securities Act, against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include, but not be limited to, all reasonable costs of defense
and investigation and all reasonable attorneys' fees) to which the Company or
any such officer, director or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, or any related preliminary prospectus, the
Prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, preliminary prospectus, the Prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Distributing Purchaser specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Distributing Purchaser may otherwise have. Notwithstanding
anything to the contrary herein, the Distributing Purchaser shall not be liable
under this Section 6(b) for any amount in excess of the net proceeds to such
Distributing Purchaser as a result of the sale of Registrable Securities
pursuant to the Registration Statement.
7
(c) Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent of actual prejudice demonstrated by the indemnifying party. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 6 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Purchaser, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Purchaser and
the indemnifying party and the Distributing Purchaser shall have been advised by
such counsel in writing that there may be one or more legal defenses available
to the indemnifying party different from or in conflict with any legal defenses
which may be available to the Distributing Purchaser (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Purchaser, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing
Purchaser, which firm shall be designated in writing by the Distributing
Purchaser and be approved by the indemnifying party). No settlement of any
action against an indemnified party shall be made without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld.
8
All fees and expenses of the indemnified party (including reasonable costs
of defense and investigation in a manner not inconsistent with this Section and
all reasonable attorneys' fees and expenses) shall be promptly paid to the
indemnified party, as incurred; within 10 Trading Days of written notice thereof
to the indemnifying party; provided, that the indemnifying party may require
such indemnified party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such indemnified party is
not entitled to indemnification hereunder.
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Purchaser shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), in
either such case (after contribution from others) on the basis of relative fault
as well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Purchaser on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Purchaser
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall
any (i) Purchaser be required to undertake liability to any person under this
Section 7 for any amounts in excess of the dollar amount of the net proceeds to
be received by the Purchaser from the sale of the Purchaser's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are or were to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
9
Section 8. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be delivered as set forth in the
Purchase Agreement.
Section 9. Assignment. Neither this Agreement nor any rights of the
Purchaser or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased by the Purchaser pursuant to the Purchase Agreement
other than through open-market sales, and (b) upon the prior written consent of
the Company, which consent shall not be unreasonably withheld or delayed in the
case of an assignment to an affiliate of the Purchaser, the Purchaser's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any affiliate of the Purchaser) who agrees to be
bound hereby.
Section 10. Counterparts/Facsimile. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
Section 11. Remedies and Severability. The remedies provided in this
Agreement are cumulative and not exclusive of any remedies provided by law. If
any term, provision, covenant or restriction of this Agreement is held by a
board of arbitration or a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of those
that may be hereafter declared invalid, illegal, void or unenforceable.
Section 12. Conflicting Agreements. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the purchasers of Registrable Securities in this Agreement or
otherwise prevents the Company from complying with all of its obligations
hereunder.
Section 13. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any action may be brought as set
forth in the Purchase Agreement. The Company and the Purchaser agree to submit
themselves exclusively to the in personam jurisdiction of the state and federal
courts situated within the Southern District of the State of New York with
regard to any controversy arising out of or relating to this Agreement. Any
party shall have the right to seek injunctive relief from any court of competent
jurisdiction in any case where such relief is available. Any dispute under this
10
Agreement shall be submitted to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including attorney's fees, from the non-prevailing party.
[SIGNATURE PAGE FOLLOWS]
11
[SIGNATURE PAGE TO EQUITY LINE REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed, on this 10th day of July, 2001
NETWORK COMMERCE INC.
By:
--------------------------------------
Xxxxx Xxxx,
Executive Vice President & CFO
CODY HOLDINGS INC.
By:
--------------------------------------
Xxxxx Xxxx, Director
12
EXHIBIT B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of July 10, 2001, by
and among Network Commerce Inc., a corporation incorporated under the laws of
Washington (the "Company"), Cody Holdings Inc. ("Purchaser"), and Xxxxxxx Xxxxxx
& Green, P.C., having an address at 000 Xxxx Xxxxxx, Xxx Xxxx, XX 00000 (the
"Escrow Agent"). Capitalized terms used but not defined herein shall have the
meanings set forth in the Common Stock Purchase Agreement referred to in the
first recital.
WHEREAS, the Purchaser will from time to time as requested by the Company,
purchase shares of the Company's Common Stock from the Company as set forth in
that certain Common Stock Purchase Agreement (the "Purchase Agreement") dated
the date hereof between the Purchaser and the Company, which shares shall be
issued pursuant to the terms and conditions contained herein and in the Purchase
Agreement; and
WHEREAS, the Company and the Purchaser have requested that the Escrow Agent
hold in escrow and then distribute the initial documents and certain funds which
are conditions precedent to the effectiveness of the Purchase Agreement, and
have further requested that upon each exercise of a Draw Down, the Escrow Agent
hold the relevant documents and the applicable purchase price pending receipt by
Purchaser of the securities issuable upon such Draw Down;
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
Article I
TERMS OF THE ESCROW FOR THE INITIAL CLOSING
1.1. The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds and documents which
are referenced in Section 4.2 of the Purchase Agreement.
1.2. At the Initial Closing, the Company shall deliver to the Escrow Agent:
(i) the original executed Registration Rights Agreement in the form of
Exhibit A to the Purchase Agreement;
(ii) the original executed opinion of Xxxxxxx Xxxxx & Xxxxx, LLP in the
form of Exhibit C to the Purchase Agreement;
(iii) the original executed Company counterpart of this Escrow Agreement;
1
(iv) the original executed Company counterpart of the Purchase Agreement;
and
(v) the original executed Warrant; and
(vi) the sum of $20,000.
1.3. Upon receipt of the foregoing, and receipt of executed counterparts
from Purchaser of the Purchase Agreement, the Registration Rights Agreement and
this Escrow Agreement, the Escrow Agent shall calculate and enter the exercise
price, issuance date and termination date on the face of the Warrant and shall
wire transfer $20,000, unless already sent to the Purchaser, to Xxxxxxx, Xxxxxx
& Green, P.C. for purchaser's legal, administrative and due diligence costs and
expenses and shall then arrange to have the Purchase Agreement, this Escrow
Agreement, the Registration Rights Agreement, the Warrant the LT Warrant and the
opinion of counsel delivered to the appropriate parties.
1.4 Wire transfers to the Escrow Agent (not address for notice or delivery
of documents) shall be made as follows:
Xxxxxxx Xxxxxx & Green, P.C.
Master Escrow Account
Chase Manhattan Bank
0000 Xxxxxxxx - Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA No. 000000000
Account No. 035 1 346036
Attention: L. Borneo
Article II
TERMS OF THE ESCROW FOR EACH DRAW DOWN
2.1. Each time the Company shall send a Draw Down Notice to the Purchaser
as provided in the Purchase Agreement, it shall send a copy, by facsimile, to
the Escrow Agent.
2.2. Each time the Purchaser shall purchase Shares pursuant to a Draw Down,
the Purchaser shall send the applicable Purchase Price of the Draw Down Shares
to the Escrow Agent. Upon receipt of such funds, the Escrow Agent shall advise
the Company that it has received the funds for such Draw Down Shares. The
Company shall promptly, but no later than 1 Trading Day after receipt of such
funding notice from the Escrow Agent:
(i) cause its transfer agent to issue the Draw Down Shares to the Purchaser
via DTC's DWAC system to the account specified by the Purchaser from time to
time;
2
(ii) deliver, as to the first drawdown only, the original executed
attorney's opinion in the form of Exhibit C to the Purchase Agreement to the
Purchaser; and
(iii) deliver a Form 424(b)(3) supplemental prospectus to the Purchaser.
2.3. Upon receipt of written confirmation from the transfer agent or from
the Purchaser that such Draw Down Shares have been so deposited and the opinion
and the supplemental prospectus have been so delivered, the Escrow Agent shall,
within 2 Trading Days of receipt of the foregoing, wire 94% of the applicable
Investment Amount per the written instructions of the Company, net of one
thousand dollars ($1,000) as escrow expenses to the Escrow Agent, and the
remaining 6% to GKN Securities Corp.
2.4. The Escrow Agent shall remit GKN Securities Corp.'s fee in accordance
with wire instructions that it will send to the Escrow Agent.
2.5. In the event that such Draw Down Shares are not in the Purchaser's DTC
account and the opinion and supplemental prospectus are not delivered to the
Purchaser within 3 Trading Days of the date of the Escrow Agent's notice, then
Purchaser shall have the right to demand, by notice, the return of the Purchase
Price, and the applicable Draw Down Notice shall be deemed cancelled.
Article III
MISCELLANEOUS
3.1. No waiver of any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof, or of
any other covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed an extension of the time
for performance of any other obligation or act.
3.2. All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent by fax, overnight courier, registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
received upon receipt thereof, as set forth in the Purchase Agreement.
3.3. This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.
3.4. This Escrow Agreement is the final expression of, and contains the
entire agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This Escrow
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by their respective agents duly authorized in writing
or as otherwise expressly permitted herein.
3
3.5. Whenever required by the context of this Escrow Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Escrow Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Escrow Agreement.
3.6. The parties hereto expressly agree that this Escrow Agreement shall be
governed by, interpreted under and construed and enforced in accordance with the
laws of the State of New York. Except as expressly set forth herein, any action
to enforce, arising out of, or relating in any way to, any provisions of this
Escrow Agreement shall be brought as is more fully set forth in the Purchase
Agreement.
3.7. The Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by the Company, Purchaser and the Escrow
Agent.
3.8. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while
acting in good faith, excepting only its own gross negligence or willful
misconduct, and any act done or omitted by the Escrow Agent pursuant to the
advice of the Escrow Agent's attorneys-at-law (other than Escrow Agent itself)
shall be conclusive evidence of such good faith.
3.9. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
3.10. The Escrow Agent shall not be liable in any respect on account of the
identity, authorization or rights of the parties executing or delivering or
purporting to execute or deliver the Purchase Agreement or any documents or
papers deposited or called for thereunder or hereunder.
3.11. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Purchaser, and may continue to act as legal counsel for the Purchaser, from time
to time, notwithstanding its duties as the Escrow Agent hereunder. The Company
consents to the Escrow Agent in such capacity as legal counsel for the Purchaser
and waives any claim that such representation represents a conflict of interest
on the part of the Escrow Agent. The Company understands that the Purchaser and
the Escrow Agent are relying explicitly on the foregoing provision in entering
into this Escrow Agreement.
4
3.12. The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Purchaser. In the event of any such resignation, the Purchaser and the
Company shall appoint a successor Escrow Agent.
3.13. If the Escrow Agent reasonably requires other or further instruments
in connection with this Escrow Agreement or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
3.14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (i) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or the escrow funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned by a final order,
decree or judgment of a board of arbitration or a court of competent
jurisdiction after the time for appeal has expired and no appeal has been
perfected, but the Escrow Agent shall be under no duty whatsoever to institute
or defend any such proceedings, or (ii) to deliver the escrow funds and any
other property and documents held by the Escrow Agent hereunder to a state or
Federal court having competent subject matter jurisdiction and located in the
State and City of New York in accordance with the applicable procedure therefor.
3.15. The Company and the Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent and its partners, employees, agents
and representatives from any and all claims, liabilities, costs or expenses
(including reasonable attorneys' fees) in any way arising from or relating to
the duties or performance of the Escrow Agent hereunder or the transactions
contemplated hereby or by the Purchase Agreement other than any such claim,
liability, cost or expense to the extent the same shall have been determined by
final, unappealable judgment of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of the Escrow Agent.
[SIGNATURE PAGE FOLLOWS]
5
[SIGNATURE PAGE TO EQUITY LINE ESCROW AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of this ___ day of July, 2001.
NETWORK COMMERCE INC.
By:
-------------------------------------------------
Xxxxx Xxxx,
Executive Vice President & CFO
CODY HOLDINGS INC.
By:
-------------------------------------------------
Xxxxx Xxxx, Director
ESCROW AGENT:
XXXXXXX XXXXXX & GREEN, P.C.
By:
-------------------------------------------------
Xxxxxx X. Xxxxxxx, Authorized Signatory
6
[EXHIBIT C - LEGAL OPINION]
[OMITTED]
[EXHIBIT D - DRAW DOWN NOTICE]
[OMITTED]
EXHIBIT E
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND
ANY APPLICABLE STATE LAWS.
STOCK PURCHASE WARRANT
To Purchase 350,000 Shares of Common Stock of
NETWORK COMMERCE INC.
THIS CERTIFIES that, for value received, Cody Holdings Inc. (the "Holder"),
is entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after July 10, 2001 (the
"Initial Exercise Date") and on or prior to 5:00 p.m. (Eastern Time) on July 11,
2006 (the "Termination Date") but not thereafter, to subscribe for and purchase
from Network Commerce Inc., a corporation incorporated in the State of
Washington (the "Company"), up to 350,000 shares (the "Warrant Shares") of
Common Stock, $0.001 par value per share, of the Company (the "Common Stock").
The purchase price of one share of Common Stock (the "Exercise Price") under
this Warrant shall be $0.57. The Exercise Price and the number of Warrant Shares
for which the Warrant is exercisable shall be subject to adjustment as provided
herein. In the event of any conflict between the terms of this Warrant and the
Common Stock Purchase Agreement dated as of July 10, 2001 pursuant to which this
Warrant has been issued (the "Purchase Agreement"), the Purchase Agreement shall
control. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
1
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, subject to Section 7 herein, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
2. Authorization of Shares. The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this Warrant
and the payment of the Exercise Price, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. Exercise of Warrant.
(a) Except as provided in Section 10 herein, exercise of the purchase
rights represented by this Warrant may be made at any time or times on or after
the Initial Exercise Date and on or before 5:00 p.m. (Eastern Time) on the
Termination Date by the surrender of this Warrant and the Notice of Exercise
Form annexed hereto duly executed, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
registered Holder at the address of such Holder appearing on the books of the
Company) and upon payment of the Exercise Price of the shares thereby purchased
by wire transfer of immediately available funds or cashier's check drawn on a
United States bank, the Holder shall be entitled to receive a certificate for
the number of Warrant Shares so purchased. Certificates for shares purchased
hereunder shall be delivered to the Holder within three (3) Trading Days after
the date on which this Warrant shall have been exercised as aforesaid. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price and all taxes required
to be paid by the Holder, if any, pursuant to Section 5 prior to the issuance of
such shares, have been paid.
(b) If this Warrant shall have been exercised in part, the Company shall,
at the time of delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.
2
(c) Notwithstanding anything herein to the contrary, in no event shall the
Holder be permitted to exercise this Warrant for Warrant Shares to the extent
that (i) the number of shares of Common Stock owned by such Holder (other than
Warrant Shares issuable upon exercise of this Warrant) plus (ii) the number of
Warrant Shares issuable upon exercise of this Warrant, would be equal to or
exceed 9.9% of the number of shares of Common Stock then issued and outstanding,
including shares issuable upon exercise of this Warrant held by such Holder
after application of this Section 3(c). As used herein, beneficial ownership
shall be determined in accordance with Section 13(c) of the Exchange Act. To the
extent that the limitation contained in this Section 3(c) applies, the
determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of such Holder, and the submission
of a Notice of Exercise shall be deemed to be such Holder's determination of
whether this Warrant is exercisable (in relation to other securities owned by
such Holder) and of which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of a Holder to exercise
this Warrant into Warrant Shares at such time as such exercise will not violate
the provisions of this Section 3(c). The provisions of this Section 3(c) may be
waived by the Holder upon, at the election of the Holder, with not less than 61
days' prior notice to the Company, and the provisions of this Section 3(c) shall
continue to apply until such 61st day (or such later date as may be specified in
such notice of waiver). No exercise of this Warrant in violation of this Section
3(c) but otherwise in accordance with this Warrant shall affect the status of
the Warrant Shares as validly issued, fully-paid and nonassessable.
3
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but the Company shall round to the nearest whole share any fractional
interest which would otherwise be issuable.
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant.
7. Transfer, Division and Combination.
(a) Subject to compliance with any applicable securities laws, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. In the event that the
Holder wishes to transfer a portion of this Warrant, the Holder shall transfer
at least 25,000 shares underlying this Warrant to any such transferee. Upon such
surrender and, if required, such payment, the Company shall execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion of this Warrant
not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.
(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with Section 7(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own expense (other
than transfer taxes) the new Warrant or Warrants under this Section 7.
4
(d) The Company agrees to maintain, at its aforesaid office, books for the
registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof. Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be
deemed to be issued to such Holder as the record owner of such shares as of the
close of business on the later of the date of such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. Adjustments
of Exercise Price and Number of Warrant Shares.
(a) Stock Splits, etc. The number and kind of securities purchasable upon
the exercise of this Warrant and the Exercise Price shall be subject to
adjustment from time to time upon the happening of any of the following. In case
the Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or (iv) issue any shares of its
capital stock in a reclassification of the Common Stock, then the number of
Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which it
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the Holder shall thereafter be entitled to purchase the number of
Warrant Shares or other securities resulting from such adjustment at an Exercise
Price per Warrant Share or other security obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
5
(b) Anti-Dilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares issuable hereunder and for which this
Warrant is then exercisable pursuant to Section 1 hereof shall be subject to
adjustment from time to time as provided in this Section 11(b). In the event
that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up or down to the
nearest cent.
(i) Adjustment of Exercise Price. If and whenever solely during the first
twelve (12) months of the Exercise Period the Company issues or sells, or in
accordance with Section 8(b) hereof is deemed to have issued or sold, any shares
of Common Stock for a consideration per share of less than the then current
market price (the "Base Share Price") or for no consideration (collectively, a
"Dilutive Issuance"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
E' = E x O + P/BSP
-----------------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
BSP = the Base Share Price;
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set
forth in Section 11(b)(ii) hereof, received by the
Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding immediately after the Dilutive Issuance.
(ii) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 11(b) hereof, the
following will be applicable:
(A) Issuance of Rights or Options. If the Company in any manner issues or
grants any warrants, rights or options, whether or not immediately exercisable,
to subscribe for or to purchase Common Stock or other securities exercisable,
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Base Share Price ("Below Base Price Options"), then the maximum total number
of shares of Common Stock issuable upon the exercise of all such Below Base
Price Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant of such
6
Below Base Price Options, be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. For purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon the
exercise of such Below Base Price Options" is determined by dividing (i) the
total amount, if any, received or receivable by the Company as consideration for
the issuance or granting of all such Below Base Price Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Below Base Price Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Base Price
Options, the minimum aggregate amount of additional consideration payable upon
the exercise, conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Below Base Price Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon the exercise of such
Below Base Price Options or upon the exercise, conversion or exchange of
Convertible Securities issuable upon exercise of such Below Base Price Options.
(B) Issuance of Convertible Securities. If the Company in any manner issues
or sells any Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of Options) and the
price per share for which Common Stock is issuable upon such exercise,
conversion or exchange is less than the Base Share Price, then the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities will, as of the date of the issuance
of such Convertible Securities, be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For the purposes of the
preceding sentence, the "price per share for which Common Stock is issuable upon
such exercise, conversion or exchange" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
7
(C) Change in Option Price or Conversion Rate. If there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange of any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (in each such case, other
than under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(D) Treatment of Expired Options and Unexercised Convertible Securities.
If, in any case, the total number of shares of Common Stock issuable upon
exercise of any Option or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(E) Calculation of Consideration Received. If any Common Stock, Options or
Convertible Securities are issued, granted or sold for cash, the consideration
received therefor for purposes of this Warrant will be the amount received by
the Company therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the
Company in connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
part or all of which shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair market value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Market
Price thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any merger or consolidation
in which the Company is the surviving corporation, the amount of consideration
therefor will be deemed to be the fair market value of such portion of the net
assets and business of the non-surviving corporation as is attributable to such
Common Stock, Options or Convertible Securities, as the case may be. The fair
market value of any consideration other than cash or securities will be
determined in good faith by an investment banker or other appropriate expert of
national reputation selected by the Company and reasonably acceptable to the
holder hereof, with the costs of such appraisal to be borne by the Company.
8
(F) Exceptions to Adjustment of Exercise Price. No adjustment to the
Exercise Price will be made (i) upon the exercise of this Warrant or any other
warrant of this series or of any other series issued by the Company in
connection with the offer and sale of this Company's securities pursuant to the
Purchase Agreement; (ii) upon the exercise of or conversion of any Convertible
Securities, options or warrants issued and outstanding on the initial issuance
date of this Warrant; (iii) upon the grant or exercise of any Convertible
Securities which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such Convertible Securities is approved by a majority of
the non-employee members of the Board of Directors of the Company or a majority
of the members of a committee of non-employee directors established for such
purpose; (iv) upon the issuance of Common Stock or Convertible Securities in a
public offering, whether or not underwritten; (v) upon the issuance of Common
Stock or Convertible Securities in any transaction of the nature contemplated by
Rule 145, promulgated under the Securities Act; or (vi) in connection with any
strategic partnership or joint venture or acquisition (the primary purpose of
which is not to raise equity capital for the Company).
(iii) Notice of Adjustment. Upon the occurrence of any event which requires
any adjustment of the Exercise Price, then, and in each such case, the Company
shall give notice thereof to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based, provided that such notice shall not
contain any material nonpublic information. Such calculation shall be certified
by the chief financial officer of the Company.
(iv) Minimum Adjustment of Exercise Price. No adjustment of the Exercise
Price shall be made in an amount of less than 1% of the Exercise Price in effect
at the time such adjustment is otherwise required to be made, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
9
(v) Certain Events. If, at any time during the Exercise Period, any event
occurs of the type contemplated by the adjustment provisions of this Section 11
but not expressly provided for by such provisions, the Company will give notice
of such event as provided in Section 11 hereof, and the Company's Board of
Directors will make an appropriate adjustment in the Exercise Price and the
number of shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the holder shall be neither enhanced nor diminished by such
event.
(vi) Certain Definitions. "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in the case of any
adjustment hereunder resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise of the Options
for which the adjustment is required (including any Common Stock issuable upon
the conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required hereunder resulting
from the issuance of any Convertible Securities, the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of the
Convertible Securities for which the adjustment is required, as of the date of
issuance of such Convertible Securities, if any.
12. Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
10
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
13. Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of the
Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
Holder notice of such adjustment or adjustments setting forth the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made. Such notice, in the absence of manifest error,
shall be conclusive evidence of the correctness of such adjustment.
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, or
any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to receive
any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
11
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).
16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.
12
17. Miscellaneous.
(a) Jurisdiction. This Warrant shall constitute a contract under the laws
of New York, without regard to its conflict of law, principles or rules, and be
subject to arbitration pursuant to the terms set forth in the Purchase
Agreement.
(b) Restrictions. The Holder acknowledges that the Warrant Shares acquired
upon the exercise of this Warrant, if not registered, will have restrictions
upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date. If the
Company willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
(d) Notices. Any notice, request or other document required or permitted to
be given or delivered to the Holder by the Company shall be delivered in
accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of Holder, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
(f) Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(g) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
(h) Amendment. This Warrant may be modified or amended or the provisions
hereof waived with the written consent of the Company and the Holder.
13
(i) Severability. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.
(j) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
(k) Replacements. Upon receipt of evidence reasonable satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant and, in
the case of such loss, theft, or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company, or in the
case of mutilation upon surrender and cancellation of this Warrant, the Company,
at its expense will execute and deliver in lieu thereof a new Warrant of like
tenor.
(l) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office of
the Company, for new Warrants of like tenor of different denominations
representing in the aggregate the right to purchase the number of shares of
Common Stock which may be purchased hereunder, each of such new Warrants to
represent the right to purchase such number of shares (at the Exercise Price
therefor) as shall be designated by the holder hereof at the time of such
surrender.
(m) Transfer or Exchange Without Registration. If, at the time of the
surrender of this Warrant in connection with any transfer or exchange of this
Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares
issuable hereunder) shall not be registered under the Act and under applicable
state securities or blue sky laws, the Company may require, as a condition of
allowing such transfer or exchange, (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of counsel
(which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that such transfer or exchange
may be made without registration under the Securities Act and under applicable
state securities or blue sky laws (the cost of which shall be borne by the
Company if the Company's counsel renders such an opinion), (ii) that the Holder
or transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Act;
provided that no such opinion, letter, or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Act.
(n) Registration Rights. The initial Holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement, including the right to assign such rights certain assignees, as set
forth therein.
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: July 10, 2001
NETWORK COMMERCE INC.
By:_______________________________________________
Xxxxx Xxxx, Executive Vice President & CFO
NOTICE OF EXERCISE
To: Network Commerce Inc.
(1)______The undersigned hereby elects to purchase ________ Warrant Shares
(the "Common Stock"), of Network Commerce Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.
(2)______Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
------------------------------------
The Warrant Shares shall be delivered to the following:
------------------------------------
------------------------------------
------------------------------------
CODY HOLDINGS INC.
By: ______________________________
Xxxxx Xxxx
Director
Dated: ________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
_______________________________________________ whose address is
---------------------------------------------------------------.
---------------------------------------------------------------
Dated: ______________, _______
Holder's Signature:
Holder's Address:
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
