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NOTE PURCHASE AGREEMENT
BETWEEN
QUOKKA SPORTS, INC.
GE CAPITAL EQUITY INVESTMENTS, INC.
AND
THE OTHER PURCHASERS SIGNATORY HERETO
DATED AS OF SEPTEMBER 15, 2000
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TABLE OF CONTENTS
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ARTICLE 1 AGREEMENT TO SELL AND PURCHASE.......................................... 1
Section 1.1 Sale and Purchase............................................. 1
ARTICLE 2 CLOSING, DELIVERY AND PAYMENT........................................... 2
Section 2.1 Closing....................................................... 2
Section 2.2 Delivery...................................................... 2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 2
Section 3.1 Organization, Good Standing and Qualification................. 2
Section 3.2 Subsidiaries.................................................. 3
Section 3.3 Capitalization; Voting Rights................................. 4
Section 3.4 Authorization; Binding Obligations............................ 5
Section 3.5 SEC Reports; Financial Statements............................. 5
Section 3.6 Undisclosed Liabilities....................................... 6
Section 3.7 Agreements; Action............................................ 7
Section 3.8 Obligations to Related Parties................................ 7
Section 3.9 Changes....................................................... 8
Section 3.10 Title to Properties and Assets; Liens, Condition, Etc........ 8
Section 3.11 Intellectual Property........................................ 9
Section 3.12 Compliance with Law; Other Instruments....................... 10
Section 3.13 Litigation................................................... 11
Section 3.14 Tax Matters.................................................. 11
Section 3.15 Employees.................................................... 12
Section 3.16 Environmental and Safety Laws................................ 13
Section 3.17 Offering Valid............................................... 13
Section 3.18 Employee Benefit Plans....................................... 14
Section 3.19 Permits...................................................... 15
Section 3.20 No Broker.................................................... 15
Section 3.21 Disclosure................................................... 16
Section 3.22 Section 203.................................................. 16
Section 3.23 Employment, Confidential Information and Invention
Assignment Agreement......................................... 16
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Section 3.24 Insurance.................................................... 16
Section 3.25 Information Provided......................................... 17
Section 3.26 Principal Exchange Market.................................... 17
Section 3.27 No General Solicitation...................................... 17
Section 3.28 No Integrated Offering....................................... 17
Section 3.29 Form S-3..................................................... 17
Section 3.30 Poison Pill Provisions....................................... 17
Section 3.31 Internal Accounting Controls................................. 18
Section 3.32 Solvency..................................................... 18
Section 3.33 No Reliance on Purchasers.................................... 18
Section 3.34 Foreign Corrupt Practices Act................................ 19
Section 3.35 Acknowledgment of Dilution................................... 19
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................... 19
Section 4.1 Requisite Power and Authority................................. 19
Section 4.2 Investment Representations.................................... 20
Section 4.3 No Broker..................................................... 20
Section 4.4 Disclosure of Information..................................... 20
ARTICLE 5 COVENANTS............................................................... 20
Section 5.1 Access........................................................ 20
Section 5.2 Use of Proceeds............................................... 21
Section 5.3 Best Efforts.................................................. 21
Section 5.4 Notification of Certain Matters............................... 21
Section 5.5 Reservation of Shares; Stock Exchange Listing................. 21
Section 5.6 [INTENTIONALLY LEFT BLANK].................................... 22
Section 5.7 Listing Shares on Another Exchange............................ 22
Section 5.8 Lost, Stolen, Destroyed or Mutilated Notes and Warrants....... 22
Section 5.9 Notes on Conversion and Warrants on Exercise.................. 22
Section 5.10 Replacement Notes and Warrants............................... 22
Section 5.11 Notices...................................................... 23
Section 5.12 Right of First Refusal....................................... 23
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Section 5.13 [INTENTIONALLY LEFT BLANK]................................... 24
Section 5.14 Form D; Blue Sky Laws........................................ 24
Section 5.15 Nasdaq Rule.................................................. 24
Section 5.16 Form 8-K..................................................... 25
Section 5.17 [Intentionally Omitted]...................................... 25
ARTICLE 6 CONDITIONS TO CLOSING................................................... 25
Section 6.1 Conditions to Purchasers' Obligation to Purchase the Notes
and Warrants.................................................. 25
Section 6.2 Conditions to Obligations of the Company...................... 27
ARTICLE 7 INDEMNIFICATION......................................................... 28
Section 7.1 Indemnification............................................... 28
Section 7.2 Non-Exclusive Remedy.......................................... 28
Section 7.3 Specific Performance.......................................... 28
ARTICLE 8 MISCELLANEOUS........................................................... 29
Section 8.1 Other Definitions............................................. 29
Section 8.2 Governing Law; Jurisdiction; Waiver of Jury Trial............. 29
Section 8.3 [INTENTIONALLY LEFT BLANK].................................... 30
Section 8.4 Expenses...................................................... 30
Section 8.5 Successors and Assigns; Assignment............................ 30
Section 8.6 Entire Agreement; Supersedes Prior Agreement.................. 30
Section 8.7 Severability.................................................. 30
Section 8.8 Survival of Warranties........................................ 30
Section 8.9 Amendment and Waiver.......................................... 31
Section 8.10 Delays or Omissions.......................................... 31
Section 8.11 Notices...................................................... 31
Section 8.12 Titles and Subtitles......................................... 32
Section 8.13 [INTENTIONALLY LEFT BLANK]................................... 33
Section 8.14 Publicity.................................................... 33
Section 8.15 Counterparts; Execution by Facsimile Signature............... 33
Section 8.16 Purchasers' Obligations Several and Not Joint................ 33
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Section 8.17 Rescission and Withdrawal Right.............................. 33
Section 8.18 Obligations Absolute......................................... 33
Section 8.19 Non-Public Information....................................... 33
Section 8.20 No Strict Construction....................................... 33
Section 8.21 Trading Limitations.......................................... 34
Section 8.22 No Short-Selling............................................. 34
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<PAGE> 6
QUOKKA SPORTS, INC.
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (this "Agreement") is entered into as of
September 15, 2000, between QUOKKA SPORTS, INC., a Delaware corporation (the
"Company"), GE CAPITAL EQUITY INVESTMENTS, INC., a Delaware Corporation ("GE
Capital"), and the other purchasers named on Schedule 1.1 hereto (collectively
with GE Capital, the "Purchasers" and each individually, a "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance in a single
tranche of an aggregate principal amount of up to $100,000,000 of its 7%
Convertible Subordinated Promissory Notes, in the form of Notes attached hereto
as Exhibit A (the "Notes");
WHEREAS, the Purchasers desire to purchase the Notes on the terms and
conditions set forth herein, and the Company desires to issue and sell the Notes
to the Purchasers on the terms and conditions set forth herein;
WHEREAS, pursuant to the terms of the Notes, the Notes will be
convertible into shares ("Conversion Shares") of common stock, par value $.0001,
of the Company ("Common Stock") on the terms specified in the Notes;
WHEREAS, to induce the Purchasers to purchase the Notes, the Company has
agreed to issue to the Purchasers, for no additional cost, warrants (the
"Warrants") in the form attached as Exhibit B exercisable for shares of Common
Stock ("Warrant Shares"); and
WHEREAS, the Purchasers will have registration rights with respect to
such Common Shares and the Warrant Shares pursuant to the terms of that certain
Amended and Restated Investors' Rights Agreement to be entered into between the
Company and the Purchasers substantially in the form of Exhibit C hereto
("Investors' Rights Agreement").
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
AGREEMENT TO SELL AND PURCHASE
SECTION 1.1 SALE AND PURCHASE.
Subject to the terms and conditions hereof, the Company hereby agrees to
issue and sell to the Purchasers, and each Purchaser, severally and not jointly,
agrees to purchase from the Company, on the Closing Date (as defined below), for
the amount in United States dollars (each such amount, the "Purchase Price") the
corresponding principal amount of Notes and the number of Warrants set forth
opposite each such Purchaser's name on Schedule 1.1 hereto. A Purchaser's
relative share of the aggregate Purchase Price as specified on Schedule 1.1
shall be
1.
<PAGE> 7
such Purchaser's "Relative Percentage." The "Exercise Price" of the Warrants
delivered at the Closing shall be $8.00.
SECTION 1.2 TAX ALLOCATION.
The Company and the Purchasers hereby acknowledge and agree that the
Warrants are a part of an investment unit within the meaning of Section
1273(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), which
includes the Notes. Notwithstanding anything to the contrary contained herein,
the Company and the Purchasers hereby further acknowledge and agree that for the
United States federal, state and local income tax purposes, the "issue price" of
the Warrants and the Notes under Section 1273(b) of the Code shall be mutually
agreed upon by the Purchasers and the Company within 90 days of the Closing
Date. The Company and the Purchasers agree to use the foregoing issue prices for
all income tax purposes with respect to this transaction.
ARTICLE 2
CLOSING, DELIVERY AND PAYMENT
SECTION 2.1 CLOSING.
The closing of the purchase and sale of up to $100,000,000 aggregate principal
amount of the Notes and Warrants exercisable for that number of Warrant Shares
equal to 36,250 Warrant Shares for each $1,000,000 original principal amount of
Notes (the "Closing"), shall take place at the offices of Cooley Godward LLP
("CG"), at 10:00 a.m., local time on the date hereof. The date on which the
Closing occurs is referred to herein as the "Closing Date."
SECTION 2.2 DELIVERY.
At the Closing, subject to the terms and conditions hereof, the Company
will deliver to the Purchasers one or more certificates representing the Notes
and/or Warrants to be purchased at such Closing in the names and amounts set
forth in Schedule 1.1, in denominations (in the case of Notes) of at least
$10,000 and free and clear of any Encumbrances (as defined herein) (other than
those placed thereon by or on behalf of the Purchasers), and each Purchaser will
make payment to the Company of the Purchase Price set forth opposite its name on
Schedule 1.1 hereto, by wire transfer of immediately available funds to an
account designated by the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser as of the
date hereof and as of the Closing Date as follows:
2.
<PAGE> 8
SECTION 3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION.
(a) Each of the Company and its Subsidiaries (as defined below) is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of incorporation or formation, as
the case may be, and has all requisite power and authority to own, lease and
operate its properties and assets and to carry on its business as currently
conducted. The Company has all requisite corporate power and authority to
execute and deliver this Agreement, the Noteholders Agreement in the form of
Exhibit D, the Investors' Rights Agreement, the Notes and the Warrants
(collectively, the "Transaction Documents"), to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The Company has made available to the Purchasers a complete and
correct copy of the Restated Certificate (as defined in Section 3.12) and the
Bylaws (as defined in Section 3.12).
(b) Each of the Company and its Subsidiaries is duly qualified and
is authorized to do business and is in good standing as a foreign corporation or
other entity in all jurisdictions in which the character or location of its
activities or of the properties owned or operated by it makes such qualification
necessary, except for such failures which, individually or in the aggregate,
would not have a material adverse effect on the business, assets, operations,
liabilities, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole, or on the ability of the Company
to perform its obligations under the Transaction Documents or to consummate the
transactions contemplated thereby (a "Material Adverse Effect").
SECTION 3.2 SUBSIDIARIES.
(a) As used herein, "Subsidiary" means, with respect to any Person
(as defined in Section 8.1(d)), (a) a corporation a majority of whose capital
stock with the general voting power under ordinary circumstances to vote in the
election of directors of such corporation (irrespective of whether or not, the
time, any other class or classes of securities shall have, or might have, voting
power by reason of the happening of any contingency) is at the time beneficially
owned by such Person, by one or more Subsidiaries of such Person or by such
Person and one or more Subsidiaries thereof, or (b) any other Person (other than
a corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, (x) have at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Persons performing
such functions) or (y) is a general partner or managing member. Schedule 3.2(a)
to the letter dated the date hereof delivered by the Company to the Purchasers
and designated the "Disclosure Letter" (the "Disclosure Letter") accurately sets
forth each Subsidiary of the Company, including its name, place of incorporation
or formation, and if not wholly owned directly or indirectly by the Company, the
record ownership as of the date of this Agreement of all capital stock or other
equity interests issued thereby. Except as set forth on Schedule 3.2(a) to the
Disclosure Letter, all shares of capital stock or other equity interests of any
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable and are directly or indirectly owned by the Company or such other
person as is set forth herein, free and clear of any Encumbrance and have not
been issued in violation of, nor subject to, any preemptive, subscription or
other similar
3.
<PAGE> 9
rights. "Encumbrance" means any security interest, pledge, mortgage, lien
(statutory or other), charge, option to purchase, lease or otherwise acquire any
interest or any claim, restriction, covenant, title defect, hypothecation,
assignment, deposit arrangement or other encumbrance of any kind or any
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement).
(b) Except for the Subsidiaries and as set forth on Schedule 3.2(b)
to the Disclosure Letter, neither the Company nor any of its Subsidiaries owns
any capital stock, membership interests, security or other interest in any other
Person.
SECTION 3.3 CAPITALIZATION; VOTING RIGHTS.
(a) As of September 14, 2000, the capitalization of the Company
consisted of the following:
(i) 110,000,000 shares of Common Stock, of which (A)
46,383,304 shares are issued and outstanding, and (B) 16,151,723 shares have
been reserved for issuance under the Company's Stock Option Plans (as defined
below) of which (1) options to purchase 11,019,802 shares are outstanding, and
(2) options to purchase 1,120,360 shares have been exercised; and
(ii) 10,000,000 shares of Preferred Stock, par value $ .0001
(the "Preferred Shares"), none of which are issued and outstanding.
Since June 30, 2000 no shares of Common Stock or Preferred Shares have
been issued except for issuances of Common Stock under any Stock Option Plan.
(b) All issued and outstanding shares of the Company's capital stock
(i) have been duly authorized and validly issued, (ii) are fully paid and
nonassessable, (iii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities and (iv) were not issued in
violation of, or subject to, any preemptive, subscription or other similar
rights of any other Person.
(c) The Company has made available to the Purchasers a copy of the
Company's (i) 1999 Non-Employee Directors' Stock Option Plan, (ii) 1997 Stock
Option Plan, (iii) ZoneNetwork.com, Inc. 1996 Stock Option Plan, (iv) option
agreements pursuant to which stock options have been granted outside of the
plans described in clauses (i) through (iii) above and (v) 1999 Employee Stock
Purchase Plan (collectively the stock option plans described in clauses (i)
through (iv) are hereinafter referred to as the "Stock Option Plans"). Other
than the 16,151,723 shares of Common Stock which were reserved for future
issuance to employees pursuant to outstanding stock option grants under the
Stock Options Plans (as defined above) and 1,000,000 shares of Common Stock
which were reserved for future issuance to employees pursuant to the Employee
Stock Purchase Plan, the stock options issued pursuant to the Stock Option
Plans, and except as may be granted pursuant to this Agreement or as set forth
on Schedule 3.3(c) to the Disclosure Letter, there are no outstanding
subscriptions, options, calls, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements,
or agreements of any kind for the purchase or acquisition from the
4.
<PAGE> 10
Company or any of its Subsidiaries of any of their securities, nor has the
Company nor any of its Subsidiaries taken or agreed to take any action to issue
or grant the same. Except as described in this Agreement or set forth on
Schedule 3.3(c) to the Disclosure Letter, (x) there are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any securities of the Company or any voting or equity
securities or interests of any of its Subsidiaries, (y) there is no voting
trust, proxy, stockholder or other agreements or understandings to which the
Company or any of its Subsidiaries or, to the knowledge of the Company, any of
its stockholders is a party or is bound with respect to the voting or transfer
of the capital stock or other voting securities of the Company or any of its
Subsidiaries and (z) there are no other subscriptions, options, calls, warrants
or other rights (including registration rights, whether demand or piggyback
registration rights), agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of the Company or any of its
Subsidiaries to which the Company or any of its Subsidiaries is a party. Except
as set forth on Schedule 3.3(c) to the Disclosure Letter, the consummation of
the transactions contemplated by the Transaction Documents (including, without
limitation the issuance of the Notes and the conversion of the Notes into shares
of Common Stock in accordance with the terms thereof) will not trigger the
anti-dilution provisions or other adjustment mechanisms of any outstanding
subscriptions, options, calls, warrants, commitments, contracts, preemptive
rights, rights of first refusal, demands, conversion rights or other agreements
or arrangements of any character or nature whatsoever under which the Company is
or may be obligated to issue or acquire shares of any of its capital stock. The
sale of the Notes is not and will not be subject to any preemptive rights,
rights of first refusal, subscription or similar rights that have not been
properly waived.
(d) The Notes have been duly and validly authorized, the Conversion
Shares have been duly and validly reserved for issuance, and when issued in
accordance with the provisions of this Agreement and the Notes, respectively,
the Notes and the Conversion Shares will be duly authorized, validly issued,
fully paid and nonassessable, will be delivered to the Purchasers (or their
permitted transferees) free and clear of all Encumbrances (other than those
placed thereon by or on behalf of the Purchasers (or their permitted
transferees)) and the Notes and the Conversion Shares will have the rights,
preferences, privileges and restrictions set forth in the Notes and Restated
Certificate, respectively.
SECTION 3.4 AUTHORIZATION; BINDING OBLIGATIONS.
The execution and delivery of the Transaction Documents, the
consummation of the transactions contemplated thereby and the performance of all
obligations of the Company thereunder have been duly authorized by all necessary
corporate action of the Company and its stockholders. The Transaction Documents
have been duly executed and delivered by the Company. The Transaction Documents
(assuming due execution and delivery by the Purchasers) are legal, valid and
binding obligations of the Company enforceable against it in accordance with
their terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
5.
<PAGE> 11
SECTION 3.5 SEC REPORTS; FINANCIAL STATEMENTS.
(a) The Company has filed with the U.S. Securities and Exchange
Commission (the "SEC") all forms, reports and schedules, proxy statements
(collectively, and in each case including all exhibits and schedules thereto and
documents incorporated by reference therein and including all registration
statements and prospectuses filed with the SEC, the "SEC Reports") required to
be filed by the Company with the SEC since July 27, 1999. As of its date of
filing, except as set forth on Schedule 3.5(a) to the Disclosure Letter, each
SEC Report complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
Securities Act of 1933, as amended (the "Securities Act") (as applicable), and
the rules and regulations promulgated thereunder and none of such SEC Reports
(including any and all financial statements included therein) contained when
filed or contains any untrue statement of a material fact or omitted or omits to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements (including the
notes thereto) included in the SEC Reports (the "Financial Statements") complied
as to form, as of its date of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, has been prepared in accordance with U.S.
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly presents 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 financial statements only) to normal year-end adjustments and
any other adjustments described therein or in the notes or schedules thereto or
the absence of footnotes.
(c) Schedule 3.5(c) to the Disclosure Letter contains the
preliminary Consolidated Statements of Operations for the Company and its
Subsidiaries for the three months ended June 30, 2000 (the "Unaudited Statements
of Operations"). The Unaudited Statements of Operations have been prepared in
accordance with GAAP applied in a consistent basis with the financial statements
and fairly presents the consolidated results of operations of the Company and is
consolidated subsidiaries for the three month period then ended, subject to
normal year-end adjustments, the absence of footnotes and other presentation
matters.
SECTION 3.6 UNDISCLOSED LIABILITIES.
Except as set forth on Schedule 3.6 to the Disclosure Letter and except
for (a) liabilities included or reserved for in (i) the unaudited consolidated
balance sheet of the Company as of June 30, 2000 included in its Quarterly
Report on Form 10-Q (the "10-Q") for the quarter ended June 30, 2000, or (ii)
the audited consolidated balance sheet of the Company as of December 31, 1999
included in its Annual Report on Form 10-K (the "10-K") for the fiscal year
ended December 31, 1999 (the "Balance Sheet"), and (b) current liabilities
incurred in the ordinary course of business consistent with past practice
subsequent to June 30, 2000, not in excess of $500,000, neither the Company nor
any of its Subsidiaries had, and since such date none of them
6.
<PAGE> 12
has incurred, liabilities, including contingent liabilities, or any other
obligations whatsoever that could reasonably be expected to have a Material
Adverse Effect.
SECTION 3.7 AGREEMENTS; ACTION.
(a) Attached hereto as Schedule 3.7(a) to the Disclosure Letter is a
list of (i) all "material contracts" within the meaning of Item 601 of
Regulation S-K of the SEC, (ii) all of the Company's and its Subsidiaries'
contracts, agreements, leases or other instruments to which the Company or any
of its Subsidiaries is a party or by which the Company, its Subsidiaries or its
properties are bound, which involve payments by or to a Company or its
Subsidiaries during any fiscal year of more than $250,000, (iii) all of
Company's and its Subsidiaries' loan agreements, bank lines of credit
agreements, indentures, mortgages, deeds of trust, pledge and security
agreements, factoring agreements, conditional sales contracts, letters of credit
or other debt instruments evidencing indebtedness for money borrowed and all
such instruments or agreements other than for borrowed money representing
payment obligations of $250,000 or more, (iv) all material operating or capital
leases for equipment to which the Company or any of its Subsidiaries is a party,
(v) all contracts for the employment of any officer or employee, (vi) all
material consulting agreements, (vii) any guarantees by the Company or any of
its Subsidiaries, (viii) all material distributor and sales agency agreements,
(ix) all IP Contracts (as defined in Section 3.11), (x) all contracts
restricting the Company or any of its Subsidiaries from engaging in any line of
business or competing with any Person or in any geographical area, and (xi) all
contracts restricting the payment of interest upon, or the redemption or
conversion of, the Notes (collectively, the "Contracts").
(b) Except as set forth on Schedule 3.7(b) to the Disclosure Letter,
neither the Company nor any of its Subsidiaries is, nor to the Company's
knowledge is any other party to any Contract, in default under, or in breach or
violation of, any Contract and no event has occurred which, with the giving of
notice or passage of time or both would constitute a default by the Company or,
to the Company's knowledge, any other party under any Contract. Other than
Contracts which have terminated or expired in accordance with their terms, each
of the Contracts is in full force and effect and (assuming due execution and
delivery by the counterparties thereto) is a legal, valid and binding obligation
of the Company or its Subsidiary (as applicable) enforceable against the Company
or such Subsidiary in accordance with its terms (subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing) and neither the Company
nor any of its Subsidiaries has any knowledge that any Contract is not a legal,
valid and binding obligation of the other parties thereto.
SECTION 3.8 OBLIGATIONS TO RELATED PARTIES.
Except as disclosed in Schedule 3.8 to the Disclosure Letter or in the
10-K, there are no obligations of the Company or any of its Subsidiaries to
their respective officers or directors or family members (not more remote than
first cousin) or Affiliates thereof other than (a) for payment of salary for
services rendered, (b) reimbursement for reasonable expenses incurred on behalf
of the Company or one of its Subsidiaries' and (c) for other standard employee
benefits
7.
<PAGE> 13
made generally available to all employees (including stock option agreements
outstanding under the Stock Option Plans). Except as disclosed in Schedule 3.8
to the Disclosure Letter, there are no currently effective agreements,
arrangements or other transactions between the Company or any of its
Subsidiaries and any Affiliate of the Company (other than it Subsidiaries).
SECTION 3.9 CHANGES.
(a) Except as set forth in Schedule 3.9(a) to the Disclosure Letter
or in the SEC Reports filed and publicly available prior to the date hereof,
since December 31, 1999, no events, changes or circumstances have occurred which
have had, or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(b) Except as set forth in Schedule 3.9(b) to the Disclosure Letter
and except as set forth in the SEC Reports filed and publicly available prior to
the date hereof, since December 31, 1999, the Company and its Subsidiaries have
carried on their respective businesses only in the ordinary course consistent
with their past practices.
(c) Except as disclosed on Schedule 3.9(c) to the Disclosure Letter
or in the SEC Reports filed and publicly available prior to the date hereof,
since December 31, 1999 the Company has not taken any action or omitted to take
any action and there has not occurred any event which, if it had taken place
following the date hereof and prior to the Closing, would not have been
permitted by Section 5.1 of this Agreement without the prior consent of the
Required Purchasers (as defined in Section 8.9).
(d) Except as disclosed on Schedule 3.9(d) to the Disclosure Letter
or in the SEC Reports filed and publicly available prior to the date hereof,
since December 31, 1999 the Company has not engaged in any sale, assignment,
disposition, conveyance, abandonment, transfer or license, and no event has
occurred causing the invalidation or cancellation, in whole or in part, of the
Intellectual Property (as defined in Section 3.11) other than in the ordinary
course of business consistent with past practice.
SECTION 3.10 TITLE TO PROPERTIES AND ASSETS; LIENS, CONDITION, ETC.
The Company and each of its Subsidiaries have good and merchantable
title to their respective personal property and assets, and good title to their
respective leasehold estates, in each case subject to no Encumbrance other than
(i) liens permitted by the Subordinated Loan and Security Agreement dated as of
February 12, 1999, as amended between the Company and Comdisco, Inc. (as
amended, the "Credit Agreement"), (ii) liens for current taxes not yet
delinquent and payable without penalty, (iii) minor Encumbrances which do not in
any case detract in any material respect from the value of the property subject
thereto or impair in any material respect the operations of the Company and its
Subsidiaries, taken as a whole and which have not arisen other than in the
ordinary course of business, (iv) Encumbrances relating to vendor or
installation purchases, so long as such Encumbrances extend only to the
properties or other assets whose purchase was so financed, and (v) as set forth
on Schedule 3.10 to the Disclosure Letter (collectively "Permitted
Encumbrances"). The Company and each of its Subsidiaries are in compliance in
all material respects with all material terms of each lease to which they are a
party or are otherwise bound. All material properties, equipment and systems
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of the Company and its Subsidiaries are in good repair, working order and
condition (ordinary wear and tear excepted) and are in compliance in all
material respects with all applicable standards and rules imposed (a) by any
governmental agency or authority in which such properties, equipment and systems
are located, and (b) under any agreements to which the Company or its
Subsidiaries are party.
SECTION 3.11 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries own or have a valid license to
use all intellectual property, including without limitation patents, trademarks,
service marks, trade names, corporate names, domain names, copyrights, trade
secrets, licenses, information and proprietary rights and processes
("Intellectual Property") necessary to conduct their businesses as now conducted
(the "Company IP") without any conflict, to the Company's knowledge, with, or
infringement of, the rights of others. Section 3.11(a) to the Disclosure Letter
sets forth a list of (i) all patents, trademark registrations, service mark
registrations, corporate name registrations, domain name registrations, trade
name registrations and copyright registrations, and all applications for any of
the foregoing, owned by the Company or any of its Subsidiaries or used by the
Company or any of its Subsidiaries in conducting its business as now conducted
(the "Registered Intellectual Property"); and (ii) all material licenses,
royalties, consents and other contracts or other agreements of the Company or
its Subsidiaries relating to Intellectual Property ("IP Contracts"). Except as
would not impair the Company's ability to timely perform its obligations under
the Transaction Documents, no IP Contracts are due to expire or terminate during
the next 18 months.
(b) The Intellectual Property owned by the Company or any of its
Subsidiaries is referred to herein as the "Owned Intellectual Property" and the
Intellectual Property licensed by the Company or its Subsidiaries from other
persons or entities is referred to herein as the "Licensed Intellectual
Property." The Company and its Subsidiaries own and possess all right, title and
interest in and to the Owned Intellectual Property free and clear of any
Encumbrances other than Permitted Encumbrances. The rights of the Company and
its Subsidiaries under all IP Contracts with respect to the Licensed
Intellectual Property are valid and enforceable by the Company or its Subsidiary
(as applicable) except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar Laws affecting creditors' rights generally and by such principles
of equity as may affect the availability of equitable remedies. The execution
and delivery of the Transaction Documents will not cause the acceleration,
termination or the incurrence of liability or fees under any IP Contract.
Neither the Company nor any of its Subsidiaries is or is alleged to be in breach
or default under any IP Contract and, to the Company and its Subsidiaries
knowledge, neither is any other party thereto.
(c) The Company has no Action (as defined in Section 3.13) pending
(or, to the Company's knowledge, threatened) against any other Person relating
to the Company IP, and, except as set forth in Section 3.11(c) to the Disclosure
Letter, no other person or entity has any Action pending (or to the Company's
and its Subsidiaries' knowledge, threatened) against the Company or any of its
Subsidiaries relating to the Company IP; and, to the Company's knowledge, the
Owned Intellectual Property does not infringe, misappropriate, or otherwise
impair ("Infringe"), and, except as set forth in Section 3.11(c) to the
Disclosure Letter, the
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businesses of the Company and its Subsidiaries as now conducted does not
Infringe, any Intellectual Property owned or controlled by any other Person. To
the Company's knowledge, there is no infringement by a third party of any of the
Company IP. There are no pending or outstanding, or, to the knowledge of the
Company, no threatened Actions or Laws (as defined in Section 3.12) that seek to
limit or challenge the validity, enforceability, ownership or use of any Company
IP.
(d) To the Company's knowledge, none of the employees of the Company
or of any of its Subsidiaries is obligated under any contract (including
licenses, covenants, or commitments of any nature) or other agreement, or
subject to any Law that would interfere with the use of such employee's best
efforts to promote the interests of the Company and its Subsidiaries or that
would conflict with the Company's and its Subsidiaries' businesses as conducted.
To the Company's knowledge, neither the execution nor delivery of the
Transaction Documents, nor the carrying on of the execution of the Company's or
any of its Subsidiaries' businesses by the employees of the Company and the
Subsidiaries, nor the conduct of the Company's and its Subsidiaries' businesses,
will conflict with or result in a breach of the terms, conditions, or provisions
of, or constitute a default under, any contract, covenant, or instrument under
which any of such employees is now obligated. Except as listed on Section
3.11(c) to the Disclosure Letter, it will not be necessary to use in the conduct
of the Company's and its Subsidiaries businesses any inventions of any of the
Company's or its Subsidiaries' employees (or persons it currently intends to
hire) made prior to their employment by the Company or its Subsidiaries, other
than those which have been assigned to the Company or its Subsidiaries. The
Company and its Subsidiaries take all reasonable actions to maintain and protect
the confidentiality and ownership of all its material Owned Intellectual
Property.
(e) The Company or its Subsidiaries (i) to their knowledge have the
exclusive right to use its name as a trademark, service mark and the name of a
corporation in any jurisdiction in which the Company or its Subsidiaries does
and proposes to do business, except as set forth in Section 3.11(e) to the
Disclosure Letter, (ii) to their knowledge, have all ownership rights to or the
right to use the domain names listed on Section 3.11(a) to the Disclosure Letter
(the "Domains"), and no other Person shall have any interest therein or any
license or other right to use the Domains, and (iii) except as set forth in
Section 3.11(e) to the Disclosure Letter, neither the Company nor its
Subsidiaries have received any notice of conflict during the past two years with
respect to the rights of others regarding the trademarks, service marks and
corporate name of the Company, its Subsidiaries or the Domains. Except as set
forth in Sections 3.11(e) to the Disclosure Letter, no other person or entity is
presently authorized by the Company or its Subsidiaries to use the name of
Company or its Subsidiaries.
SECTION 3.12 COMPLIANCE WITH LAW; OTHER INSTRUMENTS.
Neither the Company nor any of its Subsidiaries is in violation or
default of (i) the Company's Restated Certificate of Incorporation (the
"Restated Certificate") or its Bylaws, as amended (the "Bylaws"), or the
organizational documents of any of its Subsidiaries or (ii) of any judicial or
administrative judgment, decision, decree, order, settlement, injunction, writ,
stipulation, determination or award applicable to the Company, any of its
Subsidiaries, or their respective businesses, operations, assets, or properties
(each, an "Order") or any statute, law, ordinance, rule or regulation applicable
to the Company, any of its Subsidiaries, or their
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respective businesses, operations, assets, or properties (each, a "Law") and has
received no written notice of, and to the knowledge of the Company, no
investigation or review is in process or threatened by any governmental
authority with respect to, any violation or alleged violation of any Order or
Law except, in the case of any Orders or Laws, where such violations or defaults
would not, individually or in the aggregate, have a Material Adverse Effect. The
execution, delivery and performance of the Transaction Documents, and the
consummation of the transactions contemplated thereby, including, but not
limited to, the issuance of the Notes, the Warrants, the Warrant Shares and the
Conversion Shares, will not result in (a) (i) any violation, or be in conflict
with or constitute a default (with or without notice or lapse of time or both)
under the Restated Certificate or Bylaws or the organizational documents of any
of the Company's Subsidiaries, (ii) any violation, or be in conflict with or
constitute a default (with or without notice or lapse of time or both) under,
any term or provision of, or any right of termination, cancellation,
modification or acceleration arising under any Contract or cause any liabilities
or additional fees to be due thereunder or (iii) any violation under any Order
or Law applicable to the Company or any of its Subsidiaries or (b) the
imposition of any Encumbrance on the business or properties or assets of the
Company or any of its Subsidiaries. None of the execution and delivery of the
Transaction Documents, the consummation of the transactions contemplated thereby
or the performance of the obligations of the Company thereunder will result in
the suspension, revocation, impairment, forfeiture or nonrenewal of any Permit
applicable to the Company or any of its Subsidiaries, their businesses or
operations or any of their assets or properties. "Permits" means all material
licenses, permits, orders, consents, approvals, registrations, authorizations,
qualifications and filings with and under all federal, state, local or foreign
laws and governmental authorities and all industry or other non-governmental
self-regulatory organizations. Without limiting the foregoing, upon and
immediately following the Closing the Company will be in full compliance with
all covenants and obligations under its existing borrowing arrangements, without
taking into account any waivers from lenders.
SECTION 3.13 LITIGATION.
Except as set forth on Schedule 3.13 to the Disclosure Letter, there is
no Action (as defined below) pending, or to the Company's knowledge, currently
threatened against the Company or any of its Subsidiaries (including with
respect to any Company Plan (as defined in Section 3.18)). The foregoing
includes, without limitation, any material Order, action, claim, suit, audit,
assessment, arbitration or similar inquiry, or any proceeding or investigation
by or before any government authority (an "Action") pending or threatened
involving the prior employment of any of the Company's or any of its
Subsidiaries' employees, their use in connection with the Company's or any of
its Subsidiaries' business of any Intellectual Property rights of their former
employers, or their obligations under any agreements with prior employers.
Except as set forth on Schedule 3.13 to the Disclosure Letter, neither the
Company nor any of its Subsidiaries is a party or subject to the provisions of
any Order of any court or governmental authority. Except as set forth on
Schedule 3.13 to the Disclosure Letter, there is no Action by the Company or any
of its Subsidiaries against any other Person currently pending or which the
Company or any of its Subsidiaries intends to initiate.
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SECTION 3.14 TAX MATTERS.
(a) Except as set forth on Schedule 3.14(a) to the Disclosure
Letter, (i) all Tax Returns (as defined below) that are required to be filed by
or with respect to the Company and its Subsidiaries as of the date hereof and of
the Closing Date have been duly filed, (ii) all Taxes (as defined below) of the
Company and its Subsidiaries due and not yet delinquent and payable without
penalty, whether or not shown on the Tax Returns referred to in clause (i), have
been paid in full, (iii) the Tax Returns referred to in clause (i) have been
audited by the Internal Revenue Service or the appropriate state, local or
foreign taxing authority or the period for assessment of the Taxes in respect of
which such Tax Returns were required to be filed has expired, (iv) all
deficiencies asserted or assessments made as a result of such examinations have
been paid in full, (v) no issues that have been raised by the relevant taxing
authority in connection with the examination of any of the Tax Returns referred
to in clause (i) are currently pending, (vi) no waiver of statutes of limitation
have been given by or requested with respect to any Taxes of the Company or its
Subsidiaries, (vii) there are no liens for Taxes on any asset of the Company or
any of its Subsidiaries other than for current Taxes not yet due and payable, or
if due, are (A) not delinquent or (B) being contested in good faith by
appropriate proceedings, (viii) no consent has been filed relating to the
Company or any of its Subsidiaries pursuant to Section 341(f) of the Code, (ix)
neither the Company nor any Subsidiary has any current liability, or has
knowledge of any events or circumstances which could result in any liability,
for Taxes of any person (other than the Company and its Subsidiaries) (A) under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law), (B) as a transferee or successor, (C) by contract or (D)
otherwise, (x) the Company's methods of tax accounting are correct in all
material respects and (xi) the transfer pricing methodologies used by the
Company and its Subsidiaries are correct in all material respects.
(b) For purposes of this Agreement, the term (i) "Taxes" means all
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to, income, excise, property, sales and use, transfer, franchise,
payroll, withholding, social security or other taxes, including any interest,
penalties or additions attributable thereto, and (ii) "Tax Return" means any
return, report, information return or other document (including any related or
supporting information) filed or required to be filed with any taxing authority
with respect to Taxes.
SECTION 3.15 EMPLOYEES.
Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or other contract with a labor union. There is,
and during the past two years there has been, (i) no labor strike, labor
dispute, work stoppage or lockout pending, or to the Company's or its
Subsidiaries' knowledge, threatened against the Company or any Subsidiary; (ii)
no union or organizational campaign is in progress with respect to the
employees, and no other (formal or informal) union organization activities are
pending or, to the Company's knowledge, threatened between the Company or any
Subsidiary and their respective employees; (iii) neither the Company nor any of
its Subsidiaries is engaged in any unfair labor practice; (iv) there is no
unfair labor practice charge or complaint against the Company or any Subsidiary
pending or, to the Company's or its Subsidiaries' knowledge, threatened before
the National Labor Relations Board; (v) there are no pending or, to the
Company's and any Subsidiaries' knowledge,
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threatened charges against the Company or any Subsidiary before the Equal
Employment Opportunity Commission or any state or local agency responsible for
the prevention of unlawful employment practices; and (vi) neither the Company
nor any Subsidiary has received written notice during the past two years of the
intent of any governmental authority responsible for the enforcement of labor or
employment Laws to conduct an investigation of the Company and, to the Company's
and any Subsidiaries' knowledge, no such investigation is in progress.
SECTION 3.16 ENVIRONMENTAL AND SAFETY LAWS.
(a) Neither the Company nor any of its Subsidiaries has failed to
comply in any material respect with any Environmental Laws, except where such
failure to comply has not and would not reasonably be expected to result in a
Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries has Released (as
defined below), generated or disposed of any Hazardous Substance (as defined
below) in a manner which could give rise to any liability under or relating to
any Environmental Laws (as defined below), except where such Release has not and
would not reasonably be expected to result in a Material Adverse Effect.
(c) There is no claim under or relating to Environmental Laws
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries or, to the knowledge of the Company, pending or
threatened against any other Person whose liability for any environmental claim
the Company or any of its Subsidiaries has retained or assumed either
contractually or by operation of law except for such claims that, if determined
adversely to the Company, would not reasonably be expected to result in a
Material Adverse Effect. Except as would not reasonably be expected to give rise
to a liability under or relating to any Environmental Laws, no real property
currently or formerly owned, operated or leased by the Company or any of its
Subsidiaries has been impacted by any Release or threatened Release of any
Hazardous Substance, except where such Release has not and would not reasonably
be expected to result in a Material Adverse Effect.
(d) For purposes of this Agreement, the term (i) "Environmental
Laws" means all applicable federal, foreign, state, local or municipal Laws or
Orders or other legally binding requirements relating to pollution or the
protection of human health or the environment, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C., Section 9601, et seq., as amended ("CERCLA"), the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended, the Clean Air
Act, 42 U.S.C. Section 7401 et seq., as amended, the Clean Water Act, 33 U.S.C.
Section et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601 et
seq., and the Occupational Safety and Health Act, 29 U.S.C. Section 651, et
seq.; (ii) "Hazardous Substances" means any pollutant, contaminant, toxic
substance, hazardous waste, hazardous material, or hazardous substance, or any
oil, petroleum or petroleum product, each as defined or listed in, or classified
pursuant to, any Environmental Laws or any other substance or force that could
result in liability under any Environmental Laws; and (iii) "Release" means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing (including, without limitation, the
abandonment or discarding of barrels, containers and other receptacles).
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SECTION 3.17 OFFERING VALID.
Assuming the accuracy of the representations and warranties of the
Purchasers contained in Section 4.2 hereof, the offer, sale and issuance of the
Notes and the Warrants, the conversion of the Notes into the Conversion Shares
and the exercise of the Warrants into Warrant Shares will be exempt from the
registration requirements of the Securities Act and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
SECTION 3.18 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.18(a) to the Disclosure Letter contains a true and
complete list of each "employee benefit plan" (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, bonus, incentive, deferred compensation and
all other employee benefit plans, agreements, programs, policies or other
arrangements, whether or not subject to ERISA, under which any employee or
former employee of the Company or its Subsidiaries has any present or future
right to benefits and under which the Company or its Subsidiaries has any
present of future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Company Plan."
(b) Except as disclosed in Schedule 3.18(b) to the Disclosure
Letter, with respect to each Company Plan, the Company has delivered to the
Purchasers to the extent requested a current, accurate and complete copy (or, to
the extent no such copy exists, an accurate description) thereof and, to the
extent applicable: (i) any related trust agreement or other funding instrument;
(ii) the most recent determination letter, if applicable; (iii) any summary plan
description and other material written communications (or in the absence of the
foregoing, a description of any oral communications) by the Company or any of
its Subsidiaries to their employees concerning the extent of the benefits
provided under a Company Plan and (iv) for the two most recent years (A) the
Form 5500 and attached schedules, (B) audited financial statements, (C)
actuarial valuation reports and (D) attorney's response to an auditor's request
for information.
(c) (i) Each Company Plan has been established and administered in
accordance with its terms and in substantial compliance with the applicable
provisions of ERISA, the Code and other applicable laws, rules and regulations
and neither the Company nor any of its Subsidiaries has incurred in respect of
any such Company Plan any material tax, fine, lien, penalty or other liability
imposed by ERISA, the Code or other applicable law, rule and regulations; (ii)
each Company Plan which is intended to be qualified within the meaning of Code
section 401(a) is so qualified and has received, to the extent applicable, a
favorable determination letter and nothing has occurred, whether by action or
failure to act, that could reasonably be expected to cause the loss of such
qualification; (iii) no event has occurred and no condition exists that would
subject the Company or any of its Subsidiaries, either directly or by reason of
their affiliation with any member of their "Controlled Group" (defined as any
organization which is a member of a controlled group of organizations within the
meaning of Code sections 414(b), (c), (m) or (o)), to any material tax, fine,
lien, penalty or other liability imposed by ERISA, the Code or other applicable
laws, rules and regulations; (iv) no Company
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Plan provides retiree welfare benefits and neither the Company nor any of its
Subsidiaries have any obligation to provide any retiree welfare benefits other
than as required by Section 4980B of the Code; and (v) neither the Company nor
any member of its Controlled Group has engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA.
(d) No Company Plan is (i) subject to Title IV of ERISA or (ii) a
"multiemployer plan" (as such term is defined in section 3(37) of ERISA) and
neither the Company nor any of its Subsidiaries has incurred any withdrawal
liability or termination liability with respect to any such plan that remains
unsatisfied. The Company has not engaged in, and is not a successor or parent
corporation to any Person that has engaged in, a transaction described in
Section 4069 or 4212(c) of ERISA.
(e) Except as set forth on Schedule 3.18(e) to the Disclosure
Letter, no Company Plan exists that could result in the payment to any present
or former employee of the Company or its Subsidiaries of any money or other
property or accelerate or provide any other rights or benefits to any present or
former employee of the Company or its Subsidiaries as a direct result of the
transactions contemplated by this Agreement or as a result of transactions which
have occurred prior the date hereof or the Closing Date. Except as set forth on
Section 3.18(e) to the Disclosure Letter, there is no contract, plan or
arrangement (written or otherwise) covering any employee or former employee of
the Company or any of its Subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
the terms of Section 280G of the Code.
(f) With respect to any Company Plan, (i) no actions, suits or
claims (other than routine claims for benefits in the ordinary course) are
pending or, to the knowledge of the Company, threatened; and (ii) no facts or
circumstances exist that could reasonably be expected to give rise to any such
actions, suits or claims.
SECTION 3.19 PERMITS.
The Company and its Subsidiaries hold all Permits necessary for the
lawful conduct of their respective businesses as they are presently being
conducted. All such Permits are in full force and effect. The Company and its
Subsidiaries have complied with the terms of the Permits and, to the Company's
knowledge, there are no pending modifications, amendments or revocations of any
Permits. All fees due and payable from the Company or any of its Subsidiaries to
governmental authorities or other third parties pursuant to the Permits have
been paid. There are no pending or, to the knowledge of the Company, threatened,
suits, Actions, proceedings or investigations with respect to the possible
revocation, cancellation, suspension, limitation or nonrenewal of any Permits,
and there has occurred no event which (whether with notice or lapse of time or
both) could reasonably be expected to result in or constitute the basis for such
a revocation, cancellation, suspension, limitation or nonrenewal thereof.
SECTION 3.20 NO BROKER.
Except as set forth on Schedule 3.20 to the Disclosure Letter, neither
the Company nor any of its Subsidiaries has employed any broker or finder, or
incurred any liability for any
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brokerage or finders' fees or any similar fees or commissions in connection with
the transactions contemplated by this Agreement.
SECTION 3.21 DISCLOSURE.
Neither this Agreement (including all Exhibits and Schedules hereto) nor
any of the other agreements or instruments contemplated to be executed and
delivered by the Company in connection with this Agreement contain any untrue
statement of material fact; and none of such documents omits to state any
material fact necessary to make any of the representations, warranties or other
statements or information contained therein not misleading in light of the
circumstances under which such information was provided.
SECTION 3.22 SECTION 203.
In accordance with Section 203 of the Delaware General Corporation Law
("Section 203") the Board of Directors of the Company has approved the issuance
of the Notes, the Conversion Shares, the Warrants and the Warrant Shares to the
Purchasers and any transaction that results in any Purchaser or an "affiliate"
(as defined in Section 203) or "associate" (as defined in Section 203) of a
Purchaser becoming an "interested stockholder" (as defined in Section 203) of
such Purchaser, its affiliate or its associate (as applicable) would not have
been an interested stockholder if such Person (and its affiliates and
associates) did not own the Conversion Shares or the Warrant Shares for purposes
of Section 203. Accordingly, the ownership of the Conversion Shares and the
Warrant Shares for purposes of Section 203 by any Purchaser or its affiliate or
associate will not result in the provisions of Section 203 being applicable to a
"business combination" (as defined in Section 203) between such Person (or its
affiliate or associate) and the Company.
SECTION 3.23 EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTION
ASSIGNMENT AGREEMENT.
Each employee, consultant and officer of the Company and its
Subsidiaries has executed an agreement with the Company or its Subsidiary
regarding confidentiality and proprietary information substantially in the form
or forms delivered to the counsel for the Purchasers. The Company is not aware
that any of the Company's or any of its Subsidiaries' employees or consultants
is in violation thereof, and the Company and its Subsidiaries will use their
best efforts to prevent any such violation. To the Company's knowledge, no
current employee, officer or consultant of the Company or its Subsidiaries has
excluded works or inventions from his or her assignment of inventions pursuant
to such employee, officer or consultant's Confidential Information and Invention
Assignment Agreement that were made prior to his or her employment with the
Company and are necessary in the conduct of the Company's and its Subsidiaries'
businesses.
SECTION 3.24 INSURANCE.
Schedule 3.24 hereto contains a complete and correct list of all
policies of insurance of any kind or nature covering Company and its
Subsidiaries, including, without limitation, policies of life, fire, theft,
employee fidelity and other casualty and liability insurance, indicating the
type of coverage, name of insured, the insurer, the premium, the expiration date
of each policy and the
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amount of coverage, and such policies are in full force and effect. Certificates
for each such policy showing the respective coverages and limits, including
deductibles, have been furnished or made available to Purchasers. Such policies
are in amounts customary for the industry in which Company or such Subsidiary
operates.
SECTION 3.25 INFORMATION PROVIDED.
Neither the Company nor any of its Subsidiaries or Affiliates, nor any
of their officers, directors, employees, consultants, agents or representatives,
have directly or indirectly provided any material, non-public information to the
Purchasers listed on Schedule 3.25 hereto.
SECTION 3.26 PRINCIPAL EXCHANGE MARKET.
The principal market on which the Common Stock is currently traded is
the Nasdaq National Market System.
SECTION 3.27 NO GENERAL SOLICITATION.
Neither the Company, nor any of its Subsidiaries or Affiliates, or, to
its knowledge, any person acting on its or their behalf has engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D under the Securities Act) in connection with the offer or sale of the Notes,
the Warrants, the Conversion Shares or the Warrant Shares.
SECTION 3.28 NO INTEGRATED OFFERING.
Neither the Company, nor any of its Subsidiaries or Affiliates, nor to
its knowledge 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
Act of the Notes, the Warrants, the Conversion Shares or the Warrant Shares.
The issuance of the Notes, the Warrants, the Conversion Shares or the
Warrant Shares to the Purchasers will not be integrated with any other issuance
of the Company's securities (past, current or future, other than the Notes, the
Conversion Shares, the Warrants and the Warrant Shares, a portion or all of
which may be integrated with other Notes, Conversion Shares, Warrants or Warrant
Shares) which requires stockholder approval under the rules of the NASDAQ
National Market System.
SECTION 3.29 FORM S-3.
The Company is eligible to file the Registration Statement (as defined
in the Investors' Rights Agreement) on Form S-3 under the Act and the rules
promulgated thereunder, and Form S-3 is permitted under the Act and the rules
promulgated thereunder to be used for the transactions contemplated by the
Transaction Documents.
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SECTION 3.30 POISON PILL PROVISIONS.
Neither the Company nor its Subsidiaries have a stockholder rights plan.
None of the acquisition of the Notes, the Warrants, the Conversion Shares or the
Warrant Shares nor the deemed beneficial ownership of shares of Common Stock
prior to, or the acquisition of such shares pursuant to, the conversion of Notes
or the exercise of the Warrants will in any event under any circumstance trigger
the poison pill provisions of any other or subsequently adopted plan or
agreement, or a substantially similar occurrence under any successor or similar
plan.
SECTION 3.31 INTERNAL ACCOUNTING CONTROLS.
The Company and each of its Subsidiaries maintain a system of internal
accounting controls sufficient, in the judgment of the Company's management, to
provide reasonable assurance that (a) transactions are executed in accordance
with management's general or specific authorizations, (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management's general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
SECTION 3.32 SOLVENCY.
(a) Based on the financial condition of the Company as of the
Closing Date, the Company's fair saleable value of its assets exceeds the amount
that will be required to be paid on or in respect of the Company's existing
debts and other liabilities (including known contingent liabilities) as they
mature.
(b) Based on the financial condition of the Company as of the
Closing Date, the Company's assets do not constitute unreasonably small capital
to carry out its business for the year 2000 as now conducted and as proposed to
be conducted, including the Company's year 2000 capital needs taking into
account the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability thereof.
(c) The Company does not intend to incur debts beyond its ability to
pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt). Based on the financial
condition of the Company as of the Closing Date, the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid.
(d) Neither the Company nor any of its Subsidiaries is subject to
any bankruptcy, insolvency or similar proceeding.
SECTION 3.33 NO RELIANCE ON PURCHASERS.
The Company acknowledges and agrees that each Purchaser is acting solely
in the capacity of an arm's length purchaser with respect to the Transaction
Documents and the
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performance under the Transaction Documents and the transactions contemplated
thereby. The Company further acknowledges that no Purchaser is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated hereby
and thereby. The Company further represents to the Purchaser that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
SECTION 3.34 FOREIGN CORRUPT PRACTICES ACT.
Neither the Company nor any Subsidiary, nor any director, officer,
agent, employee or other person acting on behalf of the Company or any
Subsidiary has, in the course of acting for, or on behalf of, the Company: (i)
directly or indirectly used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
(ii) directly or indirectly made any direct or indirect unlawful payment to any
foreign or domestic government or party official or employee from corporate
funds; (iii) violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended, or any similar treaties of the United
States; or (iv) directly or indirectly made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
SECTION 3.35 ACKNOWLEDGMENT OF DILUTION.
The number of shares of Common Stock constituting Conversion Shares or
Warrant Shares may increase substantially in certain circumstances. The Company
acknowledges that, subject only to the restrictions specified in Section 5.15
and in Section 16 of the Warrant and Section 15 of the Note, its obligation to
issue shares of Common Stock in accordance with the Transaction Documents is
absolute and unconditional, regardless of the dilution that such issuance may
have on other shareholders of the Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Each of the Purchasers, severally and not jointly, hereby represents and
warrants to the Company as of the date hereof and as of the Closing Date as
follows:
SECTION 4.1 REQUISITE POWER AND AUTHORITY.
Such Purchaser has all requisite power and authority to execute and
deliver the Transaction Documents, to consummate the transactions contemplated
hereby and thereby and to perform its obligations hereunder and thereunder. All
action on such Purchaser's part necessary for the execution and delivery of the
Transaction Documents, the consummation of the transactions contemplated hereby
and thereby and the performance of all obligations of such Purchaser hereunder
and thereunder as of the Closing has been or will be effectively taken prior to
the Closing. The Transaction Documents have been or will be duly executed and
delivered by such Purchaser. The Transaction Documents (assuming due execution
and delivery by the Company) will be legal, valid and binding obligations of
such Purchaser, enforceable against it in accordance with their terms, subject
to the effects of bankruptcy, insolvency, fraudulent
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conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
SECTION 4.2 INVESTMENT REPRESENTATIONS.
Such Purchaser acknowledges that the Notes and the Warrants have not
been registered under the Securities Act or under any state securities laws.
Such Purchaser (a) is acquiring the Notes and the Warrants for its own account,
not as a nominee or agent, and not with the present view to, or for resale in
connection with, any distribution thereof in violation of applicable securities
laws, (b) is an "accredited investor" within the meaning of Regulation D, Rule
501(a), promulgated by the SEC, (c) acknowledges that the Notes and the Warrants
must be held indefinitely unless subsequently registered under the Securities
Act or unless an exemption from the registration requirements of the Securities
Act is available and (d) represents that by reason of its business or financial
experience, such Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated by the Transaction Documents. Such
Purchaser has had an opportunity to discuss the Company's business, management
and financial affairs with the Company's management. Such Purchaser has had an
opportunity to ask questions of and receive answers from, officers of the
Company.
SECTION 4.3 NO BROKER.
Other than as may be incurred under or pursuant to the Engagement Letter
dated as of June 11, 2000 between the Company and Prudential Volpe Technology
Group, such Purchaser has not employed any broker or finder or incurred any
liability for any brokerage or finders' fees or any similar fees or commissions
in connection with the transactions contemplated by this Agreement. The Company
will be solely responsible for any amounts payable in connection with such
Engagement Letter.
SECTION 4.4 DISCLOSURE OF INFORMATION.
Such Purchaser represents that it has conducted its own due diligence
investigation of the Company, that it has had an opportunity to ask questions
and receive answers from the Company regarding the Notes, the Warrants and the
business, properties and financial condition of the Company and that it is not
relying on any other Purchaser for such matters.
ARTICLE 5
COVENANTS
SECTION 5.1 ACCESS.
The Company shall, and shall cause its Subsidiaries and their respective
officers, directors, employees, auditors and other agents to, (a) upon
reasonable notice, afford the officers, employees, auditors and other agents of
the Purchasers, during normal business hours reasonable access at all reasonable
times to its officers, employees, auditors, legal counsel, properties, offices,
plants and other facilities and to all financial books and records, (b) furnish
the Purchasers with all of its financial, operating and other data and
information as the Purchasers,
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through their officers, employees or agents, may from time to time reasonably
request and (c) afford the Purchasers the opportunity to discuss the Company's
affairs, finances and accounts with the Company's officers on a regular basis
upon reasonable notice and during normal business hours.
SECTION 5.2 USE OF PROCEEDS.
The Company may use a portion of the proceeds from the sale of the Notes
and Warrants to repay in full all indebtedness under the Company's Subordinated
Loan and Security Agreement dated as of February 12, 1999, as amended, with
Comdisco, Inc., as amended, and shall use the remainder for general corporate
purposes.
SECTION 5.3 BEST EFFORTS.
Subject to the other terms and conditions of this Agreement, each party
hereto agrees to use best efforts to take any and all actions required in order
to consummate the transactions contemplated in the Transaction Documents.
SECTION 5.4 NOTIFICATION OF CERTAIN MATTERS.
The Company shall give prompt notice to the Purchasers of the occurrence
or non-occurrence of any event known to the Company the occurrence or
non-occurrence of which would reasonably be expected to cause (i) any
representation or warranty contained in Section 3 that is qualified as to
materiality to be untrue, (ii) any representation or warranty contained in
Section 3 that is not so qualified as to materiality to be untrue in any
material respect, or (iii) the failure of the Company to comply with or satisfy
any covenant or agreement under the Transaction Documents.
SECTION 5.5 RESERVATION OF SHARES; STOCK EXCHANGE LISTING.
(a) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Notes and the exercise of the Warrants, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Notes and the full exercise of the
Warrants and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all the then
outstanding Notes and the full exercise of the Warrants, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including without limitation
engaging in best efforts to obtain the requisite shareholder approval. Without
in any way limiting the foregoing, the Company agrees to reserve and at all
times keep available solely for purposes of conversion of Notes and the exercise
of the Warrants such number of authorized but unissued shares of Common Stock
that is at least equal to 200% of the aggregate shares issuable upon conversion
of Notes, and 200% of the aggregate shares issuable on exercise of the Warrants,
which number shall be appropriately adjusted for any stock split, reverse split,
stock dividend or reclassification of the Common Stock. If the Company, after
November 15, 2000, falls below the reserves specified in the immediately
preceding sentence and does not cure such non-compliance within 60 days of its
start, then the Purchasers will be
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entitled to the compensatory payments specified in Section 2.7(b)(i)(C) of the
Investors' Rights Agreement. If at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect the conversion of
all the then outstanding Notes or the full exercise of the Warrants, the
Purchasers shall be entitled to, inter alia, the Premium Price redemption rights
provided in the Investors' Rights Agreement.
(b) The Company shall at its expense (i) within twenty (20) days of
the Closing Date, prepare and submit an application to NASDAQ for listing the
Conversion Shares and Warrant Shares and (ii) cause all shares of Common Stock
issued upon the conversion of this Note to be listed at the time of such
issuance on NASDAQ and/or such other national securities exchange shares on
which shares of Common Stock are then listed on and shall maintain such listing.
SECTION 5.6 [INTENTIONALLY LEFT BLANK].
SECTION 5.7 LISTING SHARES ON ANOTHER EXCHANGE.
The Company shall not list its shares on an exchange other than the
NASDAQ National Market System, the American Stock Exchange or the New York Stock
Exchange (the "Approved Markets"); provided that the Company's Common Stock may
also be supplementally listed on a major overseas market as long as it is
primarily listed on an Approved Market.
SECTION 5.8 LOST, STOLEN, DESTROYED OR MUTILATED NOTES AND WARRANTS.
Upon receipt of evidence reasonably satisfactory to Company of the loss,
theft, destruction or mutilation of any Note and, in the case of loss, theft or
destruction, upon delivery of an indemnity reasonably satisfactory to Company
(which may be an undertaking by a Purchaser to so indemnify Company), or, in the
case of mutilation, upon surrender and cancellation thereof, Company will issue
a new Note of like tenor and principal amount as the lost, stolen, destroyed or
mutilated Note.
SECTION 5.9 NOTES ON CONVERSION AND WARRANTS ON EXERCISE.
(a) Upon any partial conversion by a Purchaser (or then holder of
Notes) of the Notes pursuant to the terms thereof, the Company shall issue and
deliver to such Purchaser (or holder) within three (3) Trading Days of the
Conversion Date (assuming delivery by such Purchaser of the Applicable
Warrants), a new Note for the principal amount of Notes which such Purchaser (or
holder) has not yet elected to convert but which is evidenced in part by the
Notes(s) submitted to the Company in connection with such conversion (with the
number of and denomination of such new Note(s) designated by such or holder).
(b) Upon any partial exercise by a Purchaser (or then holder of the
Warrants) of the Warrants, the Company shall issue and deliver to such Purchaser
(or holder) within three (3) Trading Days of the date on which such Warrants are
exercised (assuming delivery by such Purchaser of the Applicable Notes), a new
Warrant or Warrants representing the unexercised number of Warrant Shares in
accordance with the terms of such Warrants.
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SECTION 5.10 REPLACEMENT NOTES AND WARRANTS.
(a) Subject to Section 2.2 above, the Notes held by any Purchaser
(or then holder) may be exchanged by such Purchaser (or such holder) at any time
and from time to time for Notes with different denominations representing an
equal aggregate dollar amount of Notes, as requested by such Purchaser (or such
holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
(b) The Warrants will be exchangeable at the option of the Purchaser
(or then holder of the Warrants) at the office of the Company for other Warrants
of different denominations entitling the holder thereof to purchase in the
aggregate the same number of Warrant Shares as are purchasable under such
surrendered Warrants. No service charge will be made for such transfer or
exchange.
SECTION 5.11 NOTICES.
The Company agrees to provide all holders of Notes and Warrants with
copies of all notices and information, including without limitation notices and
proxy statements in connection with any meetings, that are provided to the
holders of shares of Common Stock, contemporaneously with the delivery of such
notices or information to such Common Stock holders.
SECTION 5.12 RIGHT OF FIRST REFUSAL.
Subject to the limited exceptions described below and the transactions
contemplated by the Transaction Documents, the Company and its Subsidiaries
shall not after the Closing Date (a) sell to or contract with any party for any
(i) Common Stock, (ii) other equity securities, or (iii) securities that are
issued at a discount or convertible into or exchangeable for Common Stock or
other equity securities or, (b) enter into equity credit lines ("Future
Offerings") during the period (the "Right of First Refusal Period") beginning on
the Closing Date and ending on and including the date which is 180 days after
the date the Registration Statement (as defined in the Investors' Rights
Agreement) is declared effective by the SEC (the "Effectiveness Date"), unless
it shall have first delivered to each Purchaser or a designee appointed by such
Purchaser written notice (the "Future Offering Notice") describing the proposed
Future Offering, including the terms and conditions thereof, and providing each
Purchaser an option, as of the date of delivery of the Future Offering Notice,
to purchase up to its Relative Percentage of the Future Offering (the
limitations referred to in this sentence are collectively referred to as the
"Capital Raising Limitation"). A Purchaser can exercise its option to
participate in a Future Offering by delivering written notice thereof to
participate to the Company within 10 business days of receipt of a Future
Offering Notice, which notice shall state the quantity of securities being
offered in the Future Offering that such Purchaser will purchase, up to its
Relative Percentage of the Future Offering, and that number of securities it is
willing to purchase in excess of its Relative Percentage of the Future Offering.
In the event that one or more Purchasers fail to elect to purchase up to each
such Purchaser's Relative Percentage of the Future Offering, then each Purchaser
which has indicated that it is willing to purchase a number of securities in
excess of its Relative Percentage of the Future Offering shall be entitled to
purchase its pro rata portion (determined in the same manner as described in the
preceding sentence) of the securities in the
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Future Offering which one or more Purchaser has not elected to purchase. In the
event the Purchasers fail to elect to fully participate in the Future Offering
within the periods described in this Section 5.12, the Company shall have 60
days thereafter to sell the securities of the Future Offering that the
Purchasers did not elect to purchase, upon terms and conditions (including the
amount thereof), no more favorable to the buyers thereof than specified in the
Future Offering Notice. In the event the Company has not sold such securities of
the Future Offering within such 60 day period, or the terms and conditions
(including the amount) become more favorable than those specified in the Future
Offering Notice, then the Company shall not thereafter issue or sell such
securities during the Right of First Refusal Period without first offering such
securities to the Purchasers in the manner provided in this Section 5.12. If a
Future Offering Notice discloses that the relevant Future Offering shall include
multiple tranches, the Company need only deliver one Future Offering Notice
regarding such Future Offering, subject to the Company's obligation to re-offer
securities to the Purchasers if the terms and conditions (including the amount)
become more favorable than those specified in the Future Offering Notice. The
Capital Raising Limitation shall not apply to (i) any transaction (the primary
purpose of which is not to raise equity capital) involving the Company's
issuances of securities (A) as consideration in a merger or consolidation, (B)
in connection with any strategic partnership, joint venture or equipment lease
financing, or (C) as consideration for the acquisition of a business, product or
license or other assets by the Company, (ii) the issuance of Common Stock in a
firm commitment, underwritten public offering at not less than 90% of the
prevailing market price, (iii) the issuance of Common Stock upon the conversion
or exercise of options and warrants outstanding on the Closing Date, or (iv) the
issuance of not more than $75,000 worth of (x) options exercisable into Common
Stock or (y) restricted Common Stock to, employees, directors, officers or bona
fide consultants (unrelated to financing arrangements) pursuant to a plan or
arrangement approved by both the Company's Board of Directors and its
shareholders; provided that more than $75,000 of the securities described in (x)
and (y) above may be issued if also approved by persons to whom authority has
been delegated by a simply majority of the Company's independent, outside
directors. A director who has in the past, is now or in the future is scheduled
to be an officer of the Company shall not be deemed independent for these
purposes. The Purchasers shall not be required to participate or exercise their
right of first refusal with respect to a particular Future Offering in order to
exercise their right of first refusal with respect to later Future Offerings.
SECTION 5.13 [INTENTIONALLY LEFT BLANK].
SECTION 5.14 FORM D; BLUE SKY LAWS.
The Company agrees to file a Form D with respect to the Notes, Warrants,
Conversion Shares and Warrant Shares, as required under Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing. The Company
shall, on or before each Closing Date, take such action as the Company shall
have reasonably determined is necessary to qualify the Notes, Warrants,
Conversion Shares and Warrant Shares for sale to the Purchasers 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 Purchaser on or
prior to the Closing Date.
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SECTION 5.15 NASDAQ RULE.
The Purchasers shall, in the aggregate, be entitled to convert Notes and
exercise Warrants into a total of up to 19.99% of the Company's outstanding
common stock issued and outstanding on the date hereof (which number shall at
least equal 9,270,639 shares) (the "MAXIMUM SHARE AMOUNT"), which number shall
be subject to readjustment for any stock split, stock dividend or
reclassification of the Common Stock) (the "NASDAQ CAP"). Each Purchaser shall
be entitled to convert that amount of its Notes and exercise that amount of its
Warrants into such total number of Common Stock equal to such Purchaser's pro
rata share of the Nasdaq Cap. Once a Purchaser has received its total pro rata
share upon conversion of its Notes and exercise of its Warrants, it may cause
(but only if the Company has failed by November 15, 2000 to receive shareholder
approval to authorize and issue all shares of Common Stock issuable upon
exercise of the Warrants and conversion of the Notes (the "REQUISITE VOTE")) the
Company to redeem its remaining Notes at a price equal to the Premium Redemption
Price (as defined in the Investors' Rights Agreement) plus accrued but unpaid
interest and default payments in effect at that time. If Purchaser has converted
all of its Notes and exercised all of its Warrants, but has not depleted the
total number of pro rata shares allocated to it, its remaining pro rata shares
shall be reallocated amongst the Purchasers still holding Notes on a pro rata
basis based on Relative Percentages. The restrictions and redemption obligations
set forth in this Section 5.15 shall cease to apply if (a) the Company obtains
the Requisite Vote to issue all Common Shares issuable upon exercise of the
Warrants and conversion of the Notes or (b) the Company provides the Purchasers
with irrevocable written notice, based upon the advice of its counsel, that any
such issuance of Common Shares upon conversion of the Notes and exercise of the
Warrants is not subject to the Nasdaq Cap pursuant to Nasdaq Rule 4460. The
Company will use its best efforts promptly to obtain either the Requisite Vote
or the irrevocable notice described in the preceding sentence and to provide the
Purchasers with a copy of same. Without limiting the foregoing, the Company
shall solicit and use its best efforts to obtain the Requisite Vote no later
than November 15, 2000, will solicit proxies in favor of issuing all Common
Shares issuable upon exercise of the Warrants and conversion of the Notes and
will use its best efforts to have all affiliates of the Company which own or
control shares of Common Stock to vote their shares in favor of such resolution.
If the Company shall fail to obtain the Requisite Vote by November 15, 2000,
then any Purchaser may but shall not be obligated to cause the Company to
repurchase all its Notes, Conversion Shares, Warrants and Warrant Shares at the
applicable Premium Redemption Price.
SECTION 5.16 FORM 8-K.
Simultaneously with the execution of this Agreement, the Company will
file with the SEC a Form 8-K describing the arrangements between the parties
hereto and attaching the Transaction Documents as exhibits.
SECTION 5.17
[INTENTIONALLY OMITTED].
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ARTICLE 6
CONDITIONS TO CLOSING
SECTION 6.1 CONDITIONS TO PURCHASERS' OBLIGATION TO PURCHASE THE NOTES
AND WARRANTS.
The Purchasers' obligation to purchase the Notes and Warrants at the
Closing is subject to the satisfaction (or waiver by the Purchasers in
accordance with Section 8.9) of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS.
Each of the representations and warranties of the Company contained in this
Agreement that is qualified as to materiality or Material Adverse Effect shall
be true and correct, and each of the representations and warranties of the
Company contained in this Agreement that is not so qualified as to materiality
or Material Adverse Effect shall be true and correct in all material respects,
in each case as of the date hereof and as of the Closing Date (except for those
representations and warranties which address matters only as of a particular
date, which shall be true and correct, or true and correct in all material
respects, as the case may be, as of such date). The Company shall have performed
in all material respects all agreements, obligations, covenants and conditions
herein required to be performed or observed by it on or prior to the Closing
Date.
(b) LEGAL INVESTMENT. On the Closing Date, there shall not be in
effect any Law or Order directing that the purchase and sale of the Notes and
Warrants and the other transactions contemplated by the Transaction Documents
not be consummated or which has the effect of rendering it unlawful to
consummate such transactions.
(c) PROCEEDINGS AND LITIGATION. No Action shall have been commenced
by any governmental authority against any party hereto seeking to restrain or
delay the purchase and sale of the Notes or the other transactions contemplated
by the Transaction Documents.
(d) APPROVALS. All approvals, consents, permits and waivers of
governmental authorities and of the third parties listed on Schedule 6.1(d) to
the Disclosure Letter necessary or appropriate for consummation of the
transactions contemplated by the Transaction Documents shall have been obtained,
and no such approval, consent, permit or waiver of any governmental authority or
such other third party shall contain any term or condition that the Purchasers
in their reasonable discretion determine to be unduly burdensome.
(e) COMPLIANCE CERTIFICATE; SECRETARY'S CERTIFICATE. The Company
shall have delivered to Purchaser a compliance certificate, executed by the
Chief Executive Officer or the President of the Company, dated the Closing Date,
to the effect that the conditions specified in this Section 6.1 have been
satisfied (or waived by the Purchasers in accordance with Section 8.9). The
Company shall have delivered to the Purchaser a certificate executed by the
Secretary of the Company, dated the Closing Date, certifying as to (i) the
resolutions of the Board evidencing approval of the transactions contemplated by
the Transaction Documents and the
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authorization of the named officer or officers to execute and deliver the
Transaction Documents and (ii) certain of the officers of the Company, their
titles and examples of their signatures.
(f) NOTES. The Purchasers shall have received the Notes
substantially in the form of Exhibit A and the Warrants substantially in the
form of Exhibit B, in the amounts and names as set forth in Section 2.1 hereto
and such Notes and Warrants shall have been executed and delivered by the
Company.
(g) INVESTORS' RIGHTS AGREEMENT. The Purchasers shall have received
a copy of the Investors' Rights Agreement substantially in the form of Exhibit C
executed and delivered by the Company.
(h) NOTEHOLDERS AGREEMENT. The Purchasers shall have received a copy
of the Noteholders Agreement substantially in the form of Exhibit D executed and
delivered by the Company.
(i) LEGAL OPINION. The Purchasers shall have received the opinion of
Cooley Godward LLP, counsel to the Company, dated the Closing Date and
substantially in the form of Exhibit E.
(j) MINIMUM OFFERING. The Company will have sold Notes on the
Closing Date with an aggregate minimum principal amount of $55,000,000.
(k) PAYMENT OF FEES. The Company shall have paid all reasonable fees
and expenses of (i) GE Capital's outside counsel, Simpson Thacher & Bartlett,
(ii) GE Capital's consultants and accountants, (iii) Kleinberg, Kaplan, Wolff &
Cohen, P.C. and (iv) all special local counsel retained by GE Capital in
connection with the offering of the Notes and Warrants and the preparation of
the Transaction Documents.
(l) NASDAQ CAP PROXIES. The Company will provide the Purchasers with
copies of irrevocable proxies, representing in excess of 40% of Company voting
power, in favor of approving and authorizing the issuance of all of the shares
of Common Stock issuable upon exercise of the Warrants and conversion of the
Notes.
(m) WAIVERS. Each Purchaser identified on Schedule 3.25 shall have
executed and delivered to the Company a waiver of its right to receive
non-public information that has been or will be delivered or otherwise provided
to the other Purchasers, which waiver shall be in form and substance
satisfactory to the Company.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The Company's obligation to issue and sell the Notes and Warrants at the
Closing is subject to the satisfaction (or waiver by the Company), on or prior
to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each of the representations
and warranties of the Purchasers contained in this Agreement shall be true and
correct in all material respects as of the Closing Date. The Purchasers shall
have performed in all material respects all
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agreements, obligations, covenants and conditions herein required to be
performed or observed by them on or prior to the Closing Date.
(b) LEGAL INVESTMENT. On the Closing Date, there shall not be in
effect any Law or Order directing that the purchase and sale of the Notes and
Warrants and the other transactions contemplated by the Transaction Documents
not be consummated or which has the effect of rendering it unlawful to
consummate such transactions.
(c) PROCEEDINGS AND LITIGATION. No Action shall have been commenced
by any governmental authority against any party hereto seeking to restrain or
delay the purchase and sale of the Notes or Warrants or the other transactions
contemplated by the Transaction Documents.
(d) NOTEHOLDERS AGREEMENT. The Noteholders Agreement shall have been
executed and delivered by each of the Purchasers.
(e) INVESTORS' RIGHTS AGREEMENT. The Investors' Rights Agreement
shall have been executed and delivered by each of the Purchasers.
ARTICLE 7
INDEMNIFICATION
SECTION 7.1 INDEMNIFICATION.
The Company (the "Purchaser Indemnitor") shall defend, indemnify and
hold harmless the Purchasers and their Affiliates and each director, officer,
member, partner, employee and agent of such Persons (the "Purchaser
Indemnitees") against any obligations, loss, damage, claim, liability, judgment,
suits or settlement of any nature or kind, including all costs and expenses
relating thereto, including without limitation, interest, penalties and
reasonable attorneys' fees (including any attorneys' fees incurred in enforcing
this Section 7.1) (collectively "Damages"), arising out of, resulting from or
relating to:
(i) the breach of any representation or warranty of failure to
perform any covenants or agreements by the Company contained in Article 3, or
any certificate or document delivered pursuant to this Agreement, the Notes, the
Noteholders Agreement or the Investors' Rights Agreement;
(ii) the breach by the Company of any covenant or agreement
(whether to be performed prior to or after the Closing) contained in this
Agreement, the Notes, the Warrants, the Noteholders Agreement or the Investors'
Rights Agreement; or
(iii) the transactions contemplated hereby (other than Damages
resulting from a change in the price of the Company's common stock);
in each case other than Damages which are the result of such Purchaser's gross
negligence or willful misconduct.
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SECTION 7.2 NON-EXCLUSIVE REMEDY.
The indemnification remedies provided in this Article 7 shall not be
deemed to be exclusive. Accordingly, the exercise by any Person of any of its
rights under this Article 7 shall not be deemed to be an election of remedies
and shall not be deemed to prejudice, or to constitute or operate as a waiver
of, any other right or remedy that such Person may be entitled to exercise
(whether under this Agreement, any other Transaction Document, under any other
contract, under any law or otherwise).
SECTION 7.3 SPECIFIC PERFORMANCE.
The Company and the Purchasers acknowledge and agree that irreparable
damage to the Purchasers would occur in the event that any of the provisions of
the Transaction Documents were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that each Purchaser
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of the Transaction Documents and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
any Purchaser may be entitled by law or equity.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 OTHER DEFINITIONS.
The following terms as used in this Agreement shall have the following
meanings:
(a) "Affiliate" means, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person, for so
long as such Person remains so associated to the specified Person; provided that
beneficial ownership of 10% or more of voting interests of a Person shall be
deemed "control".
(b) "Control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly, of the power to direct or
cause the direction of the affairs or management of a Person, whether through
the ownership of voting securities, as trustee or executor, by contract or
otherwise.
(c) "Effective Registration" shall mean (i) the Company is in
compliance with the Transaction Documents; (ii) the resale of Purchaser
Registrable Securities (as defined in the Investors' Rights Agreement) is
covered by an effective registration statement and such registration statement
is not subject to any suspension or stop orders; (iii) the resale of such
securities may be effected pursuant to a current and deliverable prospectus that
is not subject to any blackout or similar circumstance; (iv) the securities are
listed on an Approved Market and are not subject to any trading suspension; (v)
no Interfering Event (as defined in the Investors' Rights Agreement) then
exists; and (vi) none of the Company or any direct or indirect subsidiary of the
Company is subject to any bankruptcy, insolvency or similar proceeding.
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(d) "Group" shall have the meaning assigned to it in Section
13(d)(3) of the Exchange Act.
(e) "Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivisions thereof or any Group comprised of two or more of the
foregoing.
SECTION 8.2 GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL.
THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED ENTIRELY WITHIN
THAT STATE. EACH OF THE PARTIES HEREBY SUBMITS TO THE EXCLUSIVE PERSONAL
JURISDICTION AND WAIVES ANY OBJECTION AS TO VENUE IN EITHER (I) THE COUNTY OF
NEW YORK, STATE OF NEW YORK OR (II) THE COUNTY OF SAN FRANCISCO, STATE OF
CALIFORNIA. SERVICE OF PROCESS ON THE PARTIES IN ANY ACTION ARISING OUT OF OR
RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF MAILED TO THE PARTIES IN
ACCORDANCE WITH SECTION 8.11 HEREOF. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT.
SECTION 8.3 [INTENTIONALLY LEFT BLANK].
SECTION 8.4 EXPENSES.
At or before Closing or the termination of this Agreement, the Company
agrees to reimburse GE Capital, Simpson, Thatcher & Bartlett and Kleinberg,
Kaplan, Wolff & Cohen, P.C. on demand for all of their reasonable fees and
expenses, including the fees and expenses of attorneys, accountants and
consultants employed by it, in connection with (i) the preparation of the
Transaction Documents, (ii) any amendment, modification or waiver, or consent
with respect to, any of the Transaction Documents, (iii) any attempt to enforce
any rights of Purchasers against the Company, any of its Subsidiaries or any
other Person, that may be obligated to any Purchaser by virtue of any of the
Transaction Documents and the transactions contemplated thereby.
SECTION 8.5 SUCCESSORS AND ASSIGNS; ASSIGNMENT.
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, permitted
assigns, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each Person who shall be a holder
of the Notes from time to time. This Agreement may not be assigned by the
Company without the prior written consent of the Required Purchasers. This
Agreement may not be assigned by the Purchasers prior to the Closing without the
consent of the Company, except that each Purchaser may assign its rights and
obligations hereunder to any Affiliate or Affiliates. After the Closing, this
Agreement may be assigned by the Purchasers to
30.
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any transferee of the Notes. Each assignee (i) agrees to be bound hereunder,
(ii) agrees that the representations and warranties made by the Purchasers
herein shall be deemed to have been made by such assignee and (iii) shall
execute a counterpart to this Agreement the execution of which shall constitute
such assignee's agreement to the terms of this Section 8.5. Any purported
assignment of this Agreement in violation of the provisions of this paragraph is
null and void.
SECTION 8.6 ENTIRE AGREEMENT; SUPERSEDES PRIOR AGREEMENT.
This Agreement and the Exhibits hereto, the Notes, the Noteholders
Agreement, the Investors' Rights Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
SECTION 8.7 SEVERABILITY.
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 8.8 SURVIVAL OF WARRANTIES.
The warranties, representations and covenants of the Company and
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing, and shall continue as
long as any Notes or Warrants are outstanding or issuable.
SECTION 8.9 AMENDMENT AND WAIVER.
This Agreement may be amended or modified, and the rights of the Company
or Purchaser hereunder may only be waived, upon the written consent of the
Company and, prior to the Closing, the Purchasers obligated to purchase 66-2/3%
of the face amount of the Notes, provided that such Purchasers shall include
prior to the Closing GE Capital and, after the Closing, the holders of 66-2/3%
of the face amount of the Notes then outstanding (collectively, the "Required
Purchasers").
SECTION 8.10 DELAYS OR OMISSIONS.
It is agreed that no delay or omission to exercise any right, power or
remedy accruing to any party, upon any breach, default or noncompliance by
another party under this Agreement or the Noteholders Agreement, shall impair
any such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
Purchaser's part of any breach, default or noncompliance under this Agreement or
the Noteholders Agreement or any waiver on such party's part of any provisions
or conditions of this Agreement or the Noteholders Agreement, must be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or the
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Noteholders Agreement, by law, or otherwise afforded to any party, shall be
cumulative and not alternative.
SECTION 8.11 NOTICES.
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to the party to be
notified; (b) upon receipt of successful complete transmission when sent by
facsimile if sent during normal business hours of the recipient, if not, then on
the business day next succeeding receipt of successful, complete transmission;
(c) three (3) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) business day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the addresses set forth below:
If to the Company:
Quokka Sports, Inc.
525 Brannan Street
Ground Floor
San Francisco, California 94107
Telephone: (415) 908-3800
Fax: (415) 951-3699
Attn: Paul Startz, Esq.
with copies to:
Cooley Godward, LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111-3580
Telephone: (415) 693-2000
Fax: (415) 951-3699
Attn: Kenneth Guernsey, Esq.
If to GE Capital:
GE Capital Equity Investments
120 Long Ridge Road
Stamford, Connecticut 06927
Telephone: (203) 357-3100
Fax: (203) 357-3145
Attn: Quokka Sports Account Manager
with copies to:
GE Capital Equity Investments
120 Long Ridge Road
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Stamford, Connecticut 06927
Telephone: (203) 357-6839
Fax: (203) 357-3047
Attn: GE Equity Legal Counsel
Simpson Thacher & Bartlett
3373 Hillview Ave., Suite 250
Palo Alto, CA 94304
Telephone: (650) 251-5000
Fax: (650) 251-5002
Attn: Daniel Clivner, Esq.
Richard Capelouto, Esq.
If the other Purchasers and their counsel, to the address listed on
Schedule 1.1 hereof.
SECTION 8.12 TITLES AND SUBTITLES.
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
SECTION 8.13 [INTENTIONALLY LEFT BLANK].
SECTION 8.14 PUBLICITY.
Neither Purchasers nor Company shall issue any press release or make any
public disclosure regarding the transactions contemplated hereby unless such
press release or public disclosure is approved by GE Capital and any other party
mentioned in such press release or public disclosure in advance. In addition,
the Company shall be prohibited from using the GE Capital name or the names of
any of its Affiliates, or the names of any other Purchaser in any press release,
promotional material, or other public filing or announcement without the prior
written consent of GE Capital or such affiliate, or such other Purchaser, as the
case may be. Notwithstanding the foregoing, each of the parties hereto may, in
documents required to be filed by it with the SEC or other regulatory bodies,
make such statements with respect to the transactions contemplated hereby as
each may be advised by counsel is legally necessary advisable and may make such
disclosure as it is advised by its counsel is required by law.
SECTION 8.15 COUNTERPARTS; EXECUTION BY FACSIMILE SIGNATURE.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument. This Agreement may be executed by facsimile signature(s).
SECTION 8.16 PURCHASERS' OBLIGATIONS SEVERAL AND NOT JOINT.
All obligations of the Purchasers hereunder shall be several and not
joint and no Purchaser shall have any liability or obligation hereunder as a
result of any other Purchaser's breach of any provisions of this Agreement.
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SECTION 8.17 RESCISSION AND WITHDRAWAL RIGHT.
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents, wherever the
Purchasers exercise a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within
the periods therein provided, then each Purchaser may rescind or withdraw, in
its sole discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to its
future actions and rights.
SECTION 8.18 OBLIGATIONS ABSOLUTE.
The Company's obligations under the Transaction Documents are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction.
SECTION 8.19 NON-PUBLIC INFORMATION.
Under no circumstances will the Company directly or indirectly provide
material, non-public information to any of the Purchasers listed on Schedule
3.25 hereto or their respective representatives without that Purchaser's prior
written consent. Any information provided in violation of this provision may be
publicly disclosed without liability to such Purchaser or its representatives.
Each Purchaser agrees to keep confidential all proprietary and
non-public information regarding the Company and its Subsidiaries delivered to
such Purchaser in compliance with this Section 8.19; provided that nothing
herein shall prevent any Purchaser from disclosing any such information (a) to
the extent such proprietary and non-public information has been previously
disclosed publicly (other than as a result of a breach by such Purchaser of this
Section 8.19) or (b) to the extent disclosure is required by law, regulation,
judicial order or other legal process.
SECTION 8.20 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.
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SECTION 8.21 TRADING LIMITATIONS. So long as the Notes, the Warrants or
the shares of Common Stock issuable upon exercise of the Warrants or conversion
of the Notes, in each case held by a Purchaser are outstanding, such Purchaser
covenants and agrees that it will conduct all transactions in the Common Stock
in compliance with applicable securities laws.
SECTION 8.22 [INTENTIONALLY OMITTED].
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IN WITNESS WHEREOF, the parties hereto have executed the |
