STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 30th
of March 2001, by and among FalconStor, Inc., a Delaware corporation (the
"Company"), and Network Peripherals Inc., a Delaware corporation along with each
additional party set forth on Schedule A hereto (each an "Investor") that enters
into this Agreement pursuant to an Additional Closing (as defined below).
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Sale of Series C Convertible Preferred Stock.
1.1 Sale and Issuance of Series C Convertible Preferred Stock.
Subject to the terms and conditions of this Agreement, the
Investor agrees to purchase at the Closing (as defined below), and the Company
agrees to sell and issue to the Investor at the Closing, 9,792,401 shares of the
Company's Series C Convertible Preferred Stock (the "Series C Preferred Stock"),
$.001 par value per share, at a purchase price of $2.553 per share.
1.2 Closing.
(a) The purchase and sale of the Series C Preferred Stock
shall take place at 10:00 a.m. on March 30, 2001, at the offices of Olshan
Grundman Frome Rosenzweig & Wolosky LLP, or at such other time and place as
shall be mutually agreed upon between the Investors and the Company (the
"Initial Closing"). If at the Initial Closing, the Company has not received and
accepted subscriptions for the sale of $45,000,000 of Series C Preferred Stock
(or 17,626,322 shares of Series C Preferred Stock), the Company may have
additional closings at such time and place as shall be mutually agreed upon
between the Investors and the Company (the "Additional Closings") until such
time as the Company has received and accepted subscriptions for the sale of
$45,000,000 of Series C Preferred Stock (or 17,626,322 shares of Series C
Preferred Stock) provided, however, that in no event shall any Additional
Closings be held after April 29, 2001. The Initial Closing and the Additional
Closings are collectively referred to herein as the "Closing."
(b) At the Closing, the Investor shall deliver to the
Company the amount of its investment in immediately available funds by certified
check or wire transfer to an account of the Company designated by the Company or
such other manner reasonably acceptable to the Company.
(c) At the Closing, the Company shall deliver to the
Investor a certificate for the shares of Series C Preferred Stock to be issued
to the Investor in definitive form and duly registered in the name of the
Investor.
2. Representations and Warranties of the Company. Except for the
exceptions set forth on the Schedule of Exceptions attached hereto and furnished
to the Investor, which exceptions shall be deemed to be representations and
warranties as if made hereunder, the Company hereby represents and warrants to
the Investor that:
2.1 Organization; Good Standing; Qualification and Corporate
Power.
(a) The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company and each of its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on its business or
properties. True and correct copies of the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation") and Bylaws have
been provided to the Investor. True and correct copies of the formation
documents for each subsidiary have been provided to the Investor.
(b) The Company has all requisite legal and corporate power
and authority to execute and deliver this Agreement, the Option Agreement of
even date herewith among the Company and the Investor (the "Option Agreement")
the Amended and Restated Registration Rights Agreement of even date herewith
among the Company, the Investor and the current stockholders of the Company (the
"Amended Registration Rights Agreement"), and the Amended and Restated
Stockholders Agreement of even date herewith among the Company, the Investor and
the stockholders of the Company set forth therein (the "Amended Stockholders
Agreement" and together with the NPI Option Agreement and the Registration
Rights Agreement, the "Ancillary Agreements"), to issue and sell the Series
Preferred Stock and to carry out and perform its obligations under the terms of
this Agreement and the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby. All necessary corporate action has been taken
by the Company with respect to the execution, delivery and performance by the
Company of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby.
2.2 Capitalization and Voting Rights. The authorized capital of
the Company consists of:
(i) Common Stock. 100,000,000 shares of Common Stock, $.001 par value per
share (the "Common Stock"), of which 15,100,000 shares are issued and
outstanding as of the date hereof. In addition, the Company has Common Stock
reserved for issuance as follows: (i) 15,000,000 shares issuable upon the
conversion of Series A Convertible Preferred Stock ("Series A Preferred Stock"),
(ii) 8,000,000 shares issuable upon the exercise of stock options, of which
options to purchase 7,101,500 shares of Common Stock have been granted at an
exercise price of $0.25 per share, (iii) 9,800,000 shares issuable upon the
conversion of Series B Convertible Preferred Stock (the "Series B Preferred
Stock" and collectively with the Series A Preferred Stock and the Series C
Preferred Stock, the "Preferred Stock") and (iv) 17,626,322 shares issuable upon
the conversion of Series C Preferred Stock.
(ii) Preferred Stock. 30,000,000 shares of preferred stock (the "Preferred
Stock"), of which 3,000,000 have been designated as Series A Preferred Stock,
3,000,000 of which are issued and outstanding, 4,900,000 have been designated as
Series B Preferred Stock, 4,900,000 of which are issued and outstanding, and
17,626,322 have been designated as Series C Preferred Stock, none of which are
issued and outstanding.
(iii) Except as set forth on the Schedule of Exceptions, there are no
outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. The Company is not a party or subject to any
agreement or understanding of any kind, and, to the Company's knowledge, there
is no agreement or understanding of any kind between any individual,
corporation, partnership, limited liability company, association, trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof (a "Person"), which affects or relates to the
acquisition, disposition or voting or giving of written consents with respect to
any security of the Company.
(iv) Except as provided in the Schedule of Exceptions, the Company has
entered into Stock Option Agreements with each of the recipients of options to
purchase Common Stock of the Company (the "Optionees") and the terms of such
Stock Option Agreements (other than share amounts) are identical to those
contained in the form of Stock Option Agreements attached hereto as Exhibit A.
2.3 Subsidiaries; Interests of the Company. Except as set forth in the
Schedule of Exceptions, the Company does not currently own or control, directly
or indirectly, any interest in any other Person. The Company owns all of the
issued and outstanding capital stock of each of its subsidiaries (except that
with respect to the Taiwan subsidiary certain shares are held by nominee holders
as required by Taiwan law) free and clear of all liens, claims, charges and
other encumbrances and restrictions of any kind or nature.
2.4 Financial Statements. The Company has delivered to the Investor its
unaudited balance sheet, income statement and statement of stockholders' equity
at and for the period ended December 31, 2000 (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the period indicated and with each other. The Financial Statements
fairly present the financial condition and operating results of the Company as
of the dates, and for the periods indicated therein, subject to normal year-end
audit adjustments. Except as disclosed in the Financial Statements, the Company
is not a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
2.5 No Undisclosed Liabilities. Except as disclosed in the Schedule of
Exceptions, there are no liabilities or obligations of the Company of any kind
whatsoever, liquidated or unliquidated, whether accrued, direct, contingent,
absolute, determined, determinable or otherwise, and, to the knowledge of the
Company, there is no existing condition, situation or set of circumstances which
could reasonably be expected to result in such a liability, other than:
(a) liabilities incurred in the ordinary course of business
consistent with past practice, which in the aggregate are not material to the
Company;
(b) liabilities disclosed in the Financial Statements; and
(c) liabilities disclosed on the Schedule of Exceptions.
2.6 Authorization. This Agreement and the Ancillary Agreements have
been duly authorized, executed and delivered by the Company and constitute the
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective terms, subject to (i) applicable bankruptcy, insolvency,
reorganization and moratorium laws, (ii) other laws of general application
affecting the enforcement of creditors' rights generally and general principles
of equity, (iii) the discretion of the court before which any proceeding
therefor may be brought, and (iv) as rights to indemnity may be limited by
federal or state securities laws or by public policy.
2.7 Valid Issuance of Existing Preferred and Common Stock.
(a) The outstanding shares of Common Stock are duly and validly
authorized and issued, fully paid, and non-assessable and were issued in
compliance with all applicable Federal and state securities laws.
(b) The outstanding shares of Preferred Stock are duly and validly
authorized and issued, fully paid, and non-assessable and were issued in
compliance with all applicable Federal and state securities laws.
(c) Except as set forth in this Agreement and the Schedule of
Exceptions, no other shares of Common Stock or Preferred Stock have been
reserved for issuance by the Company.
2.8 Changes. Except as noted on the Schedule of Exceptions, since
December 31, 2000 there has not been:
(a) any change in the assets, condition (financial or otherwise),
affairs, earnings, business, operations or any other prospects of the Company
from that reflected in the Company's financial statements, except for changes
which have not been, either individually or in the aggregate, materially
adverse;
(b) any borrowings or other material change in the liabilities or
obligations of the Company, contingent or otherwise, whether due or to become
due, whether by way of guaranty, endorsement, indemnity, warranty, or otherwise,
except current liabilities incurred in the ordinary course of business, none of
which materially and adversely affects the business, prospects, condition,
affairs, properties, or assets of the Company, it being understood, however,
that the Company continues to incur expenses in the ordinary course of business
without offsetting income;
(c) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, operation, or
business of the Company;
(d) any waiver by the Company of a valuable right or of a material
debt owed to it;
(e) any loans made by the Company to its employees, officers, or
directors other than advances of expenses made in the ordinary course of
business;
(f) any declaration or payment of any dividend or other
distribution of the assets of the Company to stockholders or any direct or
indirect redemption, purchase, or acquisition of any securities of the Company
other than repurchases of Common Stock from terminated employees, consultants,
officers, and directors pursuant to written agreements;
(g) to the best of the Company's knowledge, any organized labor
activity involving any of the Company's employees;
(h) to the best of the Company's knowledge, any other event or
condition of any character which has materially and adversely affected the
business, operations, properties, or assets of the Company;
(i) any increase in compensation of any of its existing officers,
or the rate of pay of its employees as a group, except as part of regular
compensation increases in the ordinary course of business;
(j) any resignation or termination of employment of any officer,
director or key employee of the Company;
(k) any capital stock, bonds or other corporate securities issued
by the Company; or
(l) any agreement to do or enter into any of the foregoing.
2.9 Governmental Consents. Other than filings with Federal and state
securities authorities in respect of the sale of the Series C Preferred Stock,
no consent, approval, order, or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state,
local or provincial governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement. The Company and each of its subsidiaries has obtained all
federal, state, local and foreign governmental licenses and permits material to
and necessary in the conduct of its business, such licenses and permits are in
full force and effect, no material violations are or have been recorded in
respect of any such licenses or permits, and no proceeding is pending or
threatened to revoke or limit any thereof. There are no consents or waivers
necessary for the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements.
2.10 Litigation. Except as set forth in the Schedule of Exceptions,
(i) there is no action, suit, proceeding, or investigation pending or currently
threatened against the Company, and (ii) in the Company's reasonable judgment,
none of the disclosures set forth on the Schedule of Exceptions are likely to
question the validity of this Agreement or the Ancillary Agreements, or the
right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs, or property of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, including, without
limitation, actions pending or to the Company's knowledge threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers.
2.11 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws or of any instrument, judgment, order, writ, decree, or contract to which
it is a party or by which it is bound or, to its knowledge, of any provision of
Federal or state statute, rule or regulation, license, or permit applicable to
the Company, the violation or default of which would have a material adverse
effect on the Company. The execution, delivery, and performance of this
Agreement and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree, or material contract or an event which results in the creation of
any lien, charge, or encumbrance upon any assets of the Company.
2.12 Title to Property and Assets. The Company has good and marketable
title to its property and assets free and clear of all mortgages, liens, loans,
and encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets.
2.13 Intellectual Property.
(a) The Schedule of Exceptions sets forth a list of all
Intellectual Property Rights (as hereinafter defined) and all material licenses,
sublicenses and other agreements as to which the Company or any of its
affiliates is a party and pursuant to which any third party is authorized to use
such Intellectual Property Right, including the identity of all parties thereto.
As used herein, the term "Intellectual Property Right" means any trademark,
service mark, trade name, invention, patent, trade secret, copyright, know-how
(including any registrations or applications for registration of any of the
foregoing) or any other similar type of proprietary intellectual property right,
in each case which is used or held for use or otherwise necessary in connection
with the conduct of the business of the Company.
(b) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, tradenames, copyrights, trade secrets,
licenses, information and proprietary rights necessary for its business as now
conducted without any conflict with, or infringement of, the rights of others.
The Company has not received any communication alleging that the Company has
violated or, by conducting its business, would violate any of the patents,
trademarks, service marks, tradenames, copyrights, trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees are obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the interest
of the Company or that would conflict with the Company's business. Neither the
execution or delivery of this Agreement, nor the carrying on of the Company's
business as now conducted by the employees of the Company, will, to the
Company's knowledge, 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 such employee is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company. To the Company's knowledge, its officers and
employees are not making improper use of any confidential information or trade
secrets of others, including those of any former employer.
2.14 Finders' Fees. Except as set forth on the Schedule of Exceptions,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of the Company who might be
entitled to any fee or commission from the Investor, the Company or any of their
respective affiliates upon consummation of the transactions contemplated by this
Agreement.
2.15 Securities Act.
(a) Assuming the accuracy of the representations set forth in
Sections 3.4 and 3.6 hereof, neither the registration of any security under the
Securities Act of 1933, as amended (the "Securities Act") or the securities laws
of any state, is required in connection with the issuance, execution and
delivery of the Series C Preferred Stock in the manner contemplated hereunder.
(b) All outstanding capital stock of the Company has been
offered, issued and sold in compliance with the material requirements of all
Federal and state laws applicable to the offer, issuance and sale of securities.
2.16 Environmental and Safety Laws. To the best of the Company's
knowledge, the Company and each of its subsidiaries is not, and at no time has
been, in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and no material expenditures are
or will be required in order to comply with any such existing statute, law or
regulation. As used herein, "Environmental Laws" means all applicable federal,
state and local laws, rules, regulations, codes, ordinances, judgments, decrees
and the common law governing, regulating or otherwise affecting the environment,
health or safety, including the federal Clean Air Act, the federal Clean Water
Act, the federal Resource Conservation and Recovery Act, the federal
Comprehensive Environmental Response, Compensation and Liability Act, the
federal Toxic Substances Control Act and their state and local counterparts. The
term "Hazardous Materials" means the existence in any form of polychlorinated
biphenyls, asbestos or asbestos containing materials, urea formaldehyde foam
insulation, oil, gasoline, petroleum, petroleum products and petroleum-derived
substances (other than in vehicles operated in the ordinary course of business),
pesticides and herbicides, and any other chemical, material or substance
regulated under any Environmental Laws. The Company has operated all facilities
and properties owned, leased or operated by it in material compliance with the
Environmental Laws; and no Hazardous Materials have been stored, used, disposed
of, treated, released or discharged by the Company in material violation of
Environmental Laws. The Company has not received any notice from any
governmental body claiming any material violation of any Environmental Law, or
requiring any material work, repairs, construction, investigation, alterations,
noise reduction, cleanup or installation, which has not been fully complied
with; and the Company has not received any notice claiming that a release of
Hazardous Material has occurred or exists on, in or under any facility or
property owned, leased or operated currently or in the past by the Company. The
Company does not have in its possession any reports of environmental consultants
relating to the properties of the Company.
2.17 Disclosure. None of this Agreement, the Ancillary Agreements or
any other statements or certificates made or delivered in connection herewith or
therewith, contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements herein or therein not
misleading in light of the circumstances in which they were made.
2.18 No Conflict of Interest. The Company is not indebted, directly or
indirectly, to any of its officers or directors to their respective spouses or
children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. None of the Company's officers or directors, or any
members of their immediate families, are, directly or indirectly, indebted to
the Company (other than in connection with purchases of the Company' s stock)
or, to the Company's knowledge, have any direct or indirect ownership interest
in any firm or corporation with which the Company is affiliated or with which
the Company has a business relationship, or any firm or corporation that
competes with the Company except that officers, directors and/or stockholders of
the Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
To the Company's knowledge, none of the Company's officers or directors or any
members of their immediate families are, directly or indirectly, interested in
any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.19 Confidential Information and Invention Assignment Agreements.
Except as set forth in the Schedule of Exceptions, each employee, consultant and
officer of the Company has executed an agreement with the Company regarding
confidentiality and proprietary information substantially in the form or forms
delivered to the counsel for the Investor. The Company is not aware that any of
its employees or consultants is in violation thereof, and the Company will use
its best efforts to prevent any such violation.
2.20 Employee Benefit Plans. Except as set forth in Schedule
2.20, the Company does not have any Employee Benefit Plan as defined in the
Employee Retirement Income Security Act of 1974.
2.21 Insurance. The Company holds and maintains valid policies
covering such casualties and contingencies and of such types and amounts as is
customary for companies similarly situated.
3. Representations and Warranties of the Investor. Each Investor,
severally and not jointly, hereby represents and warrants to the Company that:
3.1 Organization and Existence. To the extent indicated on the
signature pages hereto, the Investor is either (i) a limited partnership duly
organized and validly existing under the laws of its respective state of
formation, (ii) a limited liability company duly organized and validly existing
under the laws of its respective state of formation, (iii) a corporation duly
organized and validly existing under the laws of its respective state of
incorporation or (iv) an individual. The Investor represents that it was not
organized for the purpose of making an investment in the Company.
3.2 Authorization. The execution, delivery and performance of this
Agreement and any applicable Ancillary Agreements by the Investor and the
consummation by the Investor of the transactions contemplated hereby and thereby
are within the powers of the Investor and have been duly authorized by all
necessary individual, corporate, partnership or limited liability company
action, as appropriate, on the part of the Investor. This Agreement and any
applicable Ancillary Agreements constitute valid and binding agreements of the
Investor, enforceable in accordance with their respective terms, subject to (i)
applicable bankruptcy, insolvency, reorganization and moratorium laws, (ii)
other laws of general application affecting the enforcement of creditors' rights
generally and general principles of equity, (iii) the discretion of the court
before which any proceeding therefor may be brought, and (iv) as rights to
indemnity may be limited by federal or state securities laws or by public
policy. All action required for the lawful execution and delivery of this
Agreement and any applicable Ancillary Agreements has been taken.
3.3 Finders' Fees. Except as set forth on the Schedule of Exceptions,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of the Investor who might be
entitled to any fee or commission from the Company upon consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
3.4 Purchase Entirely for Own Account. The Series C Preferred
Stock to be received by the Investor pursuant to the terms hereof will be
acquired for investment for the Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof.
The Investor has no present intention of selling, granting any participation in,
or otherwise distributing the shares of Series C Preferred Stock acquired by the
Investor. The Investor has no contract, undertaking, agreement or arrangement
with any Person to sell or transfer, or grant any participation to such Person
or to any third Person, with respect to any shares of Series C Preferred Stock
to be acquired by the Investor.
3.5 Investor Address, Access to Information, Experience, Etc.
(a) The address set forth on the signature pages of this
Agreement is the Investor's true and correct business, residence or domicile
address. The Investor has received and read and is familiar with this Agreement.
The Investor has had an opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of this
investment. The Investor has substantial experience in evaluating non-liquid
investments such as the Series C Preferred Stock and is capable of evaluating
the merits and risks of an investment in the Company. The Investor is an
"accredited investor" as that term is defined in Rule 501 of Regulation D
promulgated under the Securities Act.
(b) The Investor has been furnished access to the business
records of the Company and such additional information and documents as the
Investor has requested and has been afforded an opportunity to ask questions of,
and receive answers from, representatives of the Company concerning the terms
and conditions of this Agreement, the purchase of the Series C Preferred Stock,
the business, operations, market potential, capitalization, financial condition
and prospects of the Company, and all other matters deemed relevant to the
Investor.
(c) The Investor acknowledges that it has had an opportunity to
evaluate all information regarding the Company as it has deemed necessary or
desirable in connection with the transactions contemplated by this Agreement,
has independently evaluated the transactions contemplated by this Agreement and
has reached its own decision to enter into this Agreement.
3.6 Restricted Securities. The Investor understands that the shares
of Series C Preferred Stock to be acquired by the Investor and the Common Stock
issuable upon conversion of the shares of Series C Preferred Stock have not been
registered under the Securities Act or the laws of any state and may not be sold
or transferred, or otherwise disposed of, without registration under the
Securities Act and applicable state securities laws, or pursuant to an exemption
therefrom. In the absence of an effective registration statement covering the
shares of Series C Preferred Stock to be acquired by the Investor and the Common
Stock issuable upon conversion of the shares of Series C Preferred Stock, the
Investor will not sell or transfer, or otherwise dispose of, the shares of
Series C Preferred Stock to be acquired by the Investor only in a manner
consistent with its representations and agreements set forth herein, the terms
and conditions set forth in the Ancillary Agreements and any applicable Federal
and state securities laws.
3.7 Legends. It is understood that the certificates evidencing the
shares of Series C Preferred Stock may bear one or all of the following legends:
(a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SECURITIES
EVIDENCED BY THIS CERTIFICATE, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND SUCH APPLICABLE STATE SECURITIES LAWS OR, UNLESS
REASONABLY REQUESTED BY THE COMPANY, THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER
SUCH ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(b) Any legend required by the Blue Sky laws of any state.
The legend referred to in clause (a) above shall be removed by the
Company from any certificate at such time as the holder of the securities
represented by the certificate delivers an opinion of counsel reasonably
satisfactory to the Company to the effect that such legend is not required in
order to establish compliance with any provisions of the Securities Act, or at
such time as the holder of such shares satisfies the requirements of Rule 144(k)
or such other substantially similar rule promulgated under the Securities Act
then in effect under the Securities Act; provided, that the Company has received
from the holder a written representation that (i) such holder is not an
affiliate of the Company and has not been an affiliate during the preceding
three (3) months, (ii) such holder has beneficially owned the shares represented
by the certificate for a period of at least two (2) years (or the period of time
then required by Rule 144(k) or such other substantially similar rule
promulgated under the Securities Act then in effect), and (iii) such holder
otherwise satisfies the requirements of Rule 144(k) as then in effect with
respect to such shares.
3.8 True and correct copies of the Certificate of Incorporation,
as amended, and Bylaws of Network Peripherals Inc. have been provided to the
Company.
4. Conditions of the Investor's Obligations at Closing. The obligations of
the Investor under Sections 1.1 and 1.2(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against the Investor unless the Investor
has consented in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
4.2 Performance. The Company shall have performed and complied with
all agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 Amendment to the Certificate of Incorporation. The Company shall
have filed an amendment to its Certificate of Incorporation which increases the
Company's authorized preferred stock to 30,000,000 and designates 17,626,322
shares of preferred stock as Series C Preferred Stock with such rights,
preferences, privileges and restrictions as specified in the Certificate of
Designations, Preferences and Other Rights and Qualifications of Series C
Convertible Preferred Stock, attached hereto as Exhibit B (the "Series C
Certificate of Designation").
4.4 Compliance Certificate. The President of the Company shall
deliver to the Investor at the Closing a certificate certifying that the
relevant conditions specified in Sections 4.1, 4.2 and 4.3 have been fulfilled.
4.5 Secretary's Certificate. The Secretary of the Company shall
deliver to the Investor at the Closing a certificate certifying: (i) that
attached thereto is a true and complete copy of the Bylaws of the Company as in
effect at the Closing; (ii) that attached thereto is a true and complete copy of
all resolutions adopted by the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby and that such resolutions have not been amended or modified and are in
full force and effect; (iii) that attached thereto is a true and complete copy
of the Company's Certificate of Incorporation, as in effect at the Closing; and
(iv) to the incumbency and specimen signatures of each officer of the Company
executing this Agreement, the Ancillary Agreements and the certificates
contemplated hereby and thereby.
4.6 Share Certificates. The Investor shall have received a
certificate or certificates representing such number of Series C Preferred
Shares of their investment with all such certificates registered in the name of
each such respective Investor.
4.7 Agreements. The Investor shall have received a duly executed
Option Agreement, Amended Stockholders Agreement and Amended Registration Rights
Agreement.
4.8 Legal Opinion. The Investor shall have received the legal opinion
of Olshan Grundman Frome Rosenzweig & Wolosky LLP, counsel to the Company, in
the form attached as Exhibit C hereto.
4.9 Other Documents. The Investor shall have received all documents
they may reasonably request relating to the existence of the Company and its
authority to enter into and perform this Agreement and any applicable Ancillary
Agreements, all in form and substance reasonably satisfactory to Investors.
4.10 Consents and Waivers. The Company shall have obtained any and all
consents and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company under Sections 1.1 and 1.2(c) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective unless the Company has consented in
writing thereto:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
5.2 Performance. The Investor shall have performed and complied with
all agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 Agreements. The Company shall have received a duly executed
Option Agreement, Amended Stockholders Agreement and Amended Registration Rights
Agreement from the Investor.
6. Covenants of the Company. In addition to the covenants set forth in the
Company's Certificate of Incorporation, the Company agrees that, so long as any
shares of Series C Preferred Stock remain outstanding:
6.1 Qualifications. Promptly following the Closing, the Company shall
obtain all necessary Blue Sky law permits and qualifications, or secure
exemptions therefrom, required by any state for the offer and sale of the
Series C Preferred Stock.
6.2 Inspection of Property, Books and Records. The Company will keep
proper books of record and account in which full, true and correct entries shall
be made of all dealings and transactions in relation to its business and
activities and, so long as an Investor holds at least 5% of the total Series C
Preferred Stock issued at Closing (or 5% of the Common Stock issued upon
conversion of the Series C Preferred Stock or a combination of such Common Stock
and Series C Preferred Stock), will permit representatives of any the Investor,
at the Investor's expense, to visit and inspect any of its properties, to
examine and make abstracts from any of its books and records and to discuss its
affairs, finances and accounts with its officers, employees and independent
public accountants, all at such reasonable times and as often as may reasonably
be desired, subject to the execution of a confidentiality agreement acceptable
in form and substance to the Company by such representatives of the Investor,
which the Investor shall make reasonable efforts to obtain.
6.3 Maintenance of Existence. The Company shall at all times (a)
preserve, renew and keep in full force and effect its legal existence and rights
and franchises with respect thereto; and (b) maintain in full force and effect
all permits, licenses, trademarks, trade names, approvals, authorizations,
leases and contracts necessary to carry on the business as presently or proposed
to be conducted.
6.4 Payment of Obligations. The Company shall pay and discharge at or
before maturity, all of its material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings or as waived, forgiven or modified by the
creditor, and will maintain, in accordance with generally accepted accounting
principles as they then exist, appropriate reserves for the accrual of any of
the same.
6.5 Financial Statements. The Company shall furnish or cause to be
furnished to the Investor:
(a) as soon as reasonably possible, and in any event within 90
days after the end of each fiscal year of the Company, the audited consolidated
balance sheet of the Company as at the end of such fiscal year, and audited
consolidated statements of operations and retained earnings and cash flow of the
Company for such fiscal year, all in reasonable detail, and prepared in
accordance with GAAP, and accompanied by the report thereon of a nationally or
regionally recognized independent certified public accountant firm reasonably
satisfactory to the holders of a majority of the Series C Preferred Stock then
outstanding (provided that any Big Five firm shall be deemed satisfactory);
(b) as soon as reasonably possible, and in any event within 45
days after the end of each month, the unaudited consolidated balance sheet and
statements of operations and retained earnings and cash flow of the Company for
such month, all in reasonable detail, prepared in accordance with GAAP, and
certified to be complete and correct in all material respects (subject to
year-end adjustments) by the President or Chief Financial Officer of the
Company;
(c) so long as an Investor holds at least 5% of the total Series
C Preferred Stock issued at Closing (or 5% of the Common Stock issued upon
conversion of the Series C Preferred Stock or a combination of such Common Stock
and Series C Preferred Stock), as soon as reasonably possible, provide the
Investor with budgets and monthly financial statements, all in reasonable
detail; provided, however, that this obligation shall terminate if the Company
consummates a public offering of its Common Stock or has any class of securities
registered under Section 12 of the Securities Exchange Act of 1934, as amended;
and
(d) such other information regarding the business, affairs and
condition of the Company that would have a material bearing on the Company's
business, results of operations or financial condition and such other
information as any Investor may from time to time reasonably request.
6.6 Reservation of Shares. The Company shall at all times duly
reserve for issuance the shares of Common Stock issuable upon conversion or
exercise of the Series C Preferred Stock. The Company shall comply with the
terms and conditions of the Series C Preferred Stock as set forth in the
Company's Certificate of Incorporation including the Series C Certificate of
Designations.
6.7 Use of Proceeds. The Company shall use the proceeds received from
the sale and issuance of the Series C Preferred Stock for working capital,
capital expenditures, product development, marketing and sales and other
operating expenses of the Company and its subsidiaries.
6.8 Board of Directors. Immediately after the Initial Closing, Glenn
Penisten will be appointed to the Board of Directors of the Company as the
Series C Preferred Stock designated director.
7. Indemnity. The Company shall, with respect to the representations,
warranties, covenants and agreements made by the Company herein indemnify,
defend and hold the Investor (and their respective shareholders, directors,
officers, employees, partners, agents, affiliates and controlling parties)
(each, an "Indemnified Party") harmless from and against all liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including legal and accounting fees and expenses), arising from the untruth,
inaccuracy or breach of any such representations, warranties, covenants or
agreements of the Company contained in this Agreement or the assertion of any
claims relating to the foregoing. Without limiting the generality of the
foregoing, each Indemnified Party shall be deemed to have suffered liability,
loss or damage as a result of the untruth, inaccuracy or breach of any such
representations, warranties, covenants or agreements if such liability, loss or
damage shall be suffered by the Indemnified Party as a result of, or in
connection with, such untruth, inaccuracy or breach or any facts or
circumstances constituting such untruth, inaccuracy or breach. The Company shall
indemnify and hold harmless each Indemnified Party against any losses, claims,
damages or liabilities, joint or several, to which any of the foregoing persons
may become subject, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any violations by the
Company of the Securities Act or state securities or "blue sky" laws applicable
to the Company relating to action or inaction required of the Company in
connection with the Securities Act or registration or qualification under such
state securities or blue sky laws; and shall reimburse each such Indemnified
Party for any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that no indemnification shall be
required hereunder for the negligence or willful misconduct of any Indemnified
Party or breach by the Investor of any of the representations and warrants set
forth in Section 3 hereof. In case any such action is brought against an
Indemnified Party, the Company will be entitled to participate in and assume the
defense thereof with counsel reasonably satisfactory to such Indemnified Party,
and after notice from the Company to such Indemnified Party of its election to
assume the defense thereof, the Company shall be responsible for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, provided that if any Indemnified Party shall have reasonably
concluded that there may be one or more legal defenses available to such
Indemnified Party that conflict in any material respect with those available to
the Company, or that such claims or litigation involves or could have an effect
upon matters beyond the scope of the indemnity provided by this Section 7, the
Company shall reimburse such Indemnified Party and shall not have the right to
assume the defense of such action on behalf of such Indemnified party and the
Company shall reimburse each such Indemnified Party and any person controlling
such Indemnified Party for that portion of the reasonable fees and expenses of
any counsel retained by the Indemnified Party. The Company shall not make any
settlement of any claims indemnified against hereunder without the written
consent of the Indemnified Party or Parties, which consent shall not be
unreasonably withheld. Any claim for indemnification under this Section 7 with
respect to representations and warranties must be made not later than the end of
the 24-month survival period set forth in Section 8.1.
8. Miscellaneous.
8.1 Survival of Warranties. The warranties, representations, and
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing for a period of 24 months and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the Investor
or the Company.
8.2 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that the Company may not assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the consent of Investors holding majority of the shares of Series C Preferred
Stock then outstanding. Except as provided under Section 7, neither this
Agreement nor any provision hereof is intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder.
8.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware, without regard to principles of
conflicts of laws and rules of such state.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts and by facsimile, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
8.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified, (ii)
four (4) days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid, or (iii) one day after deposit with a reputable
overnight courier service and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties, with a copy for the Company to 125 Baylis Road, Melville, NY
11747, Att: Mr. ReiJane Huai, President.
8.7 Entire Agreement; Amendments and Waivers. This Agreement
constitutes the full and entire understanding and agreement among the parties
with regard to the subjects hereof. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and Investors that represent in the
aggregate at least a majority of the outstanding shares of Series C Preferred
Stock (provided that no such amendment shall unfairly discriminate against a
particular Investor relative to the other Investors). Any amendment or waiver
effected in accordance with this Section 8.7 shall be binding upon each holder
of any securities purchased under this Agreement at the time outstanding, each
future holder of all such securities, and the Company.
8.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision was so excluded and shall be enforceable in accordance with its
terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase Agreement as of the day and year first above written.
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
FALCONSTOR, INC.
By: /s/ ReiJane Huai
---------------------------------
Name: ReiJane Huai
Title: President and Chief Executive Officer
NETWORK PERIPHERALS INC.
By: /s/ James Regel
----------------------------------------
Name: James Regel
Title: President and Chief Executive Officer
SCHEDULE A
As of April 11, 2001, there were no additional investors.