Securities Purchase Agreement - CMGI Inc. and Rose Glen Capital Management LP
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of December 21,
1998, by and among CMGI, Inc., a Delaware corporation, with headquarters located
at 100 Brickstone Square, Andover, MA 01810 ("COMPANY"), and each of the
purchasers set forth on the signature pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized a new series of preferred stock, designated as
Series B Convertible Preferred Stock (together with any Series B Preferred Stock
issued in replacement thereof or as a dividend thereon or otherwise with respect
thereto in accordance with the terms thereof, the "PREFERRED SHARES"), having
the rights, preferences and privileges set forth in the Certificate of
Designations, Rights and Preferences attached hereto as EXHIBIT "A" (the
"CERTIFICATE OF DESIGNATION");
C. The Preferred Shares are convertible into shares of common stock, $.01 par
value per share, of the Company (the "COMMON STOCK"), upon the terms and subject
to the limitations and conditions set forth in the Certificate of Designation;
D. The Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement, an aggregate of Fifty
Thousand (50,000) Preferred Shares, for an aggregate purchase price of Fifty
Million Dollars ($50,000,000).
E. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, the number of Preferred Shares as is set forth immediately
below its name on the signature pages hereto;
F. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "B" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not jointly)
hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
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A. PURCHASE OF PREFERRED SHARES. On the Closing Date (as defined below), the
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Company shall issue and sell to each Buyer and each Buyer severally agrees to
purchase from the Company such number of Preferred Shares as is set forth
immediately below such Buyer's name on the signature pages hereto.
B. FORM OF PAYMENT. On the Closing Date (as defined below), (i) each Buyer
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shall pay the purchase price for the Preferred Shares to be issued and sold to
it at the Closing (as defined below) (the "PURCHASE PRICE") by wire transfer of
immediately available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates
representing such number of Preferred Shares which such Buyer is purchasing and
(ii) the Company shall deliver such certificates duly executed on behalf of the
Company, to such Buyer, against delivery of such Purchase Price.
C. CLOSING DATE. Subject to the satisfaction (or waiver) of the conditions
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thereto set forth in Section 6 and Section 7 below, the date and time of the
issuance and sale of the Preferred Shares pursuant to this Agreement (the
"CLOSING DATE") shall be 12:00 noon Eastern Standard Time on December 22, 1998
or such other mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall occur on the Closing Date
at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia,
PA 19103, or at such other location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not
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jointly) represents and warrants to the Company solely as to such Buyer that:
A. INVESTMENT PURPOSE. As of the date hereof, the Buyer is purchasing the
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Preferred Shares and the shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Preferred Shares (including, without limitation, such
additional shares of Common Stock as are issuable as a result of the events
described in Articles V, VI.D(b) or VI.E of the Certificate of Designation and
Section 2(c) of the Registration Rights Agreement) (such shares of Common Stock
being referred to herein as the "CONVERSION SHARES", and, collectively with the
Preferred Shares, the "SECURITIES") for its own account and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided, however,
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that by making the representation herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
B. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor" as that
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term is defined in Rule 501(a) of Regulation D (an "ACCREDITED INVESTOR").
C. RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities are
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being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire
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the Securities. The Buyer acknowledges that it has reviewed the provisions of
Rule 144 (as defined below) and in connection with the sale of the Securities
other than pursuant to an effective registration statement under the 1933 Act
will comply with terms of such rule or another available exemption from
registration.
D. INFORMATION. The Buyer and its advisors, if any, have been furnished with
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all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have been
requested by the Buyer or its advisors. The Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigation conducted by Buyer or
any of its advisors or representatives shall modify, amend or affect Buyer's
right to rely on the Company's representations and warranties contained in
Section 3 below. The Buyer understands that its investment in the Securities
involves a significant degree of risk.
E. GOVERNMENTAL REVIEW. The Buyer understands that no United States federal
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or state agency or any other government or governmental agency has passed upon
or made any recommendation or endorsement of the Securities.
F. TRANSFER OR RE-SALE. The Buyer understands that (i) except as provided in
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the Registration Rights Agreement, the sale or re-sale of the Securities has not
been and is not being registered under the 1933 Act or any applicable state
securities laws, and the Securities may not be transferred unless (a) the
Securities are sold pursuant to an effective registration statement under the
1933 Act, (b) the Buyer shall have delivered to the Company an opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration, (c) the Securities are sold or transferred to
an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
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G. LEGENDS. The Buyer understands that the Preferred Shares and, until such
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time as the Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, the Conversion Shares,
may bear a restrictive legend in substantially the
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following form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the absence of
an effective registration statement for the securities under said Act,
or an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, that registration is
not required under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected or (c) such holder provides the Company with
reasonable assurances and counsel to the Company provides an opinion (which
opinion must be provided if such reasonable assurances are provided by such
holder and the Company is in compliance with the conditions set forth in Rule
144(c)) that such Security can be sold pursuant to Rule 144. The Buyer agrees
to sell all Securities, including those represented by a certificate(s) from
which the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
H. AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration Rights
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Agreement have been duly and validly authorized. This Agreement has been duly
executed and delivered on behalf of the Buyer, and this Agreement constitutes,
and upon execution and delivery by the Buyer of the Registration Rights
Agreement, such agreement will constitute, valid and binding agreements of the
Buyer enforceable in accordance with their terms; subject to applicable
bankruptcy, insolvency, reorganization or similar laws affecting generally the
enforcement of creditors' rights and subject to a court's discretionary
authority with respect to the granting of specific performance or other
equitable remedies.
I. RESIDENCY. The Buyer is a resident of the jurisdiction set forth
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immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
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warrants to each Buyer that:
A. ORGANIZATION AND QUALIFICATION. The Company and each of its Subsidiaries
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(as defined below), if any, is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other) to own, lease,
use and operate its properties and to carry on its
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business as and where now owned, leased, used, operated and conducted. SCHEDULE
3(a) sets forth a list of all of the Subsidiaries of the Company and the
jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of property or
the nature of the business conducted by it makes such qualification necessary
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on (i) the Securities, (ii) the business, operations, assets, financial
condition or prospects of the Company and its Subsidiaries, if any, taken as a
whole, or (iii) on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. "SUBSIDIARIES" means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any equity or other ownership
interest and in which such ownership interest entitles the Company to elect a
majority of the board of directors or similar governing body.
B. AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite corporate
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power and authority to file and perform its obligations under the Certificate of
Designation and to enter into and perform this Agreement and the Registration
Rights Agreement and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance of
the Preferred Shares and the issuance and reservation for issuance of the
Conversion Shares issuable upon conversion thereof) have been duly authorized by
the Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors, or its stockholders is required, (iii) this
Agreement has been duly executed and delivered by the Company, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement and the execution and filing of the Certificate of
Designation, each of such agreements and instruments will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms; subject to applicable bankruptcy, insolvency,
reorganization or similar laws affecting generally the enforcement of creditors'
rights and subject to a court's discretionary authority with respect to the
granting of specific performance or other equitable remedies.
C. CAPITALIZATION. As of the date hereof, the authorized capital stock of
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the Company consists of (i) 100,000,000 shares of Common Stock of which
23,083,767 shares are issued and outstanding, 3,127,680 shares are reserved for
issuance pursuant to the Company's stock option plans, no shares are reserved
for issuance pursuant to securities (other than the Preferred Shares)
exercisable for, or convertible into or exchangeable for shares of Common Stock
and 2,083,332 (2x currently required) shares are reserved for issuance upon
conversion of the Preferred Shares (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below); and (ii) 5,000,000 shares
of preferred stock, 250 of which are designated as Series A Preferred Stock,
none of which are issued and outstanding and 50,000 are designated as the
Preferred Shares. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and nonassessable.
No shares of capital stock of the Company are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or
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failure to act of the Company. Except as disclosed in SCHEDULE 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of its or their securities under the 1933 Act (except the Registration
Rights Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Preferred Shares or the Conversion Shares. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of Incorporation as
in effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-
laws, as in effect on the date hereof (the "BY-LAWS"), and the terms of all
securities convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. The Company shall
provide the Buyer with a written update of this representation signed by the
Company's Chief Executive or Chief Financial Officer on behalf of the Company as
of the Closing Date.
D. ISSUANCE OF SHARES. The Preferred Shares are duly authorized and, upon
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issuance in accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof. The Conversion
Shares are duly authorized and reserved for issuance, and, upon conversion of
the Preferred Shares in accordance with the terms thereof, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.
E. ACKNOWLEDGMENT OF DILUTION. The Company understands and acknowledges the
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potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of the Preferred Shares. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares in accordance with this Agreement and the Certificate of
Designation is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
F. SERIES OF PREFERRED STOCK. The terms, designations, powers, preferences
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and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of each series of preferred stock
of the Company (other than the Preferred Shares) are as stated in the
Certificate of Incorporation, filed on or prior to the date hereof, and the
Bylaws. The terms, designations, powers, preferences and relative,
participating and optional or special rights, and the qualifications,
limitations and restrictions of the Preferred Shares are as stated in the
Certificate of Designation.
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G. NO CONFLICTS. The execution, delivery and performance of this Agreement
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and the Registration Rights Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the filing of the Certificate of Designation and the issuance and
reservation for issuance of the Conversion Shares) will not (i) conflict with or
result in a violation of any provision of the Certificate of Incorporation or
By-laws or (ii) violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which with notice or lapse of time or
both could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933 Act,
any applicable state securities laws and the rules of the Nasdaq National Market
("NASDAQ"), the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court, governmental
agency, regulatory agency, self regulatory organization or stock market or any
third party in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement in
accordance with the terms hereof or thereof or to issue and sell the Preferred
Shares in accordance with the terms hereof and to issue the Conversion Shares
upon conversion of the Preferred Shares. Except as disclosed in SCHEDULE 3(g),
all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of Nasdaq and does not reasonably
anticipate that the Common Stock will be delisted by the Nasdaq in the
foreseeable future. The Company and its Subsidiaries are unaware of any facts
or circumstances which might give rise to any of the foregoing.
H. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since July 31, 1996, the Company has
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timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing
filed prior to the date hereof and all
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exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). The
Company has made available to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior to the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to July 31, 1998 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
I. ABSENCE OF CERTAIN CHANGES. Since July 31, 1998, there has been no
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material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries.
J. ABSENCE OF LITIGATION. There is no action, suit, claim, proceeding,
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inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company
or any of its Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. SCHEDULE 3(j) contains a
complete list and summary description of any pending or threatened proceeding
against or affecting the Company or any of its Subsidiaries, without regard to
whether it would have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
K. PATENTS, COPYRIGHTS, ETC. The Company and each of its Subsidiaries owns
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or possesses the requisite licenses or rights to use all patents, patent
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applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(k) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
in SCHEDULE 3(K) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
L. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its
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Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's executive officers has or is expected in the future to have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to
any contract or agreement which in the judgment of the Company's executive
officers has or is expected to have a Material Adverse Effect.
M. TAX STATUS. Except as set forth on SCHEDULE 3(m), the Company and each of
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its Subsidiaries has made or filed all federal, state and foreign income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on SCHEDULE 3(m), none of the Company's
tax returns is presently being audited by any taxing authority.
N. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(n) and except for
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arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on SCHEDULE
3(C), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real
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or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
O. DISCLOSURE. All information relating to or concerning the Company or any
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of its Subsidiaries set forth in this Agreement and provided to the Buyers
pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).
P. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES. The Company
-------------------------------------------------------
acknowledges and agrees that the Buyers are acting solely in the capacity of
arm's length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer is acting
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
statement made by any Buyer or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to the Buyers' purchase
of the Securities. The Company further represents to each Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
Q. NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates,
----------------------
nor any person acting on its or their behalf, has directly or indirectly made
any offers or sales of any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933 Act of the
issuance of the Securities to the Buyers. The issuance of the Securities to the
Buyers will not be integrated with any other issuance of the Company's
securities (past, current or future) for purposes of any stockholder approval
provisions applicable to the Company or its securities.
R. NO BROKERS. Except as set forth in SCHEDULE 3(r), the Company has taken
----------
no action which would give rise to any claim by any person for brokerage
commissions, finder's fees or similar payments relating to this Agreement or the
transactions contemplated hereby.
S. PERMITS; COMPLIANCE. The Company and each of its Subsidiaries is in
-------------------
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted except those, the absence of
10
<PAGE>
which, would not have a Material Adverse Effect (collectively, the "COMPANY
PERMITS"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since July 31,
1998, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
T. ENVIRONMENTAL MATTERS.
---------------------
(i) Except as set forth in SCHEDULE 3(t), there are, to the Company's
knowledge, with respect to the Company or any of its Subsidiaries or any
predecessor of the Company, no past or present violations of Environmental Laws
(as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of
in compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or any of
its Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.
(iii) Except as set forth in SCHEDULE 3(T), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its Subsidiaries that are not in compliance with
applicable law.
U. 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 board of directors, to provide reasonable assurance that (i)
transactions are executed
11
<PAGE>
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
V. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
-------------------------
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
4. COVENANTS.
---------
A. BEST EFFORTS. The parties shall use their best efforts to satisfy timely
------------
each of the conditions described in Section 6 and 7 of this Agreement.
B. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with respect
---------------------
to the Securities as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Buyers at the applicable
closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to each
Buyer on or prior to the Closing Date.
C. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The Company's Common Stock
---------------------------------------------
is registered under Section 12(g) of the 1934 Act. So long as any Buyer
beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not, so long as any Buyer beneficially owns any of the Securities,
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company currently meets, and, so long as any Buyer
beneficially owns any of the Securities, will take all necessary action to
continue to meet, the "registrant eligibility" requirements set forth in the
general instructions to Form S-3.
D. USE OF PROCEEDS. The Company shall use the proceeds from the sale of the
---------------
Preferred Shares in the manner set forth in SCHEDULE 4(d) attached hereto and
made a part hereof and shall not, directly or indirectly, use such proceeds for
any loan to or investment in any other corporation, partnership, enterprise or
other person (except in connection with its currently existing direct or
indirect Subsidiaries).
12
<PAGE>
E. ADDITIONAL EQUITY CAPITAL. Subject to the exceptions described below, the
-------------------------
Company will not, without the prior written consent of a majority-in-interest of
the Buyers, negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) that involves (A)
the issuance of Common Stock (whether upon conversion or exercise of a security
convertible into or exercisable for Common Stock or otherwise) at a discount to
the market price of the Common Stock on the date of issuance thereof or, in the
case of a security convertible into or exercisable for Common Stock, the date of
issuance of such convertible security (taking into account the value of any
warrants or options to acquire Common Stock issued in connection therewith) or
(B) the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock ("FUTURE OFFERINGS") during the
period (the "LOCK-UP PERIOD") beginning on the Closing Date and ending ninety
(90) days from the date the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective (plus any days in which
sales cannot be made thereunder) (the limitations referred to in this sentence
are collectively referred to as the "CAPITAL RAISING LIMITATIONS"). The Capital
Raising Limitations shall not apply to any transaction involving (i) issuances
of securities in a firm commitment underwritten public offering (excluding a
continuous offering pursuant to Rule 415 under the 1933 Act), (ii) issuances of
securities as consideration for a merger, consolidation or purchase of assets,
or in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the Company or
(iii) up to an aggregate of Seventy-Five Million Dollars ($75,000,000) in Future
Offerings; provided that the Company shall have first delivered to each Buyer,
--------
at least seven (7) business days prior to the closing of such Future Offering or
Future Offerings, written notice describing the proposed Future Offering,
including the definitive terms and conditions thereof, and providing each Buyer
an option during the seven (7) business day period following delivery of such
notice to purchase its pro rata share (based on the ratio that the number of
Preferred Shares purchased by it hereunder bears to the aggregate number of
Preferred Shares purchased hereunder) of the securities being offered in the
Future Offering on the same terms as contemplated by such Future Offering (in
the event the terms and conditions of a proposed Future Offering are amended in
any respect after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer describing
the amended terms and conditions of the proposed Future Offering and each Buyer
thereafter shall have an option during the ten (10) day period following
delivery of such new notice to purchase its pro rata share of the securities
being offered on the same terms as contemplated by such proposed Future
Offering, as amended). The Capital Raising Limitations also shall not apply to
the issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the stockholders of the Company.
F. EXPENSES. The Company shall reimburse Rose Glen Capital Management, L.P.
--------
("ROSE GLEN") for all reasonable and documented expenses incurred by it in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith, including, without limitation, attorneys' and consultants'
fees and expenses and travel expenses.
13
<PAGE>
G. FINANCIAL INFORMATION. The Company agrees to send the following reports
---------------------
to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes available
or gives to such stockholders.
H. RESERVATION OF SHARES. The Company shall at all times have authorized,
---------------------
and reserved for the purpose of issuance, a sufficient number of shares of
Common Stock to provide for the full conversion of the outstanding Preferred
Shares and issuance of the Conversion Shares in connection therewith (based on
the lesser of the Market Price in effect from time to time and the Fixed
Conversion Price (each as defined in the Certificate of Designation)). The
Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of Preferred Shares without the consent of a majority-
in-interest of the Buyers, which consent shall not be unreasonably withheld.
The Company shall use its best efforts at all times to maintain the number of
shares of Common Stock so reserved for issuance at no less than two (2) times
the number that is then actually issuable upon full conversion of the Preferred
Shares (based on the lesser of the Market Price in effect from time to time and
the Fixed Conversion Price (each as defined in the Certificate of Designation)).
If at any time the number of shares of Common Stock authorized and reserved for
issuance is below the number of Conversion Shares issued and issuable upon
conversion of the Preferred Shares (based on the lesser of the Market Price in
effect from time to time and the Fixed Conversion Price (each as defined in the
Certificate of Designation)), the Company will promptly take all corporate
action necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling a special meeting of stockholders to
authorize additional shares to meet the Company's obligations under this Section
4(h), in the case of an insufficient number of authorized shares, and using its
best efforts to obtain shareholder approval of an increase in such authorized
number of shares.
I. LISTING. The Company shall promptly secure the listing of the Conversion
-------
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and, so long as any Buyer owns any of the Securities, shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable upon conversion of
the Preferred Shares. The Company will obtain and, so long as any Buyer owns
any of the Securities, maintain the listing and trading of its Common Stock on
Nasdaq, the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock
Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from Nasdaq and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems; provided, however, that to the extent the Company discloses
-------- -------
to a Buyer that the Company has material non-public information and a Buyer
requests that such information not be disclosed to
14
<PAGE>
such Buyer, if such information is of the type required to be delivered pursuant
to this Section 4(i), the Company shall not be obligated to disclose such
information pursuant to this Section 4(i).
J. CORPORATE EXISTENCE. So long as a Buyer beneficially owns any Preferred
-------------------
Shares, the Company shall maintain its corporate existence and shall not,
without the prior approval of the holders of a majority-in-interest of the
Preferred Shares sell all or substantially all of the Company's assets, except
in the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.
K. NO INTEGRATION. The Company shall not make any offers or sales of any
--------------
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of Securities to be integrated with any other offering
of securities by the Company for the purpose of any stockholder approval
provision applicable to the Company or its securities.
L. TRADING GUIDELINES. So long as a Buyer holds Preferred Shares, such Buyer
------------------
covenants and agrees that it will conduct all transactions in the Common Stock
in compliance with applicable securities laws. So long as a Buyer holds
Preferred Shares, such Buyer will not on any given date have a net short
position in the Common Stock which exceeds the number of shares of Common Stock
issuable upon conversion of the Preferred Shares then held by such Buyer (based
upon the lesser of the Market Price in effect from time to time and the Fixed
Conversion Price (each as defined in the Certificate of Designation)).
5A TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
---------------------------
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares in such amounts as
specified from time to time by each Buyer to the Company upon conversion of the
Preferred Shares in accordance with the terms thereof (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). Prior to registration of the Conversion Shares under the
1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule
144 without any restriction as to the number of securities as of a particular
date that can then be immediately sold, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior
to registration of the Conversion Shares under the 1933 Act or the date on which
the Conversion Shares may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold), will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Securities. If a Buyer provides the Company with (i) an
15
<PAGE>
opinion of counsel, in form, substance and scope customary for opinions in
comparable transactions, to the effect that a public sale or transfer of such
Securities may be made without registration under the 1933 Act and such sale or
transfer is effected or (ii) the Buyer provides reasonable assurances and
counsel to the Company provides an opinion (which opinion must be provided if
such reasonable assurances are provided by such holder and the Company is in
compliance with the conditions set forth in Rule 144(c)) that the Securities can
be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the
case of the Conversion Shares, promptly instruct its transfer agent to issue one
or more certificates, free from any restrictive legend, in such name and in such
denominations as specified by such Buyer.
6A CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
----------------------------------------------
Company hereunder to issue and sell the Preferred Shares to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
A. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
B. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
C. The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware.
D. The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
E. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7A CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each
-------------------------------------------------
Buyer hereunder to purchase the Preferred Shares at the Closing is subject to
the satisfaction, at or before the Closing Date of each of the following
conditions, provided that these conditions are for such Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion:
16
<PAGE>
A. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
B. The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request) representing the
Preferred Shares in accordance with Section 1(b) above.
C. The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
D. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.
E. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
F. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
G. The Conversion Shares shall have been authorized for quotation
on Nasdaq and trading in the Common Stock on Nasdaq shall not have been
suspended by the SEC or Nasdaq.
H. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "D"
attached hereto.
I. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
17
<PAGE>
8A STANDSTILL AGREEMENT.
--------------------
Each Buyer agrees that, for a period beginning on the date hereof and ending
twelve (12) months following the date on which it no longer owns any Preferred
Shares or Conversion Shares, it will not, directly or indirectly (unless in any
such cases specifically invited in writing to do so by the Board of Directors of
the Company), do any of the following except as acquired pursuant to or
otherwise contemplated by this Agreement and the Certificate of Designation or
as a result of any stock split, stock dividend or similar recapitalization by
the Company or otherwise to enforce such Buyer's rights under this Agreement,
the Certificate of Designation or the Registration Rights Agreement:
(i) acquire, offer to acquire, or agree to acquire by purchase or
otherwise, individually or by joining a partnership, limited partnership,
syndicate or other "group" (as such term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (any such act,
to "acquire"), any securities of the Company entitled to vote, or securities
convertible into or exercisable or exchangeable for such securities
(collectively, "Voting Securities") if, after such acquisition, the buyer would
beneficially own 10% or more of the total combined voting power of the Company's
Voting Securities then outstanding:
(ii) form, join, participate in or encourage the formation of a
partnership, limited partnership, syndicate or other group for the purpose of
acquiring, holding or disposing of voting Securities;
(iii) make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are defined or used in Regulation 14A
under the Exchange Act) or become a "participant" in any "election contest" (as
such terms are defined or used in Rule 14a-11 under the Exchange Act) with
respect to the Company, or initiate, propose or otherwise solicit stockholders
of the Company for the approval of one or more stockholder proposals with
respect to the Company or induce or attempt to induce any other person to
initiate any stockholder proposal;
(iv) deposit any Voting Securities into a voting trust or subject
them to any voting agreement or other agreement or arrangement with respect to
the voting of such Voting Securities;
(v) otherwise act, directly or indirectly, alone or in concert with
others, to seek to control the management, Board or Directors, policies or
affairs of the Company, or solicit, propose, seek to effect or negotiate with
any other person with respect to any form of business combination transaction
with the Company or any affiliate thereof, or any restructuring,
recapitalization or similar transaction with respect to the Company or any
affiliate thereof, or announce or disclose an intent, purpose, plan or proposal
with respect to the Company or any voting securities inconsistent with the
provisions of this Agreement, including an intent, purpose, plan or proposal
that is conditioned on or would require the Company to waive the benefit of or
amend any provision of this Agreement, or assist, participate in, facilitate or
encourage or solicit any effort or attempt by any person to do or seek to do any
of the foregoing; and
(vi) encourage or render advice to or make any recommendation or
proposal to any person, or directly or indirectly participate, aid and abet or
otherwise induce any person or engage in any of the actions prohibited by this
Section 8 or to engage in any actions inconsistent with such prohibitions.
18
<PAGE>
9A GOVERNING LAW; MISCELLANEOUS.
----------------------------
A. GOVERNING LAW. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located in Delaware
with respect to any dispute arising under this Agreement, the agreements entered
into in connection herewith or the transactions contemplated hereby or thereby.
B. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be executed in
-------------------------------------
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so delivering this
Agreement.
C. HEADINGS. The headings of this Agreement are for convenience of reference
--------
and shall not form part of, or affect the interpretation of, this Agreement.
D. SEVERABILITY. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
E. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
----------------------------
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
F. NOTICES. Any notices required or permitted to be given under the terms of
-------
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
CMGI, Inc.
100 Brickstone Square
Andover, MA 01810
Attention: Chief Executive Officer
Facsimile: 978-684-3618
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<PAGE>
With copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108-3190
Attention: William Williams II, Esquire
Facsimile: 617-227-4420
If to a Buyer: To the address set forth immediately below such Buyer's name
on the signature pages hereto.
Each party shall provide notice to the other party of any change in address.
G. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
----------------------
the benefit of the parties and their successors and assigns. Neither the
Company nor any Buyer shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other. Notwithstanding the
foregoing, subject to Section 2(f), any Buyer may assign its rights and
obligations hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company; provided, however, that
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the transferee has agreed in writing to be bound by the provisions of this
Agreement with such transferee becoming a "Buyer" under this Agreement with all
of the rights and obligations a Buyer has hereunder and the Company shall have
been notified of the name and address of the transferee.
H. THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of
-------------------------
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.
I. SURVIVAL. The representations and warranties of the Company and the
--------
agreements and covenants set forth in Sections 3, 4, 5 and 9 shall survive the
closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Buyers. The Company agrees to indemnify and hold harmless
each of the Buyers and all their officers, directors, employees and agents for
loss or damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations, warranties and covenants set forth
in Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred; provided that no such indemnification shall be
--------
available for any loss or damage resulting solely from any breach by the Company
of a representation of which a Buyer had actual knowledge on or prior to the
Closing Date.
J. PUBLICITY. The Company and each of the Buyers shall have the right to
---------
review a reasonable period of time before issuance of any press releases, SEC,
Nasdaq or NASD filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
-------- -------
entitled, without the prior approval of each of the Buyers, to make any press
release or SEC, Nasdaq or NASD filings with respect to
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<PAGE>
such transactions as is required by applicable law and regulations (although
each of the Buyers shall be consulted by the Company in connection with any such
press release prior to its release and shall be provided with a copy thereof and
be given an opportunity to comment thereon).
K. FURTHER ASSURANCES. Each party shall do and perform, or cause to be done
------------------
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
L. 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.
M. REMEDIES. The Company acknowledges that a breach by it of its
--------
obligations hereunder will cause irreparable harm to each Buyers by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that each
Buyer shall be entitled, in addition to all other available remedies in law or
in equity, to an injunction or injunctions to prevent or cure any breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions of this Agreement, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
CMGI, INC.
By: /s/ Andrew J. Hajducky
------------------------
Andrew J. Hajducky III
Executive Vice President
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By: /s/ Wayne D. Bloch
-------------------
Wayne D. Bloch
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: 610-617-0570
Telephone: 610-617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 35,000
Aggregate Purchase Price: $ 35,000,000
22
<PAGE>
RGC INVESTMENTS II, L.P.
Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By: /s/ Wayne D. Bloch
-------------------
Wayne D. Bloch
Managing Director
RESIDENCE: Delaware
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: 610-617-0570
Telephone: 610-617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 15,000
Aggregate Purchase Price: $15,000,000
23