EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 14,
2001, by and among NX Networks Inc., a Delaware corporation, having its
principal office at 00000 Xxxxxx Xxxxxxxxxx Xxxxx, Xxxxxxx, XX 00000 (the
"COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS").
WHEREAS:
A. The Company and each of the Buyers individually are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 under Regulation D ("REGULATION D") as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 ACT");
B. The Company has authorized a series of preferred stock, designated
as Series E 8% Convertible Preferred Stock (such shares, together with any
shares of Series E 8% Preferred Stock issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
thereof, being hereinafter collectively referred to as the "PREFERRED SHARES"),
having the rights, preferences and privileges set forth in the Certificate of
Designations, Preferences and Rights attached hereto as Exhibit "A" (the
"CERTIFICATE OF DESIGNATION");
C. The Preferred Shares are convertible into shares of common stock,
$.05 par value per share, of the Company (the "COMMON STOCK"), upon the terms
and subject to the limitations and conditions set forth in the Certificate of
Designation;
D. The Company has authorized the issuance to the Buyers of warrants,
in the form attached hereto as Exhibit "B", to purchase within five (5) years up
to three hundred and eighty thousand (380,000) shares of Common Stock (the
"Warrants").
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of up to nineteen thousand (19,000) Preferred Shares and (ii) the
Warrants to purchase up to three hundred and eighty thousand (380,000) shares of
Common Stock.
F. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, the number of Preferred Shares and number of Warrants as is
set forth immediately below its name on the signature pages hereto;
G. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit "C" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
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registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers, acting individually
and severally (and not jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
1.1. PURCHASE OF PREFERRED SHARES AND WARRANTS. Subject to the
satisfaction (or waiver) of the conditions thereto set forth in
Section 6 and Section 7 below, on the Closing Date (as defined
below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such number
of Preferred Shares and number of Warrants for the aggregate
purchase price as is set forth immediately below such Buyer's
name on the signature pages hereto. The issuance, sale and
purchase of the Preferred Shares and the Warrants shall take
place at the Closing (the "Closing"). The Company shall issue an
aggregate of (i) nineteen thousand (19,000) Preferred Shares and
(ii) Warrants to purchase three hundred and eighty thousand
(380,000) shares of Common Stock, for an aggregate purchase price
of two million four hundred and three thousand five hundred
Dollars ($2,403,500.00) (the "PURCHASE PRICE").
1.2. FORM OF PAYMENT. On the Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Preferred Shares and
Warrants to be issued and sold to it at the Closing by wire
transfer of immediately available funds to the Company in
accordance with the Company's written wiring instructions annexed
hereto as Schedule 1.2, against delivery of duly executed
certificates representing such number of Preferred Shares and
duly executed Warrants which such Buyer is purchasing and (ii)
the Company shall deliver such certificates and Warrants duly
executed on behalf of the Company, to the Buyer, against delivery
of such Purchase Price. The certificates representing the
Preferred Shares and the Warrants purchased by each Buyer shall
be delivered to such Buyer, or his representative, upon
confirmation to the Company of the Federal Funds wire number
designating the funds transferred by such Buyer.
1.3. CLOSING DATE. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Preferred
Shares and the Warrants pursuant to this Agreement (the "Closing
Date") shall be 9:00 a.m. Eastern Standard Time on May 14, 2001
at the offices of Xxxxx Xxxx LLP, 700 Thirteenth Street, N.W.,
Washington, D.C. or at such other location and time as may be
agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer, acting
individually and severally (and not jointly) represents and
warrants to the Company solely as to such buyer that:
2.1. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Preferred Shares and the Warrants for its own
account and not with a present view towards the public sale or
distribution, except pursuant to sales registered or exempted
from registration under the 1933 Act.
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The Buyer does not agree to hold the Preferred Shares, the
Warrants or the Common Stock issuable upon conversion of the
Preferred Shares (the "CONVERSION SHARES") or as dividends
thereon (the "DIVIDEND SHARES") or upon exercise of the Warrants
(the "WARRANT SHARES") for any minimum or other specific term and
reserves the right to dispose of all or any of such securities at
any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act. The Preferred
Shares, the Warrants, the Conversion Shares, the Dividend Shares
and the Warrant Shares are sometimes collectively referred to
herein as the "Securities".
2.2. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D (an
"ACCREDITED INVESTOR").
2.3. RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with,
the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility
of the Buyer to acquire the Securities.
2.4. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances
and operations of the Company and materials, including without
limitation the SEC Documents (as defined in Section 3.8 herein),
relating to the offer and sale of the Securities which have been
requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other
due diligence investigation conducted by Buyer or any of its
advisors or representatives shall modify, amend or affect Buyer's
right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its
investment in the Securities involves a significant degree of
risk. Anything in this Section 2.4 or elsewhere herein to the
contrary notwithstanding, The Company represents and warrants
that it has not disclosed to any Buyer any material non-public
information about the Company or its business or affairs.
2.5. GOVERNMENTAL REVIEW. The Buyer understands that no United States
federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement
of the Securities.
2.6. TRANSFER OR RE-SALE. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or
re-sale of the Securities has not been and is not being
registered under the 1933 Act or any applicable state securities
laws, and the Securities may not be transferred unless (a) the
Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered
to the Company an opinion of counsel (which opinion shall be in
form, substance and scope customary for opinions of counsel in
comparable transactions and reasonably satisfactory to the
Company) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption
from
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such registration (c) the Securities are sold or transferred to
an "affiliate" (as defined in Rule 144 promulgated under the 1933
Act (or a successor rule) ("RULE 144")) of the Buyer who agrees
to sell or otherwise transfer the Securities only in accordance
with this Section 2.6 and who is an Accredited Investor or (d)
the Securities are sold pursuant to Rule 144; (ii) any sale of
such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule
is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the
sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under
the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder (in each case,
other than pursuant to the Registration Rights Agreement).
Notwithstanding the foregoing or anything else contained herein
to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending
arrangement.
2.7. LEGENDS. The Buyer understands that the Preferred Shares and the
Warrants and, until such time as the Conversion Shares, Dividend
Shares and Warrant Shares have been registered under the 1933 Act
as contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144 without any restriction as to
the number of securities as of a particular date that can then be
immediately sold, the Conversion Shares, Dividend Shares and
Warrant Shares, will bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended. The securities may not be sold, transferred or
assigned in the absence of an effective registration
statement for the securities under said Act, or an
opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable
transactions and reasonably satisfactory to the Company,
that registration is not required under said Act or
unless sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of
any Security upon which it is stamped, if, unless otherwise
required by applicable state securities laws, (a) in the event of
a transfer of a Security (or, if in the opinion of counsel to the
Company or to Buyer, a certificate without legend may be issued
prior to such transfer), such Security is registered for resale
under an effective registration statement filed under the 1933
Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular
date that can then be immediately sold, or (b) such holder
provides the Company with an opinion of counsel, in form,
substance and scope customary for opinions of counsel
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in comparable transactions and reasonably satisfactory to the
Company, to the effect that a public sale or transfer of such
Security may be made without registration under the 1933 Act and
such sale or transfer is effected. The Buyer agrees to sell all
Securities, including those represented by a certificate(s) from
which the legend has been removed, in compliance with all
applicable laws and regulations, including without limitation
applicable prospectus delivery requirements, if any.
2.8. AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration
Rights Agreement have been duly and validly authorized by Buyer.
This Agreement has been duly executed and delivered on behalf of
the Buyer, and this Agreement constitutes, and upon execution and
delivery by the Buyer of the Registration Rights Agreement, such
agreement will constitute, valid and binding agreements of the
Buyer enforceable in accordance with their terms.
2.9. RESIDENCY. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages
hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
3.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws
of Delaware, with full power and authority (corporate and other)
to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and
conducted. Except as set forth in Schedule 3.1, the Company has
no "Subsidiaries" (as defined below). The Company is duly
qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so
qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on (i) the Securities, (ii) the business, operations,
assets, financial condition or, to the extent it can be
reasonably anticipated as of the date hereof, prospects of the
Company, (iii) the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection
herewith or (iv) the authority or the ability of the Company to
perform its obligation under this Agreement, the Registration
Rights Agreement, the Certificate of Designation or the Warrants.
"SUBSIDIARIES" means any corporation or other organization,
whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership
interest and which has assets or liabilities in excess of
$100,000 as of December 31, 2000.
3.2. AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into and
perform this Agreement, the Registration Rights Agreement and the
Warrants and
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to consummate the transactions contemplated hereby and thereby
and to issue the Securities, in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement and the Warrants by the
Company, the filing of the Certificate of Designation and the
consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the
Preferred Shares and the Warrants and the issuance and
reservation for issuance of the Conversion Shares issuable upon
conversion of or otherwise pursuant to the Preferred Shares and
the Warrant Shares issuable upon exercise of or otherwise
pursuant to the Warrants) have been duly authorized by the
Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its
stockholders (other than as may be required under Nasdaq
Marketplace Rule 4350) is required, (iii) this Agreement has been
duly executed and delivered by the Company, and (iv) this
Agreement constitutes, and upon execution and delivery by the
Company of the Registration Rights Agreement and the Warrants and
upon execution and filing of the Certificate of Designation, each
of such agreements and instruments will constitute, a legal,
valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
3.3. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 85,000,000 shares of Common
Stock of which 44,390,267 shares are issued and outstanding,
18,475,000 shares are reserved for issuance pursuant to the
Company's stock option plans and certain non-plan option
agreements, 7,583,000 shares are reserved for issuance pursuant
to securities (other than the Preferred Shares and the Warrants)
exercisable for, or convertible into or exchangeable for shares
of Common Stock and 5,560,000 shares are reserved for issuance
upon conversion of the Preferred Shares and exercise of the
Warrants (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below); (ii) 1,000,000 shares
of preferred stock of which 333,334 shares have been designated
as Series B 8% Convertible Preferred Stock, 333,333 of which are
outstanding, 15,400 shares have been designated as Series C 8%
Convertible Preferred Stock, all of which are outstanding, and
11,734 shares have been designated as Series D Convertible
Preferred Stock, 11,734 of which are outstanding. All of such
outstanding shares of capital stock are, or upon issuance will
be, duly authorized, validly issued, fully paid and
nonassessable. Except as disclosed in Schedule 3.3, no shares of
capital stock of the Company are subject to preemptive rights or
any other similar rights of the stockholders of the Company or
any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in Schedule 3.3, as of
the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever
relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company, or
arrangements by which the Company is or may become bound to issue
additional shares of capital stock of the Company, (ii) there are
no agreements or arrangements under which the Company is
obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement) and
(iii)
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there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be
triggered by the issuance of the Preferred Shares, the Warrants,
the Conversion Shares, the Dividend Shares or the Warrant Shares.
The Company has made available to the Buyer true and correct
copies of the Company's Certificate of Incorporation as in effect
on the date hereof, including the Certificates of Designation for
the Company's Series B, Series C and Series D preferred stock
("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and has made available
to Buyer all of the Company's option plans and standard forms of
option agreements and all other agreements containing the terms
of securities convertible into or exercisable for Common Stock of
the Company and the material rights of the holders thereof in
respect thereto.
3.4. ISSUANCE OF SHARES. The Preferred Shares are duly authorized and,
upon issuance in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and encumbrances with respect to
the issue thereof and shall not be subject to preemptive rights
or other similar rights of stockholders of the Company and will
not impose personal liability upon the holder thereof. The
Conversion Shares, the Dividend Shares and the Warrant Shares are
duly authorized and reserved for issuance, and, when issued upon
conversion of or otherwise pursuant to the Preferred Shares and
upon exercise of or otherwise pursuant to the Warrants in
accordance with the terms thereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not
impose personal liability upon the holder thereof.
3.5. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock
upon the issuance of the Conversion Shares upon conversion of or
otherwise pursuant to the Preferred Shares and upon issuance of
the Warrant Shares upon exercise of or otherwise pursuant to the
Warrants. The Company's directors and executive officers have
studied and fully understand the nature of the Securities being
sold hereunder. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon
conversion of the Preferred Shares or exercise of the Warrants in
accordance with this Agreement, the Certificate of Designation
and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company. Taking the
foregoing into account, the Company's Board of Directors has
determined, in its good faith business judgment, that the
issuance of the Securities hereunder and under the Certificate of
Designation and the Warrants and the consummation of the
transactions contemplated hereby and thereby are in the best
interest of the Company and its stockholders.
3.6. SERIES OF PREFERRED STOCK. The terms, designations, powers,
preferences and relative, participating and optional or special
rights, and the qualifications, limitations and restrictions of
each series of preferred stock of the Company (other than the
Preferred
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Shares), if any, are as stated in the Certificates of
Incorporation, filed on or prior to the date hereof, and the
Bylaws. The terms, designations, powers, preferences and
relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of the Preferred
Shares are as stated in the Certificate of Designation.
3.7. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by
the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without
limitation, the filing of the Certificate of Designation and the
issuance and reservation for issuance, as applicable, of the
Securities) will not (i) conflict with or result in a violation
of any provision of the Certificate of Incorporation or By-laws
or (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with
notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company is a party, or (iii)
result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws
and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject)
applicable to the Company by which any property or asset of the
Company is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). The Company is not in violation
of its Certificate of Incorporation, By-laws or other
organizational documents and the Company is not in default (and
no event has occurred which with notice or lapse of time or both
could put the Company in default) under, and the Company has not
taken any action or failed to take any action that would give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which
the Company is a party or by which any property or assets of the
Company is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material
Adverse Effect. The businesses of the Company are not being
conducted, and shall not be conducted so long as a Buyer owns any
of the Securities, in violation of any law, ordinance or
regulation of any governmental entity (except for such violations
as would not, individually or in the aggregate, have a Material
Adverse Effect). Except for (i) as specifically contemplated by
this Agreement and as required under the 1933 Act, (ii) as
required by any applicable state securities laws and (iii) such
actions as are necessary to comply with Nasdaq Marketplace Rule
4350, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration
with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in
order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights
Agreement or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Preferred Shares and Warrants in
accordance with the terms hereof and to issue the Conversion
Shares and the Dividend Shares upon conversion of or otherwise
pursuant to the Preferred Shares and the Warrant Shares upon
exercise of or otherwise pursuant to the Warrants. All consents,
authorizations, orders, filings and registrations which the
Company is
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required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company
is not in violation of the listing requirements of the NASDAQ
SmallCap Market (the "NASDAQ SMALLCAP") and, except as set forth
in Schedule 3.6, does not reasonably anticipate that the Common
Stock will be delisted by the Nasdaq SmallCap in the foreseeable
future. Except as set forth in Schedule 3.6, the Company and its
Subsidiaries are unaware of any facts or circumstances which
could reasonably be expected to give rise to any of the
foregoing.
3.8. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 1999, the
Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto
and documents (other than exhibits to such documents)
incorporated by reference therein, being hereinafter referred to
as the "SEC DOCUMENTS"). The Company has made available
(including by filing SEC Documents via XXXXX) to each Buyer true
and complete copies of the SEC Documents, except for such
exhibits and incorporated documents. Except as provided in
Schedule 3.8, as of their respective dates, the SEC Documents
complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except as provided in
Schedule 3.8, none of the statements made in any such SEC
Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been
amended or updated in subsequent filings prior to the date
hereof). Except as provided in Schedule 3.8, as of their
respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.
Such financial statements have been prepared in accordance with
United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may
be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set
forth in the financial statements of the Company included in the
SEC Documents or Schedule 3.8, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business subsequent to December 31, 2000
and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally
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accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the
Company.
3.9. ABSENCE OF CERTAIN CHANGES. Since December 31, 2000, there has
been no material adverse change and no material adverse
development in the assets, liabilities, business, properties,
operations, financial condition or results of operations of the
Company or any of its Subsidiaries.
3.10. ABSENCE OF LITIGATION. Except as set forth in Schedule 3.10,
there is no action, suit, claim, proceeding, inquiry or, to the
knowledge of the Company, investigation before or by any court,
public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company, threatened
against or affecting the Company or its officers or directors in
their capacity as such, that could have a Material Adverse
Effect. Schedule 3.10 contains a complete list and summary
description of any pending or threatened proceeding against or
affecting the Company that claims damages of $50,000 or more.
None of the Company's executive officers are aware of any facts
or circumstances which might give rise to any of the foregoing.
3.11. PATENTS, COPYRIGHTS, ETC. Except as set forth in Schedule 3.11,
the Company owns or possesses the requisite licenses or rights to
use all patents, patent applications, patent rights, inventions,
know-how, trade secrets, trademarks, trademark applications,
service marks, service names, trade names and copyrights
("Intellectual Property") necessary to enable it to conduct its
business as now operated (and, except as set forth in Schedule
3(11) hereof, to the best of the Company's knowledge, as
presently contemplated to be operated in the future); there is no
claim or action by any person pertaining to, or proceeding
pending, or to the Company's knowledge threatened, which
challenges the right of the Company with respect to any
Intellectual Property necessary to enable it to conduct its
business as now operated (and, except as set forth in Schedule
3.11 hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the
Company's knowledge, the Company's current and intended products,
services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of
their Intellectual Property.
3.12. NO MATERIALLY ADVERSE CONTRACTS, ETC. Except as set forth on
Schedule 3.11 the Company is not subject to any charter,
corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's
officers has or is expected in the future to have a Material
Adverse Effect. Except as set forth on Schedule 3.12, the Company
is not a party to any contract or agreement
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which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
3.13. TAX STATUS. The Company has made or filed all federal, state and
foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company has set aside on
its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has
set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not
executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal,
state or local tax. None of the Company's tax returns is
presently being audited by any taxing authority.
3.14. CERTAIN TRANSACTIONS. Except as set forth on Schedule 3.14 and
in the SEC Documents and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3.3, none of the officers,
directors, or employees of the Company is presently a party to
any transaction with the Company (other than for services as
employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from
any officer, director or such employee or, to the knowledge of
the Company, any corporation, partnership, trust or other entity
in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or
partner.
3.15. DISCLOSURE. All information relating to or concerning the
Company set forth in this Agreement and provided to the Buyers
pursuant to Section 2.4 hereof and otherwise in connection with
the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they
were made, not misleading. No event or circumstance has occurred
or exists, nor is the Company in possession of any information,
with respect to the Company or its business, properties,
operations or financial conditions, which has not been publicly
announced or disclosed but under applicable law, rule or
regulation, requires public disclosure or announcement by the
Company (assuming for this purpose that the Company's reports
filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
11
3.16. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES. The
Company acknowledges and agrees that the Buyers are acting solely
in the capacity of arm's length purchasers with respect to this
Agreement and the transactions contemplated hereby and otherwise.
The Company further acknowledges that no Buyer is acting as a
financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions
contemplated hereby and that any statement made by any Buyer or
any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to the
Buyers' purchase of the Securities and has not been relied upon
by the Company, its officers or directors in any way. The Company
further represents to each Buyer that the Company's decision to
enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
Without limiting the generality of the foregoing, The Company
acknowledges and agrees that neither the Buyers nor their
representatives owe the Company any duty of disclosure.
3.17. NO INTEGRATED OFFERING. Assuming the validity of Buyers'
representations under Section 2 hereof, neither the Company, nor
any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of
any security or solicited any offers to buy any security under
circumstances that would require registration under the 1933 Act
of the issuance of the Securities to the Buyers. The issuance of
the Securities to the Buyers will not be integrated with any
other issuance of the Company's securities (past, current or
future) in a manner that will require stockholder approval under
any stockholder approval provisions applicable to the Company or
its securities. Assuming the validity of Buyers' representations
under Section 2 hereof, none of the Securities have been offered
or sold nor have there been any solicitations of offers to buy
any of the Securities to any person other than Accredited
Investors and the Company has not made any offers or sales or
solicited offers to buy any of its securites within the last six
months to any person other than Accredited Investors.
3.18. NO BROKERS. Except as set forth on Schedule 3.18, the Company
has taken no action which would give rise to any claim by any
person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions
contemplated hereby.
3.19. PERMITS; COMPLIANCE. Except as disclosed in Schedule 3.19, the
Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry
on its business as it is now being conducted (collectively, the
"Company Permits"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or
cancellation of any of the Company Permits. The Company is not in
conflict with, or in default or violation of, any of the Company
Permits, except for any such conflicts, defaults or
12
violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since
December 31, 2000, the Company has not received any notification
with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or
violations would not have a Material Adverse Effect.
3.20. ENVIRONMENTAL MATTERS.
3.20.1. Except as set forth in Schedule 3.20, there are, to the
Company's knowledge, with respect to the Company or any
predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material
into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which
may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state,
local or foreign laws and the Company has not received any notice
with respect to any of the foregoing, nor is any action pending
or, to the Company's knowledge, threatened in connection with any
of the foregoing. The term "Environmental Laws" means all
federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well
as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
3.20.2. Other than those that are or were stored, used or disposed of
in compliance with applicable law, to the knowledge of the
Company, no Hazardous Materials are contained on or about any
real property currently owned, leased or used by the Company and
no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company during
the period the property was owned, leased or used by the Company,
except in the normal course of the Company's business.
3.20.3. Except as set forth in SCHEDULE 3.20, to the knowledge of the
Company, there are no underground storage tanks on or under any
real property owned, leased or used by the Company that are not
in compliance with applicable law.
3.21. TITLE TO PROPERTY. The Company has good and marketable title in
fee simple to all real property and good and marketable title to
all personal property owned by them which is material to the
business of
13
the Company, in each case free and clear of all liens,
encumbrances and defects except such as are described in SCHEDULE
3.21 or such as would not have a Material Adverse Effect. Any
real property and facilities held under lease by the Company are
held by it under valid, subsisting and enforceable leases with
such exceptions as would not have a Material Adverse Effect.
3.22. INSURANCE. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in
such amounts as management of the Company believes to be prudent
and customary in the businesses in which the Company is engaged.
The Company has no reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would
not have a Material Adverse Effect.
3.23. INTERNAL ACCOUNTING CONTROLS. Except as disclosed on Schedule
3.23, the Company maintains a system of internal accounting
controls sufficient, in the judgment of the Company's board of
directors, to provide reasonable assurance that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
3.24. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any
director, officer, agent, employee or other person acting on
behalf of the Company has, in the course of his actions for, or
on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
3.25. SOLVENCY. Except as set forth on Schedule 3.25, the Company
(both before and after giving effect to the transactions
contemplated by this Agreement) is solvent (i.e., its assets have
a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become
absolute and matured) and currently the Company has no
information that would lead it to reasonably conclude that the
Company would not have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from
time to time incurred in connection therewith as such debts
mature. Except as disclosed in Schedule 3.25, the Company did not
receive a qualified opinion from its auditors with respect to its
most
14
recent fiscal year end and does not anticipate or know of any
basis upon which its auditors might issue a qualified opinion in
respect of its current fiscal year.
3.26. NO INVESTMENT COMPANY. The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement and
the Certificate of Designation will not be an "investment
company" required to be registered under the Investment Company
Act of 1940 (an "Investment Company"). The Company is not
controlled by an Investment Company.
3.27. TRADING IN COMMON STOCK. Neither the Company nor any officer,
director, affiliate, or other person acting on behalf of the
Company or any such officer, director or affiliate has directly
or indirectly engaged in the purchase or sale of the Common Stock
(or any derivative interest thereof) during the period beginning
fifteen (15) Trading Days (as defined in the Certificate of
Designation) prior to the Closing Date and ending on the Closing
Date.
4. COVENANTS.
4.1. BEST EFFORTS. The parties shall use all c commercially reasonable
efforts to satisfy timely each of the conditions described in
Section 6 and 7 of this Agreement.
4.2. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing.
The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "blue
sky" laws of the states of the United States (or to obtain an
exemption from such qualification), and shall provide evidence of
any such action so taken to each Buyer on or prior to the Closing
Date.
4.3. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3; PRESS RELEASE. The
Company's Common Stock is registered under Section 12(g) of the
1934 Act. So long as any Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to
be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company
currently meets, and, subject to Section 4.10, so long as any
Buyer beneficially owns any of the Securities, will take all
necessary action reasonably within its control to continue to
meet, the "registrant eligibility" requirements set forth in the
general instructions to Form S-3. The Company shall issue a press
release describing the material terms of the transactions
contemplated hereby as soon as practicable following the Closing
Date but in no event later than one (1) Trading Day (as defined
in the
15
Certificate of Designation) following the Closing Date, and shall
file with the SEC a Current Report on Form 8-K describing the
material terms of the transactions contemplated hereby (and
attaching as exhibits thereto this Agreement, the Registration
Rights Agreement, the Certificate of Designation and the
Warrants) within two (2) Trading Days of the Closing Date, which
press release and Form 8-K shall be subject to prior review by
the Buyers.
4.4. USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Preferred Shares and the Warrants for general working
capital purposes and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection
with direct or indirect subsidiaries).
4.5. RIGHT OF FIRST OFFER; RIGHT TO PARTICIPATE.
4.5.1. Subject to the terms and conditions specified in this Section
4.5, until the first anniversary of the Closing Date, the Company
hereby grants to each Buyer the right of first offer to purchase
New Securities (as hereinafter defined) which the Company may,
from time to time, propose to sell and issue. If more than one
Buyer desires to purchase the New Securities, then each Buyer
shall have the right to purchase the New Securities in the
proportion that the number of Preferred Shares then owned by such
Buyer bears to the total number of Preferred Shares owned by all
Buyers desiring to purchase the New Securities.
4.5.2. In the event the Company proposes to issue New Securities, it
shall give each Buyer written notice (the "Right of First Offer
Notice") of its intention stating (i) a description of the New
Securities it proposes to issue, (ii) the number of shares of New
Securities it proposes to offer, (iii) the price per share at
which, and other terms on which, it proposes to offer such New
Securities and (iv) the number of shares that the Buyer has the
right to purchase under this Section 4.5.
4.5.3. Within ten (10) business days after the Right of First Offer
Notice is given, the Buyer may elect to purchase, at the price
specified in the Right of First Offer Notice, up to its
proportionate share of New Securities, as provided for in Section
4.5.1. An election to purchase shall be made in writing and must
be given to the Company within such 10-day period.
4.5.4. The Company shall have 120 days after the last date on which
the Buyer's right of first offer lapsed to enter into an
agreement (pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within 60 days from the
execution thereof) to sell the New Securities which the Buyers
did not elect to purchase under this Section 4.5, at or above the
price and upon terms not more favorable to the purchasers of such
securities than the terms specified in the initial Right of First
Offer Notice given in connection with such sale. If the Company
enters into an agreement for the sale of the New Securities with
a third party purchaser, the Company shall, not later than ten
(10) days prior to closing such transaction, offer to Buyers, by
written notice (the "Participation
16
Right Notice") the opportunity to participate in such transaction
on the same terms as are offered to each third party purchaser
and Buyer shall have the right to purchase its proportionate
share (as set forth in Section 4.5.1.) of the New Securities from
the Company on the same terms as are offered to such third party
purchaser up to an amount equal to the aggregate amount invested
by the third party purchaser. In the event that the Company gives
a Participation Right Notice, Buyers shall have the right, but
not the obligation, by written notice to the Company given within
the aforesaid ten (10) day period, to elect to participate in
such transaction. The closing of the sale of New Securities by
the Company to the participating Buyers upon exercise of its
rights under this Section 4.5 shall take place simultaneously
with the closing of the sale of New Securities to third parties.
In the event the Company has not entered into an agreement to
sell the New Securities within such 120-day period (or sold and
issued New Securities in accordance with the foregoing within 60
days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities without first
offering such New Securities to the Buyer in the manner provided
in this Section 4.5.
4.5.6. The right of first offer set forth in this Section 4.5 shall
not apply to the issuance of New Securities to a Strategic
Investor (as hereinafter defined); provided, however, that in the
event, at any time prior to the first anniversary of the Closing
Date, the Company, directly or indirectly, offers, sells, grants
any option to purchase, or otherwise disposes of its New
Securities to a Strategic Investor (a "Strategic Investment"),
the Company shall, not later than ten (10) days prior to closing
such Strategic Investment, offer to Buyers, by Participation
Right Notice the opportunity to participate in such Strategic
Investment on the same terms as are offered to the Strategic
Investor up to an amount equal to the Purchase Price payable
under this Agreement by each such Buyer. The Participation Right
Notice shall describe in reasonable detail the proposed terms of
such transaction and the amount of proceeds intended to be raised
thereunder. In the event that the Company gives a Participation
Right Notice, Buyers shall have the right, but not the
obligation, by written notice to the Company given within the
aforesaid ten (10) day period, to elect to participate in such
transaction. If Buyers to make such election within such ten (10)
day period (or, having so elected, does not in fact participate
in such Strategic Investment through no fault of the Company),
then Buyers shall have no further claim or right with respect to
such Strategic Investment and the Company shall be free to
consummate such transaction upon substantially the terms set
forth in the Participation Right Notice.
4.5.5. For purposes of this Section 4.5, the term "New Securities"
shall mean any shares of, or securities convertible into or
exercisable for any shares of, any class of the Company's capital
stock. The term "Strategic Investor" shall mean any person
(including any natural person, company, limited partnership,
general partnership, joint stock company, joint venture,
association, trust, bank trust company, land trust, business
trust, or other organization, whether or not a legal entity, and
any government or agency or political subdivision thereof) who
has significant operations in the Company's industry and is
making an investment in the Company's securities for strategic,
rather than exclusively financial, purposes.
17
4.6. EXPENSES. The Company shall reimburse Buyer for all expenses
incurred by them in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the
other agreements to be executed in connection herewith,
including, without limitation, attorney's and consultant's fees
and expenses and travel expenses. The Company's obligation to
reimburse Buyer's expenses under this Section 4.6 shall be
limited to Ten Thousand Dollars ($10,000).
4.7. FINANCIAL INFORMATION. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or
sells all of the Securities: (i) within one (1) day after
release, copies of all press releases issued by the Company or
any of its Subsidiaries; and (ii) contemporaneously with the
making available or giving to the stockholders of the Company,
copies of any notices or other information the Company makes
available or gives to such stockholders.
4.8. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the
full conversion of the outstanding Preferred Shares and issuance
of the Conversion Shares in connection with the conversion of
Preferred Shares (based on the Conversion Price (as defined in
the Certificate of Designation) then in effect) and as otherwise
required by the Certificate of Designation, the issuance of
Dividend Shares and the full exercise of the Warrants and
issuance of the Warrant Shares in connection therewith (based on
the Exercise Price (as defined in the Warrants) of the Warrants
then in effect). The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of
or otherwise pursuant to the Preferred Shares and upon exercise
of or otherwise pursuant to the Warrants without the written
consent of each Buyer. The Company shall use its best efforts at
all times to maintain the number of shares of Common Stock so
reserved for issuance at no less than two (2) times the number
that is then actually issuable upon full conversion of the
Preferred shares (based on the Conversion Price (as defined in
the Certificate of Designation) then in effect) and full exercise
of the Warrants (based on the Exercise Price (as defined in the
Warrants) of the Warrants then in effect). If at any time the
number of shares of Common Stock authorized and reserved for
issuance is below the number of Conversion Shares issued and
issuable upon conversion of or otherwise pursuant to the
Preferred Shares (based on the Conversion Price (as defined in
the Certificate of Designation) then in effect) and the aggregate
number of Warrant Shares issued and issuable upon exercise of or
otherwise pursuant to the Warrants (based on the Exercise Price
(as defined in the Warrants) of the Warrants then in effect), the
Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of stockholders to
authorize additional shares to meet the Company's obligations
under this Section 4.8, in the case of an insufficient number of
authorized shares, and using its best efforts to obtain
stockholder approval of an increase in such authorized number of
shares.
4.9. LISTING. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon
which shares of
18
Common Stock are then listed (subject to official notice of
issuance) and, so long as any Buyer owns any of the Securities,
shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Conversion Shares and Warrant
Shares from time to time issuable upon conversion of or otherwise
pursuant to the Preferred Shares or exercise of or otherwise
pursuant to the Warrants. The Company will obtain and, subject to
Section 4.10, so long as any Buyer owns any of the Securities,
maintain the listing and trading of its Common Stock on any of
the following: the NASDAQ SmallCap, the NASDAQ National Market
("NNM"), the American Stock Exchange ("AMEX") or the New York
Stock Exchange ("NYSE") and will comply in all respects with the
Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers
("NASD") and such exchanges, as applicable.
4.10. CORPORATE EXISTENCE. So long as a Buyer beneficially owns any
Preferred Shares or Warrants, the Company shall maintain its
corporate existence and shall not merge, consolidate or sell all
or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all
of the Company's assets, where (i) the successor or acquiring
entity and, if an entity different from the successor or
acquiring entity, the entity whose securities into which the
Preferred Shares shall become convertible pursuant to Section
7(h) of the Certificate of Designation and into which the
Warrants shall become exercisable pursuant to Section 6(b) of the
Warrants in such transaction, assumes the Company's obligations
hereunder and under the agreements and instruments entered into
in connection herewith (including the Certificate of Designation
and the Warrants) and (ii) the entity whose securities into which
the Preferred Shares shall become convertible pursuant to Section
7(h) of the Certificate of Designation and into which the
Warrants shall become exercisable pursuant to Section 6(b) of the
Warrants is a publicly traded corporation whose Common Stock is
listed for trading on Nasdaq SmallCap, the NNM, NYSE or AMEX.
4.11. NO INTEGRATION. The Company shall not make any offers or sales
of any security (other than the Securities) under circumstances
that would require registration of the Securities being offered
or sold hereunder under the 1933 Act or cause the offering of
Securities to be integrated with any other offering of securities
by the Company such that the Company would have to obtain
stockholder approval pursuant to any stockholder approval
provision applicable to the Company or its securities.
4.12. TRADING LIMITATIONS.
4.12.1 Anything herein to the contrary notwithstanding, it is
understood and agreed (1) that the Buyer has not been asked to
agree, nor has it agreed, to desist from purchasing or selling,
long and/or short, securities issued by the Company, or
"derivative" securities based on securities issued by, the
Company, or to hold the Securities for any specified term; (2)
that past or future open market or other transactions by Buyer,
including short sales, and specifically including, without
limitation, short sales or "derivative" transactions, before or
after the closing of this or future private placement
transactions, may negatively impact the market price of the
Company's publicly-traded securities; (3) that Buyer, or counter
19
parties in "derivative" transactions to which Buyer is a party,
directly or indirectly, presently have a "short" position in the
common stock of the Company, and (4) that Buyer shall not be
deemed to have any affiliation with or control over any arm's
length counter-party in any "derivative" transaction.
4.12.2 During the five trading days ending on the last trading day
prior to the date a notice of conversion of the Preferred Shares
is delivered to the Company, no Buyer or any of such Buyer's
officers, directors, affiliates or other persons acting on behalf
of such Buyer will, directly or indirectly, sell common stock or
derivative securities based on common stock issued by the
Company. The trading limitations set forth in this Section 4.12.2
shall not apply to trading (1) by an arm's length counter-party
involved in a derivative transaction with Buyer or its affiliates
if the actions by Buyer or its affiliates related to such
derivative transaction are completed at least seven trading days
prior to the date a notice of conversion of the Preferred Shares
is delivered to the Company, (2) during the thirty day period
after the Company has delivered to Buyer a notice of redemption
pursuant to Section 5 of the Certificate of Designation, or (3)
if the applicable conversion price is $1.265 or greater on the
date a notice of conversion is delivered to the Company.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the
Conversion Shares, Dividend and Warrant Shares in such amounts as
specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in
accordance with the terms thereof (the "Irrevocable Transfer
Agent Instructions"). A copy of the Irrevocable Transfer Agent
Instructions shall be delivered to each Buyer. Prior to
registration of the Conversion Shares, the Dividend Shares and
the Warrant Shares under the 1933 Act or the date on which the
Conversion Shares, the Dividend Shares or the Warrant Shares may
be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be
immediately sold, all such certificates shall bear the
restrictive legend specified in Section 2.7 of this Agreement.
The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this
Section 5, and stop transfer instructions to give effect to
Section 2.6 hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares
and Warrant Shares under the 1933 Act or the date on which the
Conversion Shares or Warrant Shares may be sold pursuant to Rule
144 without any restriction as to the number of securities as of
a particular date that can then be immediately sold), will be
given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this
Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2.7 hereof to comply with all
applicable prospectus delivery requirements, if any, upon re-sale
of the Securities. If a Buyer provides the Company with (i) an
opinion of counsel, in form, substance and scope customary for
20
opinions of counsel in comparable transactions and reasonably
satisfactory to the Company, to the effect that a public sale or
transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii)
the Buyer provides reasonable assurances that the Securities can
be sold pursuant to Rule 144, the Company shall permit the
transfer, and, in the case of the Conversion Shares and Warrant
Shares, promptly instruct its transfer agent to issue one or more
certificates, free from any restrictive legend, in such name and
in such denominations as specified by such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Preferred Shares and
Warrants to a Buyer at Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions
thereto, provided that these conditions are for the Company's
sole benefit and may be waived by the Company at any time in its
sole discretion:
6.1. Each Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the
Company.
6.2. Each Buyer shall have delivered the Purchase Price in accordance
with Section 1.2 above.
6.3. The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware.
6.4. The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true
and correct as of such date), and the applicable Buyer shall have
performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
applicable Buyer at or prior to the Closing Date.
6.5. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Preferred Shares and
Warrants at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions,
provided that these conditions are for such Buyer's sole benefit
and may be waived by such Buyer at any time in its sole
discretion:
7.1. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the
Buyer.
21
7.2. The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request)
representing the Preferred Shares and duly executed Warrants
purchased at such Closing in accordance with Section 1.2 above.
7.3. The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware, and
a copy thereof certified by such Secretary of State shall have
been delivered to such Buyer.
7.4. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers,
shall have been delivered to and acknowledged in writing by the
Company's Transfer Agent.
7.5. 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 Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as
of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Closing Date.
7.6. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
8. GOVERNING LAW; MISCELLANEOUS.
8.1. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable
to agreements made and to be performed in the State of New York
(without regard to principles of conflict of laws). Both parties
irrevocably consent to the exclusive jurisdiction of the United
States federal courts and the state courts located in New York
City, New York with respect to any suit or proceeding based on or
arising under this Agreement, the agreements entered into in
connection herewith or the transactions contemplated hereby or
thereby and irrevocably agree that all claims in respect of such
suit or proceeding may be determined in such courts. Both parties
irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further
agree that service of process upon a party mailed by first class
mail shall be deemed in every respect effective service of
process upon the party in any such suit or proceeding. Nothing
herein shall affect either party's right to serve process in any
other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on
such judgment or in any other lawful manner.
22
8.2. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to
the other party. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
8.3. HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the
interpretation of, this Agreement.
8.4. SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
8.5. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the
Company nor the Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No
provision of this Agreement may be waived or amended other than
by an instrument in writing signed by the party to be charged
with enforcement.
8.6. NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by
courier (including a recognized overnight delivery service) or by
facsimile and shall be effective five days after being placed in
the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each
case addressed to a party. The addresses for such communications
shall be:
If to the Company:
NX Networks Inc.
00000 Xxxxxx Xxxxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: General Counsel
Facsimile: (000) 000-0000
With copy to:
Xxxx X. Xxxxxxx, Esq.
Xxxxxx Xxxx & Xxxxxx LLP
Two Stamford Plaza
000 Xxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Facsimile: 000-000-0000
23
If to any Buyer: To each Buyer at the address set forth
immediately below such Buyer's name on the signature pages hereto,
with a copy to each of the other Buyers.
Each party shall provide notice to the other party of any change
in address.
8.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this
Agreement or any rights or obligations hereunder without the
prior written consent of the other. Notwithstanding the
foregoing, subject to Section 2.6, any Buyer may assign its
rights hereunder to any person that purchases Securities in a
private transaction from a Buyer or to any of its "affiliates,"
as that term is defined under the 1934 Act, without the consent
of the Company.
8.8. 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.
8.9. SURVIVAL. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder notwithstanding any due
diligence investigation conducted by or on behalf of the Buyers.
The Company agrees to indemnify and hold harmless each of the
Buyers and all their officers, directors, employees and agents
for loss or damage arising as a result of or related to any
breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections
3, 4 and 5 hereof or any of its covenants and obligations under
this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
8.10. PUBLICITY. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of
any press releases, filings with the SEC, NASD or any stock
exchange or interdealer quotation system, or any other public
statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without
the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is
required by applicable law and regulations (although each of the
Buyers shall be consulted by the Company in connection with any
such press release or public filing prior to its release or
public filing and shall be provided with a copy thereof and be
given an opportunity to comment thereon). In addition, the
Company agrees that it will not disclose, and will not include in
any public filing or other announcement, the name of any Buyer,
unless expressly agreed to in writing by such Buyer or unless and
until such disclosure is, in the reasonable opinion of counsel to
the Company, required by law or applicable regulation, and then
only to the extent of such requirement.
8.11. FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and
shall execute and deliver all such other agreements,
certificates,
24
instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be
applied against any party.
8.13. REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Buyer
by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this
Agreement, that each Buyer shall be entitled, in addition to all
other available remedies in law or in equity, to an injunction or
injunctions to prevent or cure any breaches of the provisions of
this Agreement and to enforce specifically the terms and
provisions of this Agreement, without the necessity of showing
economic loss and without any bond or other security being
required.
8.14. WITHHOLDING. Each Buyer acknowledges that the Company may be
required under applicable foreign, federal, state or local law to
withhold from any cash payment or cash distribution payable to
any such Buyer as a dividend or liquidated damage payment an
amount for or on account of any present or future taxes, levies,
imposts, duties, charges or fees of any nature now or hereafter
imposed by any governmental or other authority. All amounts
withheld and paid over by the Company to any governmental or
other authority on behalf of any Buyer shall be treated for all
purposes of this Agreement as if such amounts had been paid or
distributed directly to such Buyer and the Company shall provide
appropriate evidence to such Buyer of such payments.
8.15. BUYER'S COUNSEL. Each Buyer acknowledges that it has sought and
obtained the advice of its own legal counsel in connection with
its execution and delivery of this Agreement and the performance
of its obligations hereunder and that Xxxxx Xxxx LLP has acted as
legal counsel only to North Olmsted Partners, L.P. Each Buyer
further acknowledges that it made its own independent business
decision to acquire the Securities and has not relied on the
actions or inactions on any other Buyer or its counsel or other
representatives when making said business decision. Each Buyer is
making its own separate investment decision and has no intent to
act in concert with any other Buyer with respect to the
Securities purchased hereunder.
[signature page follows]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
NX NETWORKS INC.
BY:
-----------------------------
25
[BUYER]
BY:
-------------------------------
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares:
Number of Warrants:
Aggregate Purchase Price:
29
