EXHIBIT 10.8
FINANCING AGREEMENT
FINANCING AGREEMENT, dated as of June 30, 2000, among THE
PATHWAYS GROUP, INC., a Delaware corporation (the "Company"), XXXXX X. XXXX, XX
("Xxxx"),XXXXXX MERCHANT PARTNERS GROUP LLC, a Delaware limited liability
company ("Xxxxxx") and HARVEST OPPORTUNITY PARTNERS LP, a Delaware limited
partnership ("Harvest"; Harvest and Xxxxxx are collectively referred to herein
as the "Lender").
W I T N E S S E T H
WHEREAS, the Company desires to issue and sell to the Lender
senior secured promissory notes of the Company, and the Lender is willing to
purchase such senior secured promissory notes, on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual representations and covenants contained herein, the parties hereto agree
as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.1 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings:
"ACT" shall mean the Securities Act of 1933, as amended, and
the rules and regulations thereunder as in effect from time to time.
"COMMON STOCK" shall mean the Common Stock, par value $0.01
per share, of the Company.
"CLOSING DATE" shall mean the date on which the Initial Note
is issued by the Company and purchased by the Lender.
"COMMITMENT FEE" shall have the meaning set forth in Section
2.6 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"EVENT OF DEFAULT" shall have the meaning set forth in the
Note.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder as in effect from time to
time.
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"EXCHANGE NOTE" shall mean the Note issued pursuant to Section
4.1 hereof.
"GAAP" shall mean generally accepted accounting principles as
in effect from time to time in the United States.
"GOVERNMENTAL AUTHORITY" shall mean (a) the government of any
federal, state, municipal or other political subdivision in which property of
the Company or any of its Subsidiaries is located and (b) any other government
exercising jurisdiction over the Company or any of its Subsidiaries, including
all agencies and instrumentalities of such government.
"GOVERNMENTAL REQUIREMENTS" shall mean laws, ordinances,
statutes, codes, rules, regulations, orders, decrees and judgments of any
Governmental Authority.
"INITIAL NOTE" shall have the meaning set forth in Section 2.5
hereof.
"INITIAL WARRANT" shall have the meaning set forth in Section
5.2 hereof.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" shall mean the
Intellectual Property Security Agreement, as shall be mutually agreed by the
Company and the Lender, as amended or supplemented from time to time.
"LINE OF CREDIT" shall mean the line of credit up to an
aggregate principal amount of $1,350,000, to be provided by the Lender to the
Company.
"LINE OF CREDIT NOTE" shall have the meaning set forth in
Section 3.2 hereof.
"MATURITY DATE" shall mean the earlier of (i) June 30, 2001,
or (ii) the date on which an Event of Default shall occur.
"MJT WARRANT" shall have the meaning set forth in Section 8.8
hereof.
"1999 WARRANTS" shall mean the aggregate of 1,250,000
warrants, issued in connection with the Company's issuance and sale of the
Series A Preferred Stock, plus the aggregate of 100,000 dividend warrants
accrued pursuant thereto through the date hereof.
"NOTE" or "NOTES" shall mean the Series A Senior Secured Note
or Notes of the Company, in substantially the form of Exhibit A attached hereto,
and shall include the Initial Note, the Line of Credit Note, the Exchange Note
and any notes issued in substitution or exchange therefor.
"PENALTY WARRANT" shall have the meaning set forth in
Section 9.2.
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"PERMITTED LIENS" shall mean (i) liens for taxes, assessments
or governmental charges or levies on its property, if such taxes, assessments or
governmental charges or levies shall not at the time be due and delinquent or if
the same thereafter can be paid without penalty or if the Company shall
currently be contesting the validity thereof in good faith, provided adequate
reserves therefor have been set aside; and (ii) liens consisting of (A) pledges
or deposits to secure obligations of the Company under workmen's compensation or
other similar laws, (B) pledges or deposits to secure performance in connection
with bids, tenders, contracts or leases entered into in the ordinary course of
business to which the Company is a party, (C) deposits to secure public or
statutory obligations of the Company; or (D) mechanics', carriers', workmen's,
repairmen's or other like liens arising or incurred in the ordinary course of
business or deposits to obtain the release of such liens;
"REGISTRABLE SHARES" means, collectively, (i) the Warrant
Shares, (ii) the shares of Common Stock issuable upon exercise of the 1999
Warrants, and (iii) if at the time a registration statement is filed pursuant to
Section 9.1 hereof, any Penalty Warrants have been issued, the shares of Common
Stock issuable upon exercise of the Penalty Warrants.
"SECURITY AGREEMENT" shall mean the Security Agreement, in
substantially the form of Exhibit C attached hereto, as amended, modified or
supplemented from time to time.
"SERIES A PREFERRED STOCK" shall mean, collectively, the
outstanding 300,000 shares of Series A Preferred Stock, par value $0.01 per
share, of the Company.
"TRANSACTION DOCUMENTS" shall mean, collectively, this
Agreement, the Notes, the Security Agreement, the Intellectual Property Security
Agreement and the Warrants.
"WARRANT SHARES" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
"WARRANT" shall mean each warrant entitling the holder thereof
to purchase shares of Common Stock on the terms set forth therein, in
substantially the form of Exhibit B attached hereto, which are issued pursuant
to the terms of this Agreement.
1.2 ACCOUNTING TERMS. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP and,
except as otherwise herein expressly provided, the term AGAAP" with respect to
any computation required or permitted hereunder shall mean such accounting
principles as are generally accepted in the United States at the date of such
computation.
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Section 2. THE NOTES.
2.1 THE NOTES. Each Note to be issued and sold by the Company
hereunder shall have the following terms and conditions:
(a) each Note shall bear interest at 10.0% per annum, based on
a year of 365 days and actual days elapsed;
(b) each Note shall mature and be payable in full on the
Maturity Date; and
(c) each Note shall be secured in accordance with the Security
Agreement and the Intellectual Property Security Agreement.
2.2 PAYMENTS. Any payments and prepayments made on account of
the principal of the Notes shall be recorded by the Lender on its books and
endorsed by the Lender on the schedule attached to the Notes or any continuation
thereof; but no failure by the Lender to make, or any delay in making, such
recording or endorsement shall affect the obligations of the Company under this
Agreement or the Notes.
2.3 REPAYMENT OF THE NOTES. The Company shall pay the unpaid
principal amount of the Notes in full on the Maturity Date. At any time, the
Company may, at its option, prepay the Notes, in whole or in part at any time,
without premium or penalty.
2.4 INTEREST. The Company will pay to the holders of the Notes
interest on the unpaid principal amount of the Notes for the period commencing
on the date such principal amount shall have been borrowed by the Company to but
excluding the date on which the principal amount of the Notes shall be paid in
full, at a rate equal to 10 percent per annum. Interest shall be calculated on
the basis of a year of 365 days, and actual days elapsed. So long as no Event of
Default shall have occurred and be continuing, accrued interest shall be due and
payable on the Maturity Date.
2.5 INITIAL NOTES. Subject to the terms and conditions of this
Agreement, the Lender agrees to purchase a Note of the Company in an aggregate
principal amount of $650,000 (the "Initial Note") on the Closing Date, upon
satisfaction of the conditions set forth in Section 7.1 hereof. The Initial
Notes shall be issued to Xxxxxx and Harvest in such principal amounts,
aggregating $650,000, as Xxxxxx and Harvest shall notify the Company prior to
the Closing Date. On the Closing Date, the Lender shall purchase the Initial
Notes by transmitting immediately available funds in the amount of $650,000, of
which $600,000 shall be wired to the account of the Company specified to the
Lender in writing prior to the Closing Date, and of which $50,000 shall be
retained by the Lender as payment of the Commitment Fee in accordance with
Section 2.6 hereof.
2.6 COMMITMENT FEE. As consideration for the Lender's
agreement to purchase the Notes and provide the Line of Credit, the Company
agrees to pay to the Lender on the Closing Date a commitment fee (the
"Commitment Fee") equal to $50,000. The Company
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acknowledges and agrees that the Lender shall retain the amount of the
Commitment Fee out of the purchase price for the Initial Note.
Section 3. LINE OF CREDIT.
3.1 LINE OF CREDIT. The Lender hereby agrees to provide to the
Company a Line of Credit in the maximum principal amount of $1,350,000. The Line
of Credit shall be available, in one or more advances, to the Company at any
time prior to the Maturity Date, upon satisfaction of the following conditions:
(a) the Company shall have delivered to the Lender the Line of
Credit Note in accordance with Section 3.2 hereof;
(b) the Company shall have delivered to the Lender Warrants
for the purchase of up to 1,035,000 shares of Common Stock, in accordance with
Section 5.3 hereof;
(c) the Company shall have achieved the following performance
milestones:
(i) the Company shall have reduced its monthly expenses
to an aggregate amount of less than $500,000, and the Company shall
have provided evidence thereof which is reasonably satisfactory to the
Lender; and
(ii) the Company shall have earned revenues in an amount
as shall be reasonably agreed upon by the Company and the Lender;
(d) no Event of Default shall have occurred and be continuing;
(e) the Company shall have provided to the Lender with a
notice of borrowing, specifying the amount requested to be borrowed, at least
one Business Day prior to the requested borrowing date.
If the Company shall have satisfied the aforesaid conditions precedent, the
Lender shall make advances under the Line of Credit in accordance with the
notices of borrowing received from the Company.
3.2 LINE OF CREDIT NOTE. The Line of Credit shall be evidenced
by a Note in the maximum aggregate principal amount of $1,350,000 (the "Line of
Credit Note"). The Company shall issue and deliver the Line of Credit Note prior
to the initial borrowing under the Line of Credit. Any payments and prepayments
made on account of the principal of the Line of Credit Note shall be recorded by
the Lender on its books and endorsed by the Lender on the schedule attached to
the Line of Credit Note or any continuation thereof; but no failure by the
Lender to make, or any delay in making, such recording or endorsement shall
affect the obligations of the Company under this Agreement or the Line of Credit
Note.
3.3 INTEREST RESERVE. The Company hereby agrees that the
Lender shall be authorized to reserve out of the available Line of Credit an
amount not to exceed $200,000,
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which amount shall be applied by the Lender to the payment of accrued but unpaid
interest on the outstanding Notes on the Maturity Date to the extent that the
Company shall not have otherwise paid the accrued interest on the Maturity Date.
Section 4. EXCHANGE NOTES.
4.1 ISSUANCE OF EXCHANGE NOTES. Subject to the terms and
conditions of this Agreement, the Company shall issue Notes (each, an "Exchange
Note") to the holders of the outstanding Series A Preferred Stock in exchange
for the surrender by each such holder of all of the shares of Series A Preferred
Stock held by such holder. The Exchange Notes shall be issued in an aggregate
principal amount equal to the sum of (a) $3,000,000, which is the aggregate
Liquidation Value (as defined in the Certificate of Designations for the Series
A Preferred Stock) of the outstanding shares of Series A Preferred Stock, plus
(b) an amount equal to the accrued but unpaid dividends on the outstanding
Series A Preferred Stock equal to $225,000 through the date hereof. The Exchange
Notes shall be issued to each holder of the Series A Preferred Stock in direct
proportion to the percentage of all outstanding shares of Series A Preferred
Stock held by such holder. The Company shall issue each such Exchange Note to a
holder of Series A Preferred Stock only upon the surrender to the Company for
cancellation of the certificates evidencing the Series A Preferred Stock held by
such holder. Upon the issuance of an exchange note in exchange for the Series A
Preferred Stock, all dividends and warrants issuable pursuant to the terms of
the Series A Preferred Stock shall thereupon cease to accrue. The Company's
failure to issue an Exchange Note because of the failure of a holder of Series A
Preferred Stock to surrender the certificate evidencing such Series A Preferred
Stock shall not constitute a default by the Company hereunder.
4.2 TERMS OF EXCHANGE NOTES. Each Exchange Note shall have the
same terms and conditions as the Initial Note and the Line of Credit Note, and
shall be PARI PASSU with such Notes.
4.3 REPRICING OF 1999 WARRANTS. Simultaneously with the
issuance of the Exchange Notes or as soon thereafter as practicable, the Company
agrees that it shall amend the terms of the 1999 Warrants to provide that the
exercise price of the 1999 Warrants shall equal the exercise price of the
Initial Warrant. The Company and the Lender shall cooperate with each other to
execute such amendments to the 1999 Warrants as shall be necessary to implement
the foregoing change in the exercise price of the 1999 Warrants. Except for the
foregoing, the terms and provisions of the 1999 Warrants shall remain unmodified
and unaffected.
Section 5. ISSUANCE OF WARRANTS.
5.1 WARRANTS GENERALLY. In consideration for the agreements of
the Lender set forth herein, the Company agrees to issue Warrants to the Lender
on the terms and conditions set forth in this Agreement. Each Warrant shall have
the following terms and conditions:
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(a) each Warrant shall be immediately exercisable, and shall
expire on the date which is the third anniversary of the Closing Date;
(b) each Warrant shall be exercisable to purchase one share of
Common Stock at a price equal to the lesser of (i) $1.00, or (ii) the average
closing price of the Company's Common Stock, as reported on the NASDAQ SmallCap
Market for twenty trading days, commencing ten trading days before the Closing
Date and ending on the tenth trading day following the Closing Date;
(c) each Warrant shall have the terms and conditions set forth
in the form of Warrant attached hereto;
(d) each Warrant may be exercised, in whole or in part, by
payment in cash or by certified or bank check or by wire transfer, or in
accordance with the terms of the Warrant, by a cashless exercise; and
(e) the holder of each Warrant shall be entitled, at each
meeting of stockholders of the Company while the Warrants are outstanding and
have not been exercised, a number of votes equal to the number of Warrant Shares
which would be then issuable upon exercise of the Warrants, only to the extent
that such Warrants have not been exercised at such time; each holder of Warrants
shall be eligible to cast such votes with the Common Stock, and the record date
for casting such votes shall be the same as the record date for the record
holders of the Company's Common Stock.
5.2 INITIAL WARRANT. On the Closing Date, the Company shall
issue to the Lender a Warrant (the "Initial Warrant") to purchase up to an
aggregate of 965,000 Warrant Shares. Immediately after the tenth trading day
following the Closing Date, the Company and the Lender shall agree as to the
exercise price of such Warrant in accordance with the formula set forth in
Section 5.1(b) hereof.
5.3 LINE OF CREDIT WARRANT. Prior to the Company's first
borrowing under the Line of Credit, the Company shall issue to the Lender a
Warrant (the "Line of Credit Warrant") to purchase up to an aggregate of
1,035,000 shares of Common Stock. Such Line of Credit Warrant shall become
exercisable in tranches, in the same proportion as the Company's borrowings
under the Line of Credit bear to the aggregate available principal amount under
the Line of Credit; PROVIDED, HOWEVER, that for purposes of this Section 5.3 the
amount of the Line of Credit reserved for payment of interest pursuant to
Section 3.3 hereof shall be deemed to be outstanding.
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Section 6. REPRESENTATIONS AND WARRANTIES.
6.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Lender as follows:
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its respective
properties and to carry on its business in the places and in the manner as
currently conducted and as currently contemplated to be conducted. The Company
is duly qualified to do business and is in good standing as a foreign
corporation in all jurisdictions where the failure to so qualify or be in good
standing would have a material adverse effect on the business or financial
condition of the Company.
(b) The execution, delivery and performance by the Company of
the Transaction Documents are within the corporate power of the Company, and the
Transaction Documents have been duly and validly authorized, executed and
delivered by the Company. This Agreement constitutes, and when the other
Transaction Documents are executed and delivered for value such other
Transaction Documents will constitute, the valid and binding obligations of the
Company, enforceable in accordance with their respective terms, except as such
enforceability may be subject to bankruptcy, insolvency, moratorium and other
similar laws affecting creditors' rights generally and to general equitable
principles.
(c) The authorized capital stock of the Company is as set
forth in the Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1999, as further reported in the Company's Quarterly Report on Form
10-Q for its fiscal quarter ended March 31, 2000. All outstanding shares of
Common Stock and Preferred Stock were duly authorized and validly issued, are
fully paid and nonassessable, and were not issued in violation of any preemptive
rights. Upon issuance of the Warrant Shares issuable pursuant to the exercise of
the Warrants against payment therefor in accordance with the Warrants, such
Warrant Shares will have been duly authorized and validly issued and will be
fully paid and nonassessable.
(d) The execution and delivery by the Company of this
Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby do not and will not: (i) violate,
constitute a default under, or result in a breach of, any agreement or
understanding to which the Company is a party or any judgment, order, decree,
law, rule or regulation to which the Company is subject; (ii) contravene the
Certificate of Incorporation or By-Laws of the Company; (iii) require the
authorization, approval, order, license, permit or consent of, or filing or
registration with, any court or Governmental Authority, or consent of any other
party; (iv) result in the creation of, or give any party the right to create,
any liens or encumbrances upon any assets of the Company, except as contemplated
hereby; (v) terminate or give any party the right to terminate, abandon or
refuse to perform any agreement, arrangement or commitment to which the Company
is a party or by which any of its assets are bound; or (vi) violate any
Governmental Requirements to which the Company or any of its assets are subject.
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(e) There is no claim, action, suit, proceeding, investigation
or criminal proceeding, at law or in equity, before any Governmental Authority
(collectively, "Proceedings") pending or, to the Company's knowledge, threatened
against the Company, which, if adversely determined, would, singly or in the
aggregate, have a material adverse effect on the condition, financial or
otherwise, of the Company, or would materially adversely affect consummation of
the transactions contemplated by the Transaction Documents, or which challenges
the validity or propriety of the transactions contemplated by the Transaction
Documents.
(f) The Company has good and marketable title to all of its
principal properties and assets, real and personal, tangible and intangible,
free and clear of all liens, charges and encumbrances except for Permitted Liens
and other liens which do not interfere materially with possession, ownership or
use of any real or personal property of the Company.
(g) The consolidated balance sheet of the Company at December
31, 1999, and the related consolidated statement of operations and consolidated
statement of changes in stockholders= equity for the fiscal year then ended,
including the notes thereto, as audited by PricewaterhouseCoopers LLP,
independent public accountants (the "Financial Statement"), as reported on the
Company's Form 10-KSB for the fiscal year ended December 31, 1999, have been
delivered to the Lender. The Financial Statement, together with the notes
thereto, have been prepared in accordance with GAAP applied on a basis
consistent throughout all periods presented; such statement is correct and
complete in all material respects as contemplated by GAAP, is reconcilable to
the books and records of the Company in all material respects, and presents
fairly the financial position of the Company as of the date and for the period
indicated.
6.2 REPRESENTATIONS BY THE LENDER. The Lender hereby
represents and warrants to the Company as follows:
(a) Xxxxxx is a limited liability company, duly organized
under the laws of the State of Delaware. Harvest is a limited partnership duly
organized under the laws of the State of Delaware. The Lender has the power to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. This Agreement constitutes the valid and binding obligation
of each of Xxxxxx and Harvest, enforceable against each of them in accordance
with its terms, except as such enforceability may be subject to bankruptcy,
insolvency, moratorium and other similar laws affecting creditors' rights
generally and to general equitable principles.
(b) The execution and delivery by the Lender of this Agreement
and the consummation of the transactions contemplated hereby will not violate,
constitute a default under or result in a breach of, its organizational
documents or any agreement or understanding to which the Lender is a party or
any Governmental Requirement to which the Lender or any of its assets is
subject.
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(c) Each of Xxxxxx and Harvest is an "accredited investor"
within the meaning of Regulation D under the Act.
(d) The Lender acknowledges that the Warrant Shares have not
been registered under the Act and applicable state securities laws, and
accordingly, constitute "restricted securities" for purposes of the Act and such
state securities laws. The Lender further acknowledges and agrees that the
Lender will not be able to transfer such shares except upon compliance with the
registration requirements of the Act and applicable state securities laws or
exemptions therefrom. The Lender agrees that the certificate evidencing the
shares may contain a restrictive legend to such effect.
(e) The Lender is not an officer, director or "affiliate" (as
that term is defined in Rule 405 promulgated under the Act) of the Company.
(f) The Lender has received and reviewed the following
documents constituting the periodic reports filed by the Company with the SEC:
(i) the Company's Annual Report on Form 10-KSB for its
fiscal year ended December 31, 1999; and
(ii) the Company's Quarterly Report on Form 10-QSB for
its fiscal quarter ended March 31, 2000.
(g) The Lender has such knowledge and expertise in financial
and business matters that the Lender is capable of evaluating the merits and
risks involved in an investment in the Notes and the Warrants and acknowledges
that an investment in the Notes and the Warrants entails a number of very
significant risks and funds should only be invested if the Lender is able to
withstand the total loss of his investment.
(h) Except as set forth in this Agreement or the other
Transaction Documents, no representations or warranties have been made to the
Lender by the Company or any agent, employee or affiliate of the Company. The
Lender has relied solely on the representations, warranties, covenants and
agreements of the Company in this Agreement and the other Transaction Documents,
and on the Lender's independent investigation in making its decision to acquire
the Notes and the Warrants.
Section 7. CONDITIONS PRECEDENT TO CLOSING DATE.
7.1 CONDITIONS PRECEDENT TO THE CLOSING DATE. The obligation
of the Lender to purchase the Initial Note shall be subject to the satisfaction
of the following conditions on or prior to the Closing Date:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and correct
on and as of the Closing
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Date as though made on and as of the Closing Date, except to the extent that any
such representation and warranty relates solely to a prior date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) NO LITIGATION. There shall be no litigation, investigation
or proceeding of or before any arbitrator or Governmental Authority, pending or,
to the knowledge of the Company, threatened by or against the Company or any of
its properties or revenues with respect to this Agreement or any of the
transactions contemplated hereby, and there shall be no writ, injunction,
preliminary restraining order or any order of any nature issued by any
Governmental Authority directing that the transactions provided for herein not
be consummated as provided herein.
(d) CORPORATE DOCUMENTS. The Lender shall have received a true
and complete copies of (i) the Certificate of Incorporation and the By-laws of
the Company, and (ii) the resolutions of the Board of Directors of the Company
authorizing the transactions contemplated by this Agreement and each of the
other Transaction Documents.
(e) SECURITY AGREEMENT. The Company shall have executed and
delivered to the Lender the Security Agreement.
(f) FURTHER ASSURANCES. The Lender shall have received such
other documents and instruments as the Lender shall reasonably request.
Section 8. COVENANTS.
8.1 TRANSACTION DOCUMENTS TO BE DELIVERED. As soon as
practicable after the Closing Date, but in no event later than July 12, 2000,
the Company shall deliver to the Lender the following:
(a) an executed Intellectual Property Security Agreement, in
form suitable for filing with the Office of Patents and Trademarks, as shall be
mutually acceptable to the Lender and the Company;
(b) executed UCC financing statements, in appropriate form for
filing, with respect to all collateral subject to the UCC, as set forth in the
Security Agreement;
(c) an opinion of counsel to the Company, reasonably
satisfactory to the Lender, as to the enforceability of the Company's
obligations under the Transaction Documents; and
(d) such other instruments and documents as the Lender shall
reasonably request.
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8.2 RESERVATION OF SHARES. So long as the Warrants are
outstanding, the Company shall at all times reserve for issuance out of the
authorized but unissued shares of Common Stock of the Company a number of shares
equal to the maximum number of Warrant Shares that may be issued upon exercise
of the Warrants.
8.3 SENIOR INDEBTEDENSS. For so long as the Notes are
outstanding, the Company shall maintain the Notes as the senior secured
indebtedness of the Company, and shall not issue any indebtedness having rights
in liquidation senior to the Notes.
8.4 ISSUANCE OF EXCHANGE NOTES. As soon as practicable after
the Closing Date, the Company shall issue the Exchange Notes against delivery
for cancellation of the certificates evidencing the Series A Preferred Stock.
The Lender shall cooperate with the Company in effecting the exchange, including
interacting with the other holders of the Series A Preferred Stock.
8.5 CONVERSION OF INDEBTEDNESS. As soon as practicable after
the Closing Date, Xxxx shall convert all loans payable to Xxxx (including
accrued interest) to the Company which are outstanding on the Closing Date into
shares of Common Stock at the rate of one share of Common Stock for each $1.00
of such indebtedness. The amount of such indebtedness of the Company to Xxxx as
of the Closing Date shall exclude accrued but unpaid salary (other than accrued
bonuses) and ordinary and reasonable business expenses incurred by Xxxx on
behalf of the Company in accordance with the Company's customary policies, and
shall be computed by the Company's accounting department and certified to the
Lender prior to the conversion thereof.
8.6 ELECTION OF DIRECTORS; VISITATION RIGHTS.
(a) Subject to compliance with the requirements of the
Exchange Act, the General Corporation Law of the State of Delaware, and the
Company's Certificate of Incorporation and By-Laws, the Company agrees to
appoint to the Board of Directors such number of independent directors as shall
constitute a majority of the Board of Directors of the Company; PROVIDED,
HOWEVER, that the total number of members of the Board of Directors shall be
nine, and the number of independent directors to be named hereunder shall be
five; and PROVIDED FURTHER, that the Company may propose as an independent
director pursuant to this Section 8.5 any member of the current Board of
Directors who is deemed to be independent under applicable rules and
regulations. The Company shall nominate such persons to be independent directors
and the Lender shall consent to such nominations prior to the election of such
persons as directors of the Company or prior to the submission of such directors
to the stockholders for election in accordance with the Exchange Act. If the
directors to be elected are submitted to the stockholders for approval, the
Lender agrees to cast all of its votes in favor of the slate of nominees to
which the Lender has previously approved.
(b) The Company shall provide the Lender with no less than 24
hours' notice (whether in writing, by E-mail, facsimile or telephone) of each
meeting of the Board of
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Directors. The Lender shall have the right to have one representative attend
each such meeting, but such representative shall not have any right to vote on
any matters brought before the Board.
(c) The Company agrees that the independent directors on the
Board of Directors shall review and consent to each related party transaction
(as such term is defined in Regulation S-K under the Act and the Exchange Act)
between the Company and any of its executive officers, directors or other
affiliates, including, without limitation, all management fringe benefits, and
specifically, private plane expenses incurred by management.
8.7 PREEMPTIVE RIGHT. For so long as any Warrants are
outstanding, in the event that the Company proposes to issue any shares of
Common Stock or shares of any other capital stock of the Company or carrying any
rights or warrants to purchase capital stock of the Company, the holders of the
Warrants shall have a preemptive right to subscribe for or to purchase PRO RATA
additional shares of Common Stock or such shares of other capital stock or such
other securities of the Company. Such preemptive right shall not apply, however,
to any shares of capital stock of the Company issued upon the exercise of any
option granted in connection with the compensation of any employee of the
Company or any consultant retained by the Company or pursuant to any employee
stock option plan established by the Company. The Company shall give notice of
any proposed issuance as aforesaid to each holder of the Warrants at least 15
days prior thereto, and each holder shall be given a reasonable opportunity on
reasonable conditions as fixed by the Company's Board of Directors to subscribe
for or to purchase the same percentage of such shares of Common Stock or other
capital stock or securities as the shares of Common Stock issuable upon exercise
of outstanding Warrants on the date of such notice bear to the then total number
of issued and outstanding shares of Common Stock, at the same price and upon the
same terms and conditions as contained in such proposed issuance.
8.8 STRATEGIC ADVISOR. The Company agrees that it shall engage
Xxxxxxx, Xxxxx & Xxxxxxxxx ("MJT"), on a non-exclusive basis, to review
strategic alternatives for the Company, such that MJT will prepare and deliver,
no later than July 31, 2000, to the Board of Directors of the Company a
recommendation on the strategic alternatives facing the Company. The Company
shall execute and deliver to MJT an engagement letter in the customary form used
by MJT for transactions of this kind. As consideration for the services of MJT
in such capacity, the Company agrees to (a) reimburse MJT for its reasonable
out-of-pocket expenses up to a maximum of $50,000 (against reasonable detail
therefor) in preparing such report and review the Company's strategic
alternatives, and (b) issue to MJT a Warrant (the "MJT Warrant"), on the same
terms and conditions as the Initial Warrant, entitling MJT to purchase an
aggregate of 300,000 shares of Common Stock, which includes the 150,000 warrants
already agreed to by the Company in connection with MJT's buy-side advisory work
prior to the date hereof, and 150,000 warrants with respect to the engagement
contemplated by this Section 8.8.
8.9 MONTHLY FINANCIAL INFORMATION. For so long as the Notes
are outstanding, the Company shall provide to the Lender an internally-prepared
balance sheet and income
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statement for each calendar month. Such financial statements shall be delivered
to the Lender no later than the fifteenth day of the next succeeding calendar
month.
Section 9. REGISTRATION RIGHTS.
9.1 REGISTRATION OF REGISTRABLE SHARES. As soon as practicable
after the Closing Date, the Company will file a registration statement (the
"Registration Statement") under the Act, with respect to all of the Registrable
Shares, and the Company shall use its best efforts to cause such Registration
Statement to become effective as soon as practicable after filing. In connection
therewith, each holder of Warrants and 1999 Warrants will provide in a timely
manner all such information and materials pertaining to it as may be required in
order to permit the Company to comply with all applicable requirements of the
Commission and to obtain the acceleration of the effective date of the
Registration Statement. In connection with such registration, the Company shall
keep the Registration Statement effective until the earliest of (i) when each
holder has sold its Registrable Shares, (ii) one year following the effective
date of the Registration Statement, or (iii) the date the Registrable Shares may
be sold under Rule 144 under the Act.
9.2 PENALTY WARRANTS.
(a) If the Company shall have failed to file a Registration
Statement with respect to the Registrable Shares by the close of business on
July 17, 2000 (the tenth business day following the Closing Date), the Company
shall issue to the Lender a warrant to purchase up to an additional 200,000
shares of Common Stock, which warrant shall be exercisable at $0.01 per share,
shall expire three years from the date of issuance, and shall otherwise have the
same terms and provisions as the Warrants. On the last business day of each
calendar month following July 2000, during which the Company shall have failed
to file a Registration Statement as required by Section 9.1 hereof, the Company
shall issue to the Lender an additional warrant to purchase 200,000 shares of
Common Stock on the terms and conditions set forth in this Section 9.2(a).
(b) If the Company shall have filed a Registration Statement,
and shall thereafter receive comments on such Registration Statement from the
Securities and Exchange Commission, the Company shall respond to such comments
within ten days following the Company's actual receipt of such letter. If the
Company fails to respond to such comments within such 10-day period, the Company
shall issue to the Lender a warrant to purchase up to an additional 200,000
shares of Common Stock, which warrant shall be exercisable at $0.01 per share,
shall expire three years from the date of issuance, and shall otherwise have the
same terms and provisions as the Warrants. On the last business day of each
calendar month following the expiration of such 10-day period, during which the
Company shall have failed to respond to the SEC's comments, the Company shall
issue to the Lender an additional warrant to purchase 200,000 shares of Common
Stock on the terms and conditions set forth in this Section 9.2.
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(c) Each warrant issued by the Company pursuant to this
Section 9.2 is referred to as a "Penalty Warrant".
9.3 PIGGYBACK REGISTRATION RIGHTS. If, at any time prior to
the time a Registration Statement is filed and has become effective, the Company
proposes to register any shares of its Common Stock under the Act or similar
federal statute (other than on Form S-8 or any successor form to be offered to
employees of an issuer pursuant to an employee benefit plan), the Company shall
give at least 45 days' prior written notice thereof to the holders of the
Warrants, and, upon the request of such holders, include in such registration,
at the cost and expense of the Company any of the Warrant Shares; PROVIDED,
HOWEVER, that the Company shall not be obligated to do so more than twice; and
PROVIDED, FURTHER, that if any such registration relates to a firmly
underwritten offering for the account of the Company and if the managing
underwriter of such offering advises the Company in writing that, in its
opinion, inclusion of such Warrant Shares as requested would adversely affect
such offering, then such Warrant Shares shall, to such extent, be excluded from
such registration, on such basis as the Company shall deem to be fair and
equitable.
9.4 COMPLIANCE WITH THE ACT. In connection with any
Registration Statement referred to herein, the Company shall comply with all
applicable rules and regulations of the Securities and Exchange Commission, or
of any similar federal commission, including the Act, and shall make available
to its security holders, as soon as practicable, an earnings statement (which
need not be audited) covering a period of at least 12 months, but not more than
18 months, beginning with the first month after the effective date of the
registration statement, which earnings statement will satisfy the provisions of
Section 11(a) of the Act.
9.5 DELIVERY OF PROSPECTUSES. The Company agrees to furnish to
the holders of the Registrable Shares, at its own expense, such number of
prospectuses conforming to the requirements of the Act or any similar federal
statute, relating to the shares subject thereto as may from time to time be
requested by such holders. Further, the Company shall, at its own expense in
connection with any registration herein:
(a) Use its best efforts to register or qualify the securities
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as the holders of the Registrable Shares shall reasonably
request, and do any and all other acts and things which may be necessary or
advisable to enable the Lender or any underwriter to offer such shares for them
to consummate the disposition thereof in such jurisdictions, during a period of
six months subsequent to the effective date of such registration statement;
PROVIDED, HOWEVER, that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not then so qualified or to take any
action which would subject it to the service of process in suits other than
those arising out of the offer or sale of the securities covered by such
registration statement in any jurisdiction where it is not then so subject; and
(b) Notify the holders of the Registrable Shares, at any time
when a prospectus relating to the Registrable Shares is required to be delivered
under the Act, of the
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happening of any event which the Company, in its best judgment, believes would
make a supplement to, or an amendment of, such prospectus necessary or
appropriate, and at the Lender's request, prepare and furnish thereto a
reasonable number of copies of any supplement to, or any amendment of, such
prospectus that may be necessary so that, as thereafter delivered to the
purchasers of any of the Registrable Shares, such prospectus shall not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
9.6 INDEMNIFICATION. In the event of the registration of any
of the Registrable Shares, the Company shall indemnify the initial holders of
the Registrable Shares, and shall hold such holders harmless against any losses,
claims, damages or liabilities, joint or several, to which such holders may
become subject under the Act or any similar federal statute, 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 any registration statement under
which such Registrable Shares are registered under the Act or similar federal
statute, any preliminary prospectus or final prospectus contained therein, or
any 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 not misleading, and
shall reimburse such holders for any legal or any other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, however, that to the extent that
any such loss, claim, damage or liability arises out of, or is based upon, an
actual or alleged untrue statement or omission made in such registration
statement, preliminary prospectus, final prospectus, amendment or supplement in
reliance upon, and in conformity with, written information furnished to the
Company through an instrument duly executed by such holders specifically for use
in the preparation thereof, the Company shall not be so liable to such holders.
9.7 INDEMNIFICATION BY HOLDERS. It shall be a condition
precedent to the obligation of the Company to take any action herein relating to
the registration of any of the Registrable Shares that the Company shall have
received from the holders of the Registrable Shares, if such holder wishes to
register any of the Registrable Shares, (i) one or more written statements
setting forth all information with respect to such holder, the Warrant Shares
and the transaction or transactions which such holder contemplates with respect
thereto, which any law, rule or regulation requires to be included in any
registration statement with respect thereto, and (ii) an agreement satisfactory
to the Company to indemnify and hold harmless, in the same manner and to the
same extent as set forth herein, the Company, each director of the Company, each
officer of the Company who signs such registration statement, and any person who
controls the Company within the meaning of the Act, with respect to any actual
or alleged untrue statement in, or omission from, such registration statement,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, if such actual or alleged untrue statement or
omission was made in reliance upon, and in conformity with, any written
statement furnished to the Company by such holder specifically for use in the
preparation of
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such registration statement, preliminary prospectus, final prospectus or
amendment or supplement. The liability of any holder of Registrable Shares
pursuant to this Section 9.7 shall be limited to the proceeds received by such
holder from the sale of the Registrable Shares.
Section 10. MISCELLANEOUS.
10.1 NOTICES. All notices and other communications provided
for herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made in writing, and mailed,
delivered, sent by facsimile or sent by E-mail (with confirmation by mail to
follow) to the intended recipient at the "Address for Notices" specified below
its name on the signature pages hereof; or, as to any party, at such other
address as shall be designated by such party in a notice to the other parties.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given upon receipt; PROVIDED that any such
communication which is not received during normal business hours of the
recipient shall be deemed to be duly given at the opening of business on its
next business day.
10.2 EXPENSES. The Company shall reimburse the Lender for all
of their reasonable out-of-pocket costs and expenses (including reasonable
attorneys' fees) in connection with the negotiation, execution and delivery of
this Agreement and the other Transaction Documents up to a maximum aggregate
amount of $50,000.
10.3 AMENDMENTS. Any provision of this Agreement may be
modified, amended or waived, but only in writing signed by the Company, Xxxx and
the Lender.
10.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
10.5 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
10.6 SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
10.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
THE PATHWAYS GROUP, INC.
By /s/ XXXXX X. XXXX, XX
-----------------------------
Xxxxx X. Xxxx, XX
President
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
/s/ XXXXX X. XXXX, XX
----------------------------------
XXXXX X. XXXX, XX
Address:
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
XXXXXX MERCHANT PARTNERS GROUP LLC
By /s/ XXXXXX X. XXXXXX
-----------------------------
Xxxxxx X. Xxxxxx
Managing Member
Address:
Xxx Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Telecopier No.: (000) 000-0000
Telephone No. (000) 000-0000
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HARVEST OPPORTUNITY PARTNERS L.P.
By JMP Asset Management Group, LLC
General Partner
By /s/ XXXXXX X. XXXXXX
-------------------------------
Xxxxxx X. Xxxxxx
Managing Member
Address:
Xxx Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Telecopier No.: (000) 000-0000
Telephone No. (000) 000-0000
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