Exhibit 10.1
NOTE AND WARRANT PURCHASE
AGREEMENT
DATED AS OF MARCH 31, 2006
BY AND AMONG
GLOWPOINT, INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Notes and Warrants..........................................1
Section 1.1 Purchase and Sale of Notes and Warrants.................................1
Section 1.2 Purchase Price and Closing..............................................1
Section 1.3 Conversion Shares / Warrant Shares......................................2
ARTICLE II Representations and Warranties...................................................2
Section 2.1 Representations and Warranties of the Company...........................2
Section 2.2 Representations and Warranties of the Purchasers.......................12
ARTICLE III Covenants.......................................................................14
Section 3.1 Securities Compliance..................................................15
Section 3.2 Registration and Listing...............................................15
Section 3.3 Inspection Rights......................................................15
Section 3.4 Compliance with Laws...................................................16
Section 3.5 Keeping of Records and Books of Account................................15
Section 3.6 Reporting Requirements.................................................16
Section 3.7 Other Agreements.......................................................16
Section 3.8 Use of Proceeds........................................................16
Section 3.9 Reporting Status.......................................................16
Section 3.10 Disclosure of Transaction..............................................17
Section 3.11 Disclosure of Material Information.....................................17
Section 3.12 Pledge of Securities...................................................17
Section 3.13 Amendments.............................................................17
Section 3.14 Distributions..........................................................17
Section 3.15 Reservation of Shares..................................................18
Section 3.16 Transfer Agent Instructions............................................18
Section 3.17 Disposition of Assets..................................................18
Section 3.18 Restrictions on Certain Issuances of Securities........................19
Section 3.19 Subsequent Financings..................................................19
ARTICLE IV Conditions......................................................................20
Section 4.1 Conditions Precedent to the Obligation of the Company
to Close and to Sell the Securities ...................................20
Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Close and to Purchase the Securities ...............................20
ARTICLE V Certificate Legend..............................................................22
Section 5.1 Legend.................................................................24
ARTICLE VI Indemnification.................................................................23
Section 6.1 General Indemnity......................................................23
Section 6.2 Indemnification Procedure..............................................24
ARTICLE VII Miscellaneous...................................................................25
Section 7.1 Fees and Expenses......................................................25
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue...................25
TABLE OF CONTENTS
(continued)
Page
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Section 7.3 Entire Agreement; Amendment............................................25
Section 7.4 Notices................................................................26
Section 7.5 Waivers................................................................27
Section 7.6 Headings...............................................................27
Section 7.7 Successors and Assigns.................................................27
Section 7.8 No Third Party Beneficiaries...........................................27
Section 7.9 Governing Law..........................................................27
Section 7.10 Survival...............................................................27
Section 7.11 Counterparts...........................................................27
Section 7.12 Publicity..............................................................28
Section 7.13 Severability...........................................................28
Section 7.14 Further Assurances.....................................................28
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT dated as of March 31, 2006
(this "Agreement") by and among Glowpoint, Inc., a Delaware corporation (the
"Company"), and each of the purchasers of the senior secured convertible
promissory notes of the Company whose names are set forth on Exhibit A attached
hereto (each a "Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1 Purchase and Sale of Notes and Warrants.
(a) Upon the following terms and conditions, the Company shall
issue and sell to the Purchasers, and the Purchasers shall purchase from the
Company, (i) senior secured convertible promissory notes in the aggregate
principal amount of Five Million Six Hundred Sixty-Five Thousand Dollars
($5,665,000), convertible into shares of the Company's common stock, par value
$.0001 per share (the "Common Stock"), in substantially the form attached hereto
as Exhibit B (the "Notes"). The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Section 4(2) of the U.S. Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act"), including Regulation D ("Regulation D"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
(b) Upon the following terms and conditions, each Purchaser shall
be issued (i) Series A Warrants, in substantially the form attached hereto as
Exhibit C-1 (the "Series A Warrants"), to purchase a number of shares of Common
Stock equal to fifty percent (50%) of the number of Conversion Shares issuable
upon conversion of such Purchaser's Note at an exercise price per share equal to
$0.65 and a term of five (5) years following issuance and (ii) Series B
Warrants, in substantially the form attached hereto as Exhibit C-2 (the "Series
B Warrants" and together with the Series A Warrants, the "Warrants"), to
purchase, in accordance with the terms thereof, a number of shares of Common
Stock equal to fifty percent (50%) of the number of Conversion Shares issuable
upon conversion of such Purchaser's Note at an exercise price per share equal to
$0.01 and a term of five (5) years following issuance. The number of shares of
Common Stock issuable upon exercise of the Warrants issuable to each Purchaser
is set forth opposite such Purchaser's name on Exhibit A attached hereto.
Section 1.2 Purchase Price and Closing. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the Purchasers and,
in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase the Notes and Warrants
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for an aggregate purchase price of Five Million Six Hundred Sixty-Five Thousand
Dollars ($5,665,000) (the "Purchase Price"). The closing of the purchase and
sale of the Notes and Warrants to be acquired by the Purchasers from the Company
under this Agreement shall take place at the offices of Kramer Levin Naftalis &
Frankel LLP, 1177 Avenue of the Americas, New York, New York 10036 (the
"Closing") at 10:00 a.m., New York time on March 31, 2006 or such other date as
the Purchasers and the Company may agree upon (the "Closing Date"); provided,
that all of the conditions set forth in Article IV hereof and applicable to the
Closing shall have been fulfilled or waived in accordance herewith. Subject to
the terms and conditions of this Agreement, at the Closing the Company shall
deliver or cause to be delivered to each Purchaser (x) its Notes for the
principal amount set forth opposite the name of such Purchaser on Exhibit A
hereto and (y) a Series A Warrant and Series B Warrant to purchase such number
of shares of Common Stock as is set forth opposite the name of such Purchaser on
Exhibit A attached hereto. At the Closing, each Purchaser shall deliver its
Purchase Price by wire transfer to an account designated by the Company.
Section 1.3 Conversion Shares / Warrant Shares. The Company has
authorized and has reserved and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, a number
of its authorized but unissued shares of Common Stock equal to one hundred
twenty percent (120%) of the aggregate number of shares of Common Stock to
effect the conversion of the Notes and any interest accrued and outstanding
thereon and exercise of the Warrants as of the Closing Date. Any shares of
Common Stock issuable upon conversion of the Notes and any interest accrued and
outstanding on the Notes are herein referred to as the "Conversion Shares". Any
shares of Common Stock issuable upon exercise of the Warrants (and such shares
when issued) are herein referred to as the "Warrant Shares". The Notes, the
Warrants, the Conversion Shares and the Warrant Shares are sometimes
collectively referred to herein as the "Securities".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchasers, as of the date hereof
and the Closing Date (except as set forth on the Schedule of Exceptions attached
hereto with each numbered Schedule corresponding to the section number herein),
as follows:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity except as set
forth on Schedule 2.1(g) hereto. The Company and each such Subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement, "Material
Adverse Effect" means
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any material adverse effect on the business, operations, properties, prospects,
or financial condition of the Company and its Subsidiaries, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to perform any of
its obligations under this Agreement in any material respect; provided, however,
that the foregoing shall not include operating losses in the amounts
contemplated by the Commission Documents (as defined in Section 2.1(f) hereof).
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Notes, the Warrants, the Registration Rights Agreement by and among the Company
and the Purchasers, dated as of the date hereof, substantially in the form of
Exhibit D attached hereto (the "Registration Rights Agreement"), the Security
Agreement by and among the Company, on the one hand, and the Purchasers, on the
other hand, dated as of the date hereof, substantially in the form of Exhibit E
attached hereto (the "Security Agreement"), the Escrow Agreement by and among
the Company, the Purchasers and the escrow agent, dated as of the date hereof,
substantially in the form of Exhibit F attached hereto (the "Escrow Agreement"),
and the Irrevocable Transfer Agent Instructions (as defined in Section 3.16
hereof) (collectively, the "Transaction Documents") and to issue and sell the
Securities in accordance with the terms hereof. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company, its Board of Directors or stockholders is
required. When executed and delivered by the Company, each of the Transaction
Documents shall constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor's rights and remedies or
by other equitable principles of general application.
(c) Capitalization. The authorized capital stock and the issued
and outstanding shares of capital stock of the Company as of the date hereof is
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Common
Stock and any other outstanding security of the Company have been duly and
validly authorized. Except as set forth in this Agreement or as set forth on
Schedule 2.1(c) hereto, no shares of Common Stock or any other security of the
Company are entitled to preemptive rights or registration rights and there are
no outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and as set forth on Schedule 2.1(c)
hereto, there are no contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. Except for customary transfer
restrictions contained in agreements entered into by the Company in order to
sell restricted securities or as provided on Schedule 2.1(c) hereto, the Company
is not a party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. Except as set forth on Schedule 2.1(c) hereto, the
Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company.
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(d) Issuance of Securities. The Notes and the Warrants to be
issued at the Closing have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms hereof, the
Notes shall be validly issued and outstanding, free and clear of all liens,
encumbrances and rights of refusal of any kind. When the Conversion Shares and
Warrant Shares are issued and paid for in accordance with the terms of this
Agreement and as set forth in the Notes and Warrants, such shares will be duly
authorized by all necessary corporate action and validly issued and outstanding,
fully paid and nonassessable, free and clear of all liens, encumbrances and
rights of refusal of any kind and the holders shall be entitled to all rights
accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Notes and the consummation by the Company of the
transactions contemplated hereby and thereby, and the issuance of the Securities
as contemplated hereby, do not and will not (i) violate or conflict with any
provision of the Company's Certificate of Incorporation (the "Certificate") or
Bylaws (the "Bylaws"), each as amended to date, or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries are bound or
affected, except, in all cases, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect (other than
violations pursuant to clauses (i) or (iii) (with respect to federal and state
securities laws)). Neither the Company nor any of its Subsidiaries is required
under federal, state, foreign or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or issue and sell the
Securities in accordance with the terms hereof (other than any filings, consents
and approvals which may be required to be made by the Company under applicable
state and federal securities laws, rules or regulations or any registration
provisions provided in the Registration Rights Agreement).
(f) Commission Documents, Financial Statements. The Common Stock
of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and except as
set forth on Schedule 2.1(f) hereto, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Commission pursuant to the reporting requirements of the Exchange Act (all
of the foregoing including filings incorporated by reference therein being
referred to herein as the "Commission Documents"). Except as set forth on
Schedule 2.1(f) hereto, at the times of their respective filings, the Form 10-K
for the fiscal year ended December 31, 2004 (the "Form 10-K") and each
subsequently filed Form 10-Q (collectively, the "Form 10-Q") complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder and other federal, state
and local laws, rules and
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regulations applicable to such documents, and the Form 10-Q and Form 10-K did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except as set forth on Schedule 2.1(f) hereto, as of their
respective dates, the financial statements of the Company included in the
Commission Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis 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 financial
position of the Company and its Subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each
Subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such Subsidiary. For the purposes of
this Agreement, "Subsidiary" shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
(h) No Material Adverse Change. Except as set forth in the
Commission Documents or on Schedule 2.1(h) hereto, since December 31, 2004, the
Company has not experienced or suffered any Material Adverse Effect.
(i) No Undisclosed Liabilities. Except as set forth in the
Commission Documents, neither the Company nor any of its Subsidiaries has
incurred any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
other than those incurred in the ordinary course of the Company's or its
Subsidiaries respective businesses or which, individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect.
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(j) No Undisclosed Events or Circumstances. Since December 31,
2004, no event or circumstance has occurred or exists with respect to the
Company or its Subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, 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.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $100,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP. Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has
good and valid title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those that, individually or
in the aggregate, do not cause a Material Adverse Effect. Any leases of the
Company and each of its Subsidiaries are valid and subsisting and in full force
and effect.
(m) Actions Pending. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or any of the transactions contemplated
hereby or thereby or any action taken or to be taken pursuant hereto or thereto.
There is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or other proceeding pending or, to the knowledge of the
Company, threatened against or involving the Company, any Subsidiary or any of
their respective properties or assets, which individually or in the aggregate,
would reasonably be expected, if adversely determined, to have a Material
Adverse Effect. There are no outstanding orders, judgments, injunctions, awards
or decrees of any court, arbitrator or governmental or regulatory body against
the Company or any Subsidiary or any officers or directors of the Company or
Subsidiary in their capacities as such, which individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except for any noncompliance therewith that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
The Company and each of its Subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it except to
the extent that the failure to possess such franchises, permits, licenses,
consents and other governmental or regulatory
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authorizations and approvals, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each of the Subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the Subsidiaries
for all current taxes and other charges to which the Company or any Subsidiary
is subject and which are not currently due and payable. None of the federal
income tax returns of the Company or any Subsidiary have been audited by the
Internal Revenue Service. The Except as set forth on Schedule 2.1(o) hereto, the
Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any Subsidiary for any
period, nor of any basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto,
the Company has not employed any broker or finder or incurred any liability for
any brokerage or investment banking fees, commissions, finders' structuring
fees, financial advisory fees or other similar fees in connection with the
Transaction Documents.
(q) Disclosure. Except for the transactions contemplated by this
Agreement, the Company confirms that neither it nor any other person acting on
its behalf has provided any of the Purchasers or their agents or counsel with
any information that constitutes or might constitute material, nonpublic
information. To the best of the Company's knowledge, neither this Agreement or
the Schedules hereto nor any other documents, certificates or instruments
furnished to the Purchasers by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by this Agreement contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made herein or therein, in the light of the
circumstances under which they were made herein or therein, not misleading.
(r) Operation of Business. The Company and each of the
Subsidiaries owns or possesses the rights to all patents, trademarks, domain
names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property
rights relating thereto, service marks, trade names, copyrights, licenses and
authorizations which are necessary for the conduct of its business as now
conducted without any conflict with the rights of others.
(s) Environmental Compliance. To the best knowledge of the
Company, the Company and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws. "Environmental
Laws" shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. To the best of
the Company's knowledge, the Company has all necessary governmental approvals
required under all Environmental Laws as necessary for the Company's business or
the business of any of its subsidiaries. To the best of the Company's knowledge,
the Company and each of its subsidiaries are also in compliance with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws. Except for such
instances as would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect, there are no past or present events,
conditions, circumstances, incidents, actions or omissions relating to or in any
way affecting the Company or its Subsidiaries that violate or may reasonably be
expected to violate any Environmental Law after the Closing Date or that may
give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use,
7
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance.
(t) Books and Records; Internal Accounting Controls. The records
and documents of the Company and its Subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
the Subsidiaries, the location and collection of their assets, and the nature of
all transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. Except as set forth in the Commission Documents, the
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient, in the judgment of the Company's management, to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions are taken with respect to any differences.
(u) Material Agreements. Except as set forth on Schedule 2.1(u)
hereto and except for the Transaction Documents (with respect to clause (i) of
this Section 2.1(u) only) or as would not be reasonably likely to have a
Material Adverse Effect, (i) the Company and each of its Subsidiaries have
performed all obligations required to be performed by them to date under any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the Commission (the "Material
Agreements"), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the best of the
Company's knowledge, neither the Company nor any of its Subsidiaries is in
default under any Material Agreement now in effect.
(v) Transactions with Affiliates. There are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any Subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or
8
director of the Company, or any of its Subsidiaries, or any person owning at
least 5% of the outstanding capital stock of the Company or any Subsidiary or
any member of the immediate family of such officer, employee, consultant,
director or stockholder or any corporation or other entity controlled by such
officer, employee, consultant, director or stockholder, or a member of the
immediate family of such officer, employee, consultant, director or stockholder
which, in each case, is required to be disclosed in the Commission Documents or
in the Company's most recently filed definitive proxy statement on Schedule 14A,
that is not so disclosed in the Commission Documents or in such proxy statement.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Securities hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any negotiations
relating thereto with, any person, or has taken or will take any action so as to
bring the issuance and sale of any of the Securities under the registration
provisions of the Securities Act and applicable state securities laws, and
neither the Company nor any of its affiliates, nor any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Securities.
(x) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
Neither the Company nor any Subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such Subsidiary required
to be disclosed in the Commission Documents that is not so disclosed. Except as
set forth on Schedule 2.1(x) hereto, no officer, consultant or key employee of
the Company or any Subsidiary whose termination, either individually or in the
aggregate, would be reasonably likely to have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
Subsidiary.
(y) Absence of Certain Developments. Except as set forth in the
Commission Documents or on Schedule 2.1(y) hereto, since December 31, 2004,
neither the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities
or any right, options or warrants with respect thereto;
(ii) borrowed any amount in excess of $100,000 or incurred
or become subject to any other liabilities in excess of $100,000 (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of its
prior fiscal year, as adjusted to reflect the current nature and volume of the
business of the Company and its Subsidiaries;
9
(iii) discharged or satisfied any lien or encumbrance in
excess of $100,000 or paid any obligation or liability (absolute or contingent)
in excess of $100,000, other than current liabilities paid in the ordinary
course of business;
(iv) declared or made any payment or distribution of cash
or other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock, in each case in excess of $50,000 individually or $100,000 in the
aggregate;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, in each case in excess of $100,000,
except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights in excess of $100,000, or disclosed any proprietary
confidential information to any person except to customers in the ordinary
course of business or to the Purchasers or their representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $100,000; (x) entered into any material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$10,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
(z) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not,
10
and as a result of and immediately upon the Closing will not be, an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
(aa) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its Subsidiaries which is or would be materially adverse to the Company and its
Subsidiaries. The execution and delivery of this Agreement and the issuance and
sale of the Securities will not involve any transaction which is subject to the
prohibitions of Section 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or in connection with which a tax could be imposed
pursuant to Section 4975 of the Internal Revenue Code of 1986, as amended,
provided that, if any of the Purchasers, or any person or entity that owns a
beneficial interest in any of the Purchasers, is an "employee pension benefit
plan" (within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a "party in interest" (within the meaning of Section 3(14) of ERISA),
the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are
met. As used in this Section 2.1(aa), the term "Plan" shall mean an "employee
pension benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any Subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any Subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(bb) Independent Nature of Purchasers. The Company acknowledges
that the obligations of each Purchaser under the Transaction Documents are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under the Transaction Documents. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that for reasons of administrative convenience only, the Transaction Documents
have been prepared by counsel for one of the Purchasers and such counsel does
not represent all of the Purchasers but only such Purchaser and the other
Purchasers have retained their own individual counsel with respect to the
transactions contemplated hereby. The Company acknowledges that it has elected
to provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do so
by the Purchasers. The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Purchasers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated hereby or thereby.
(cc) 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 cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Regulation D and Rule 506 thereof under
the Securities Act, or any
11
applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings. The Company does not have any registration statement pending before
the Commission or currently under the Commission's review and since September 1,
2005, the Company has not offered or sold any of its equity securities or debt
securities convertible into shares of Common Stock.
(dd) Sarbanes-Oxley Act. Except as set forth on Schedule 2.1(dd)
hereto, the Company is in compliance with the applicable provisions of the
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), and the rules and
regulations promulgated thereunder, that are effective and intends to comply
with other applicable provisions of the Sarbanes-Oxley Act, and the rules and
regulations promulgated thereunder, upon the effectiveness of such provisions.
(ee) Dilutive Effect. The Company understands and acknowledges that
its obligation to issue Conversion Shares upon conversion of the Notes in
accordance with this Agreement and the Notes and its obligations to issue the
Warrant Shares upon the exercise of the Warrants in accordance with this
Agreement and the Warrants, is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
(ff) DTC Status. The Company's transfer agent is a participant in
and the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company's transfer
agent is set forth on Schedule 2.1(ff) hereto.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby represents and warrants to the Company with respect solely
to itself and not with respect to any other Purchaser as follows as of the date
hereof and as of the Closing Date:
(a) Organization and Standing of the Purchasers. If the Purchaser
is an entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Each Purchaser has the requisite
power and authority to enter into and perform the Transaction Documents and to
purchase the Securities being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by each Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. When executed and delivered by the
Purchasers, the other Transaction Documents shall constitute valid and binding
obligations of each Purchaser enforceable against such Purchaser in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
12
(c) No Conflict. The execution, delivery and performance of the
Transaction Documents by the Purchaser and the consummation by the Purchaser of
the transactions contemplated thereby and hereby do not and will not (i) violate
any provision of the Purchaser's charter or organizational documents, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Purchaser is a party or by which the
Purchaser's respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Purchaser or by which any property or asset of
the Purchaser are bound or affected, except, in all cases, other than violations
pursuant to clauses (i) or (iii) (with respect to federal and state securities
laws) above, except, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in the
aggregate, materially and adversely affect the Purchaser's ability to perform
its obligations under the Transaction Documents.
(d) Acquisition for Investment. Each Purchaser is purchasing the
Securities solely for its own account and not with a view to or for sale in
connection with distribution. Each Purchaser does not have a present intention
to sell any of the Securities, nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of any of the Securities to or
through any person or entity; provided, however, that by making the
representations herein, such Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with Federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it (i) has such
knowledge and experience in financial and business matters such that Purchaser
is capable of evaluating the merits and risks of Purchaser's investment in the
Company, (ii) is able to bear the financial risks associated with an investment
in the Securities and (iii) has been given full access to such records of the
Company and the Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation.
(e) Rule 144. Each Purchaser understands that the Securities must
be held indefinitely unless such Securities are registered under the Securities
Act or an exemption from registration is available. Each Purchaser acknowledges
that such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Each Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. Each Purchaser understands that the Securities are
being offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of
13
such Purchaser to acquire the Securities. Each Purchaser understands that no
United States federal or state agency or any government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
(g) No General Solicitation. Each Purchaser has received and
reviewed a copy of the Confidential Offering Memorandum dated March 31, 2006.
Each Purchaser acknowledges that the Securities were not offered to such
Purchaser by means of any form of general or public solicitation or general
advertising, or publicly disseminated advertisements or sales literature,
including (i) any advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media, or broadcast over
television or radio, or (ii) any seminar or meeting to which such Purchaser was
invited by any of the foregoing means of communications. Each Purchaser, in
making the decision to purchase the Securities, has relied upon independent
investigation made by it and has not relied on any information or
representations made by third parties.
(h) Accredited Investor. Each Purchaser is an "accredited
investor" (as defined in Rule 501 of Regulation D), and such Purchaser has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Securities. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the Exchange
Act and such Purchaser is not a broker-dealer. Each Purchaser acknowledges that
an investment in the Securities is speculative and involves a high degree of
risk.
(i) Certain Fees. The Purchasers have not employed any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
(j) Independent Investment. Except as may be disclosed in any
filings by a Purchaser with the Commission, no Purchaser has agreed to act with
any other Purchaser for the purpose of acquiring, holding, voting or disposing
of the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Securities. The decision of each Purchaser to purchase
Securities pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its Subsidiaries which may have
been made or given by any other Purchaser or by any agent or employee of any
other Purchaser, and no Purchaser or any of its agents or employees shall have
any liability to any Purchaser (or any other person) relating to or arising from
any such information, materials, statements or opinions.
ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees.
14
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.
Section 3.2 Registration and Listing. The Company shall cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, to comply in all respects with its reporting and filing
obligations under the Exchange Act, to comply with all requirements related to
any registration statement filed pursuant to this Agreement, and to not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. Upon the Company becoming
eligible to quote its Common Stock on the OTC Bulletin Board, the Company will
take all action necessary once its Common Stock is eligible for quotation on the
OTC Bulletin Board to continue the listing or trading of its Common Stock on the
OTC Bulletin Board or other exchange or market on which the Common Stock is
trading. Subject to the terms of the Transaction Documents, the Company further
covenants that it will take such further action as the Purchasers may reasonably
request, all to the extent required from time to time to enable the Purchasers
to sell the Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act. Upon the request of the Purchasers, the Company shall deliver to
the Purchasers a written certification of a duly authorized officer as to
whether it has complied with such requirements.
Section 3.3 Inspection Rights. Provided same would not be in
violation of Regulation FD, the Company shall permit, during normal business
hours and upon reasonable request and reasonable notice, each Purchaser or any
employees, agents or representatives thereof, so long as such Purchaser shall be
obligated hereunder to purchase the Notes or shall beneficially own any
Conversion Shares or Warrant Shares, for purposes reasonably related to such
Purchaser's interests as a stockholder, to examine the publicly available,
non-confidential records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any Subsidiary,
and to discuss the publicly available, non-confidential affairs, finances and
accounts of the Company and any Subsidiary with any of its officers,
consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which would be reasonably likely to have a Material
Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company
shall keep and cause each Subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
15
Section 3.6 Reporting Requirements. If the Commission ceases making
the Company's periodic reports available via the Internet without charge, then
the Company shall furnish the following to each Purchaser so long as such
Purchaser shall be obligated hereunder to purchase the Securities or shall
beneficially own Securities:
(a) Quarterly Reports filed with the Commission on Form 10-Q as
soon as practical after the document is filed with the Commission, and in any
event within five (5) days after the document is filed with the Commission;
(b) Annual Reports filed with the Commission on Form 10-K or Form
10-KSB as soon as practical after the document is filed with the Commission, and
in any event within five (5) days after the document is filed with the
Commission; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings, that are, in each case, provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
Section 3.8 Use of Proceeds. The net proceeds from the sale of the
Securities hereunder shall be used by the Company for working capital and
general corporate purposes and to fund its 2006 restructuring plan and not to
redeem any Common Stock or securities convertible, exercisable or exchangeable
into Common Stock or to settle any outstanding litigation.
Section 3.9 Reporting Status. Except as set forth on Schedule 2.1(f)
hereto, so long as a Purchaser beneficially owns any of the Securities, the
Company shall timely file all reports required to be filed with the Commission
pursuant to the Exchange Act, and the Company shall not terminate its status as
an issuer required to file reports under the Exchange Act even if the Exchange
Act or the rules and regulations thereunder would permit such termination.
Section 3.10 Disclosure of Transaction. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the "Press Release") on the day of the Closing but in no event later
than one hour after the Closing; provided, however, that if the Closing occurs
after 4:00 P.M. Eastern Time on any Trading Day, the Company shall issue the
Press Release no later than 9:00 A.M. Eastern Time on the first Trading Day
following the Closing Date. The Company shall also file with the Commission a
Current Report on Form 8-K (the "Form 8-K") describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, the form of Note, the Registration Rights Agreement, the Security
Agreement, the form of each series of Warrant and the Press Release) as soon as
practicable following the Closing Date but in no event more than two (2) Trading
Days following the Closing Date, which Press Release and Form 8-K shall be
16
subject to prior review and comment by the Purchasers. "Trading Day" means any
day during which The New York Stock Exchange shall be open for business.
Section 3.11 Disclosure of Material Information. The Company covenants
and agrees that neither it nor any other person acting on its behalf has
provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
Section 3.12 Pledge of Securities. The Company acknowledges that the
Securities may be pledged by a Purchaser in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Purchaser effecting a pledge
of the Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document; provided that a Purchaser and its pledgee
shall be required to comply with the provisions of Article V hereof in order to
effect a sale, transfer or assignment of Securities to such pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Purchaser.
Section 3.13 Amendments. The Company shall not amend or waive any
provision of the Certificate or Bylaws of the Company in any way that would
adversely affect exercise rights, voting rights, conversion rights, prepayment
rights or redemption rights of the holder of the Notes.
Section 3.14 Distributions. So long as any Notes or Warrants remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.15 Reservation of Shares. So long as any of the Notes or
Warrants remain outstanding, the Company shall take all action necessary to at
all times have authorized and reserved for the purpose of issuance, one hundred
twenty percent (120%) of the aggregate number of shares of Common Stock needed
to provide for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.16 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit G
attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants
17
that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 3.16 will be given by the Company to its transfer
agent and that the Conversion Shares and Warrant Shares 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 3.16 shall affect in any way each Purchaser's obligations and
agreements set forth in Section 5.1 to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Conversion Shares and the
Warrant Shares. If a Purchaser provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Conversion Shares or Warrant Shares may be made without
registration under the Securities Act or the Purchaser provides the Company with
reasonable assurances that the Conversion Shares or Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold, the Company
shall permit the transfer, and, in the case of the Conversion Shares and the
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.16 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.16 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.16, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
Section 3.17 Disposition of Assets. So long as the Notes remain
outstanding, neither the Company nor any subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without
limitation, its software and intellectual property, to any person except for
sales of obsolete assets and sales to customers in the ordinary course of
business or with the prior written consent of the holders of a majority of the
principal amount of the Notes then outstanding.
Section 3.18 Restrictions on Certain Issuances of Securities. The
Company shall not issue any securities that rank pari passu or senior to the
Notes without the prior written consent of at least seventy-five percent (75%)
of the principal amount of the Notes outstanding at such time.
Section 3.19 Subsequent Financings.
(a) For a period of one year following the Closing Date, the
Company covenants and agrees to promptly notify (in no event later than five (5)
days after making or receiving an applicable offer) in writing (a "Rights
Notice") the Purchasers of the terms and conditions of any proposed offer or
sale to, or exchange with (or other type of distribution to) any third party (a
"Subsequent Financing"), of Common Stock or any securities convertible,
exercisable or exchangeable into Common Stock, including convertible debt
securities (collectively, the "Financing Securities"). The Rights Notice shall
describe, in reasonable detail, the proposed Subsequent Financing, the names and
investment amounts of all investors
18
participating in the Subsequent Financing, the proposed closing date of the
Subsequent Financing, which shall be within twenty (20) calendar days from the
date of the Rights Notice, and all of the terms and conditions thereof and
proposed definitive documentation to be entered into in connection therewith.
The Rights Notice shall provide each Purchaser an option (the "Rights Option")
during the five (5) Trading Days following delivery of the Rights Notice (the
"Option Period") to inform the Company whether such Purchaser will purchase up
to its pro rata portion of all or a portion of the securities being offered in
such Subsequent Financing on the same, absolute terms and conditions as
contemplated by such Subsequent Financing. If any Purchaser elects not to
participate in such Subsequent Financing, the other Purchasers may participate
on a pro-rata basis so long as such participation in the aggregate does not
exceed the total Purchase Price hereunder. The Company shall provide written
notice to each participating Purchaser stating the names of any Purchasers who
have elected not to participate in such Subsequent Financing. For purposes of
this Section, all references to "pro rata" means, for any Purchaser electing to
participate in such Subsequent Financing, the percentage obtained by dividing
(x) the principal amount of the Notes purchased by such Purchaser at the Closing
by (y) the total principal amount of all of the Notes purchased by all of the
participating Purchasers at the Closing. Delivery of any Rights Notice
constitutes a representation and warranty by the Company that there are no other
material terms and conditions, arrangements, agreements or otherwise except for
those disclosed in the Rights Notice, to provide additional compensation to any
party participating in any proposed Subsequent Financing, including, but not
limited to, additional compensation based on changes in the Purchase Price or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from the Purchasers within the Option Period, the Company shall have the
right to close the Subsequent Financing (with respect to the portion of the
Subsequent Financing in which the Purchasers have elected not to participate) on
the scheduled closing date with a third party; provided that all of the material
terms and conditions of the closing are the same as those provided to the
Purchasers in the Rights Notice. If the closing of the proposed Subsequent
Financing does not occur within fifteen (15) calendar days of the scheduled
closing date, any closing of the contemplated Subsequent Financing or any other
Subsequent Financing shall be subject to all of the provisions of this Section
3.19(a), including, without limitation, the delivery of a new Rights Notice. The
provisions of this Section 3.19(a) shall not apply to issuances of securities in
a Permitted Financing.
(b) For purposes of this Agreement, a Permitted Financing (as
defined hereinafter) shall not be considered a Subsequent Financing. A
"Permitted Financing" shall mean: (i) securities issued (other than for cash) in
connection with a merger, acquisition, or consolidation, (ii) securities issued
pursuant to the conversion or exercise of convertible or exercisable securities
issued or outstanding on or prior to the date of this Agreement or issued
pursuant to the terms hereof (so long as the conversion or exercise price in
such securities are not amended to lower such price and/or adversely affect the
Purchasers), (iii) securities issued in connection with bona fide strategic
license agreements or other partnering arrangements so long as such issuances
are not for the purpose of raising capital, (iv) Common Stock issued or the
issuance or grants of options to purchase Common Stock pursuant to the Company's
stock option plans and employee stock purchase plans outstanding as they exist
on the Closing Date, (v) any warrants issued to the placement agent and its
designees for the transactions contemplated by this Agreement, (vi) the payment
of any dividends on the Company's Series B convertible preferred
19
stock, (viii) securities issued pursuant to a bona fide firm underwritten public
offering of the Company's securities, (ix) the payment of liquidated damages
pursuant to the Registration Rights Agreement dated February 17, 2004 between
the Company and the parties listed therein and (x) the issuance of Common Stock
upon the exercise or conversion of any securities described in clauses (i)
through (viii) above.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Securities. The obligation hereunder of the Company to
close and issue and sell the Securities to the Purchasers at the Closing is
subject to the satisfaction or waiver, at or before the Closing of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties.
The representations and warranties of each Purchaser 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 are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date. (b) Performance by the Purchasers. Each
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchasers at or prior to the
Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the
Securities shall have been delivered to the Company on the Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents
shall have been duly executed and delivered by the Purchasers and, with respect
to the Escrow Agreement, the escrow agent, to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Close and to Purchase the Securities. The obligation hereunder of the
Purchasers to purchase the Securities and consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for the Purchasers' sole benefit and may be waived by the Purchasers at any
time in their sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company in this Agreement and the
other Transaction
20
Documents shall be true and correct in all material respects as of the Closing
Date, except for representations and warranties that speak as of a particular
date, which shall be true and correct in all material respects as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all 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.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(e) Opinion of Counsel. The Purchasers shall have received an
opinion of counsel to the Company, dated the date of the Closing, substantially
in the form of Exhibit H hereto, with such exceptions and limitations as shall
be reasonably acceptable to counsel to the Purchasers.
(f) Notes and Warrants. At or prior to the Closing, the Company
shall have delivered to the Purchasers the Notes (in such denominations as each
Purchaser may request) and the Warrants (in such denominations as each Purchaser
may request).
(g) Secretary's Certificate. The Company shall have delivered to
the Purchasers a secretary's certificate, dated as of the Closing Date, as to
(i) the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(h) Officer's Certificate. On the Closing Date, the Company shall
have delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of the Closing Date, confirming the accuracy of
the Company's representations, warranties and covenants as of the Closing Date
and confirming the compliance by the Company with the conditions precedent set
forth in this Section 4.2 as of the Closing Date (provided that, with respect to
the matters in paragraphs (c) and (d) of this Section 4.2, such confirmation
shall be based on the knowledge of the executive officer after due inquiry).
(i) Registration Rights Agreement. As of the Closing Date, the
Company shall have executed and delivered the Registration Rights Agreement to
each Purchaser.
21
(j) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
(k) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit G attached hereto, shall have been
delivered to the Company's transfer agent.
(l) Escrow Agreement. At the Closing, the Company and the escrow
agent shall have executed and delivered the Escrow Agreement to each Purchaser.
(m) Security Agreement. At the Closing, the Company shall have
executed and delivered the Security Agreement to each Purchaser.
(n) UCC Financing Statements. The Company shall have filed all UCC financing
statements in form and substance satisfactory to the Purchasers at the
appropriate offices to create a valid and perfected security interest in the
Collateral (as defined in the Security Agreement).
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Securities
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or "blue sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR GLOWPOINT,
INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to issue or reissue certificates representing any of
the Conversion Shares and the Warrant Shares, without the legend set forth above
if at such time, prior to making any transfer of any such Conversion Shares or
Warrant Shares, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request. Such proposed transfer and removal will not be effected
until: (a) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that the registration of the
Conversion Shares or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer, (ii) a registration statement under the
Securities Act covering such proposed disposition has been filed by the Company
with the Commission and has become effective under the
22
Securities Act, (iii) the Company has received other evidence reasonably
satisfactory to the Company that such registration and qualification under the
Securities Act and state securities laws are not required, or (iv) the holder
provides the Company with reasonable assurances that such security can be sold
pursuant to Rule 144 under the Securities Act; and (b) either (i) the Company
has received an opinion of counsel reasonably satisfactory to the Company, to
the effect that registration or qualification under the securities or "blue sky"
laws of any state is not required in connection with such proposed disposition,
(ii) compliance with applicable state securities or "blue sky" laws has been
effected, or (iii) the holder provides the Company with reasonable assurances
that a valid exemption exists with respect thereto. The Company will respond to
any such notice from a holder within three (3) business days. In the case of any
proposed transfer under this Section 5.1, the Company will use reasonable
efforts to comply with any such applicable state securities or "blue sky" laws,
but shall in no event be required, (x) to qualify to do business in any state
where it is not then qualified, (y) to take any action that would subject it to
tax or to the general service of process in any state where it is not then
subject, or (z) to comply with state securities or "blue sky" laws of any state
for which registration by coordination is unavailable to the Company. The
restrictions on transfer contained in this Section 5.1 shall be in addition to,
and not by way of limitation of, any other restrictions on transfer contained in
any other section of this Agreement. Whenever a certificate representing the
Conversion Shares or Warrant Shares is required to be issued to a Purchaser
without a legend, in lieu of delivering physical certificates representing the
Conversion Shares or Warrant Shares, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, the Company shall use its best efforts to cause its transfer
agent to electronically transmit the Conversion Shares or Warrant Shares to a
Purchaser by crediting the account of such Purchaser's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system (to the extent
not inconsistent with any provisions of this Agreement).
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify and
hold harmless the Purchasers (and their respective directors, officers,
managers, partners, members, shareholders, affiliates, agents, successors and
assigns) from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Purchasers as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Company herein. Each Purchaser severally but not jointly agrees to indemnify
and hold harmless the Company and its directors, officers, affiliates, agents,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by the Company
as result of any inaccuracy in or breach of the representations, warranties or
covenants made by such Purchaser herein. The maximum aggregate liability of each
Purchaser pursuant to its indemnification obligations under this Article VI
shall not exceed the portion of the Purchase Price paid by such Purchaser
hereunder.
23
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matter giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnifying party a conflict of interest between it
and the indemnified party exists with respect to such action, proceeding or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will not contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
obligations to defend the indemnified party required by this Article VI shall be
made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, so long as the indemnified party shall refund
such moneys if it is ultimately determined by a court of competent jurisdiction
that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law. No indemnifying party will be liable to the indemnified party under this
Agreement to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to the indemnified
24
party's breach of any of the representations, warranties or covenants made by
such party in this Agreement or in the other Transaction Documents.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement; provided,
however, that the Company shall pay all actual attorneys' fees and expenses
(including disbursements and out-of-pocket expenses) incurred by the Purchasers
in connection with (i) the preparation, negotiation, execution and delivery of
the Transaction Documents and the transactions contemplated thereunder,
including disbursements and out-of-pocket expenses, (ii) the review of the
Registration Statement in accordance with the Section 4(iv) of the Registration
Rights Agreement, and (iii) any amendments, modifications or waivers of this
Agreement or any of the other Transaction Documents. In addition, the Company
shall pay all reasonable fees and expenses incurred by the Purchasers in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys'
fees and expenses.
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) The parties agree that venue for any dispute arising under
this Agreement will lie exclusively in the state or federal courts located in
New York County, New York, and the parties irrevocably waive any right to raise
forum non conveniens or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the other Transaction Documents, shall be entitled to reimbursement
for reasonable legal fees from the non-prevailing party. The parties hereby
waive all rights to a trial by jury.
Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with
25
respect to the matters covered hereby and, except as specifically set forth
herein or in the other Transaction Documents, neither the Company nor any
Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchasers holding at least a majority
of the principal amount of the Notes then held by the Purchasers. Any amendment
or waiver effected in accordance with this Section 7.3 shall be binding upon
each Purchaser (and their permitted assigns) and the Company.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Glowpoint, Inc.
225 Long Avenue
Hillside, New Jersey 07205
Attention: Chief Executive Officer
Tel. No.: (973) 282-2000
Fax No.: (973) 391-9776
with copies (which copies
shall not constitute notice
to the Company) to: Winston & Strawn LLP
200 Park Avenue
New York, New York 10166-4193
Attention: Michael J.W. Rennock
Tel. No.: (212) 294-2658
Fax No.: (212) 294-4700
If to any Purchaser: At the address of such Purchaser set forth
on Exhibit A to this Agreement, with copies
to Purchaser's counsel as set forth on
Exhibit A or as specified in writing by such
Purchaser with copies to:
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Attention: Christopher S. Auguste
Tel. No.: (212) 715-9100
Fax No.: (212) 715-8000
26
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter. No consideration shall be offered or
paid to any Purchaser to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. This provision
constitutes a separate right granted to each Purchaser by the Company and shall
not in any way be construed as the Purchasers acting in concert or as a group
with respect to the purchase, disposition or voting of Securities or otherwise.
Section 7.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to Section 5.1 hereof, the Purchasers may assign the Securities and its
rights under this Agreement and the other Transaction Documents and any other
rights hereto and thereto without the consent of the Company.
Section 7.8 No 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.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
the Closing until the second anniversary of the Closing Date, except the
agreements and covenants set forth in Articles I, III, V, VI and VII of this
Agreement shall survive the execution and delivery hereof and the Closing
hereunder.
Section 7.11 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart.
27
Section 7.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the names of the Purchasers
without the consent of the Purchasers, which consent shall not be unreasonably
withheld or delayed, or unless and until such disclosure is required by law,
rule or applicable regulation, including without limitation any disclosure
pursuant to the Registration Statement, and then only to the extent of such
requirement.
Section 7.13 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the other
Transaction Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
28
IN WITNESS WHEREOF, the parties hereto have caused this Note and
Warrant Purchase Agreement to be duly executed by their respective authorized
officers as of the date first above written.
GLOWPOINT, INC.
By:
-----------------------------------
Name:
Title:
PURCHASER:
By:
-----------------------------------
Name:
Title:
EXHIBIT A
LIST OF PURCHASERS
NAMES AND ADDRESSES INVESTMENT AMOUNT AND NUMBER OF
OF PURCHASERS WARRANTS PURCHASED
- ------------------- -------------------------------
i
EXHIBIT B
FORM OF NOTE
ii
EXHIBIT C-1
FORM OF SERIES A WARRANT
iii
EXHIBIT C-2
FORM OF SERIES B WARRANT
iv
EXHIBIT D
FORM OF REGISTRATION RIGHTS AGREEMENT
v
EXHIBIT E
FORM OF SECURITY AGREEMENT
vi
EXHIBIT F
FORM OF ESCROW AGREEMENT
vii
EXHIBIT G
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
GLOWPOINT, INC.
as of March 31, 2006
[Name and address of Transfer Agent]
Attn: _____________
LADIES AND GENTLEMEN:
Reference is made to that certain Note and Warrant Purchase Agreement
(the "PURCHASE AGREEMENT"), dated as of March 31, 2006, by and among Glowpoint,
Inc., a Delaware corporation (the "COMPANY"), and the purchasers named therein
(collectively, the "PURCHASERS") pursuant to which the Company is issuing to the
Purchasers senior secured convertible promissory notes (the "NOTES") and
warrants (the "WARRANTS") to purchase shares of the Company's common stock, par
value $.0001 per share (the "COMMON STOCK"). This letter shall serve as our
irrevocable authorization and direction to you (provided that you are the
transfer agent of the Company at such time) to issue shares of Common Stock upon
conversion of the Notes (the "CONVERSION SHARES") and exercise of the Warrants
(the "WARRANT SHARES") to or upon the order of a Purchaser from time to time
upon (i) surrender to you of a properly completed and duly executed Conversion
Notice or Exercise Notice, as the case may be, in the form attached hereto as
Exhibit I and Exhibit II, respectively, (ii) in the case of the conversion of
Notes, a copy of the Note (with the original delivered to the Company)
representing the Notes being converted or, in the case of Warrants being
exercised, a copy of the Warrants (with the original Warrants delivered to the
Company) being exercised (or, in each case, an indemnification undertaking with
respect to such Notes or the Warrants in the case of their loss, theft or
destruction), and (iii) delivery of a treasury order or other appropriate order
duly executed by a duly authorized officer of the Company. So long as you have
previously received (x) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares or Warrant
Shares, as applicable, has been declared effective by the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT"), and no subsequent notice by the Company or its counsel of the
suspension or termination of its effectiveness and (y) a copy of such
registration statement, and if the Purchaser represents that the Conversion
Shares or the Warrant Shares, as the case may be, were sold pursuant to the
Registration Statement, then certificates representing the Conversion Shares and
the Warrant Shares, as the case may be, shall not bear any legend restricting
transfer of the Conversion Shares and the Warrant Shares, as the case may be,
thereby and should not be subject to any stop-transfer restriction. Provided,
however, that if you have not previously received (i) written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the SEC under the 1933 Act, and (ii) a copy of such registration statement,
then the certificates for the Conversion Shares and the Warrant Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
viii
SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR GLOWPOINT, INC.
SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as
an inducement to enter into the Purchase Agreement and, accordingly, each
Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
GLOWPOINT, INC.
By:
-----------------------------------
Name:
-------------------------
Title:
------------------------
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
Date:
------------------
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EXHIBIT I
GLOWPOINT, INC.
CONVERSION NOTICE
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of
GLOWPOINT, INC. (the "Maker") according to the conditions hereof, as of the date
written below.
Date of Conversion _________________________________________________________
Applicable Conversion Price __________________________________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________
Signature___________________________________________________________________
[Name]
Address:__________________________________________________________________
__________________________________________________________________
x
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
GLOWPOINT, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Glowpoint,
Inc. covered by the within Warrant.
Dated: _________________ Signature
---------------------------
Address ____________________
____________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature
---------------------------
Address ____________________
____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature
---------------------------
Address ____________________
____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
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EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: GLOWPOINT, INC.
Ladies and Gentlemen:
We are counsel to Glowpoint, Inc., a Delaware corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Note and Warrant Purchase Agreement (the "PURCHASE AGREEMENT"), dated as of
March 31, 2006, by and among the Company and the purchasers named therein
(collectively, the "PURCHASERS") pursuant to which the Company issued to the
Purchasers senior secured convertible promissory notes (the "NOTES") and
warrants (the "Warrants") to purchase shares of the Company's common stock, par
value $.0001 per share (the "COMMON STOCK"). Pursuant to the Purchase Agreement,
the Company has also entered into a Registration Rights Agreement with the
Purchasers (the "REGISTRATION RIGHTS AGREEMENT"), dated as of March 31, 2006,
pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable upon conversion of the Notes and
exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 ACT"). In connection with the Company's obligations under the Registration
Rights Agreement, on ________________, 2006, the Company filed a Registration
Statement on Form S-1 (File No. 333-________) (the "REGISTRATION STATEMENT")
with the Securities and Exchange Commission (the "SEC") relating to the resale
of the Registrable Securities which names each of the present Purchasers as a
selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
-----------------------------------
cc: [LIST NAMES OF PURCHASERS]
xii
EXHIBIT H
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the failure to so qualify would have a Material
Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Transaction Documents and to
issue the Notes, the Warrants and the Common Stock issuable upon conversion of
the Notes and exercise of the Warrants. The execution, delivery and performance
of each of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated thereby have been duly and validly authorized
by all necessary corporate action and no further consent or authorization of the
Company, its Board of Directors or its stockholders is required. Each of the
Transaction Documents have been duly executed and delivered, and the Notes and
the Warrants have been duly executed, issued and delivered by the Company and
each of the Transaction Documents constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
respective terms. The Common Stock issuable upon conversion of the Notes and
exercise of the Warrants are not subject to any preemptive rights under the
Certificate of Incorporation or the Bylaws.
3. The Notes and the Warrants have been duly authorized and, when
delivered against payment in full as provided in the Purchase Agreement, will be
validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon conversion of the Notes and exercise of the Warrants have been
duly authorized and reserved for issuance, and when delivered upon conversion or
against payment in full as provided in the Notes and the Warrants, as
applicable, will be validly issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with
the terms of the Transaction Documents and the issuance of the Notes, the
Warrants and the Common Stock issuable upon conversion of the Notes and exercise
of the Warrants do not (a) violate any provision of the Certificate of
Incorporation or Bylaws, (b) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party and which is set forth on Schedule I, (c) create or impose a
lien, charge or encumbrance on any property of the Company under any agreement
or any commitment which is set forth on Schedule I to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (d) result in a violation of any Federal,
state, local or foreign statute, rule, regulation, order, judgment, injunction
or decree (including Federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected, except, in all cases other than violations pursuant to
clauses (a) and (d) above, for such conflicts, default, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect.
xiii
5. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required under Federal, state or local law, rule or regulation in connection
with the valid execution, delivery and performance of the Transaction Documents,
or the offer, sale or issuance of the Notes, the Warrants and the Common Stock
issuable upon conversion of the Notes and exercise of the Warrants other than
filings as may be required by applicable Federal and state securities laws and
regulations and any applicable stock exchange rules and regulations.
6. To our knowledge, there is no action, suit, claim,
investigation or proceeding pending or threatened against the Company which
questions the validity of the Purchase Agreement or the transactions
contemplated thereby or any action taken or to be taken pursuant thereto. There
is no action, suit, claim, investigation or proceeding pending, or to our
knowledge, threatened, against or involving the Company or any of its properties
or assets and which, if adversely determined, is reasonably likely to result in
a Material Adverse Effect. To our knowledge, there are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any officers or directors
of the Company in their capacities as such.
7. Assuming that all of the Purchasers' representations and
warranties in the Purchase Agreement are complete and accurate, the offer,
issuance and sale of the Notes and the Warrants and the offer, issuance and sale
of the Common Stock issuable upon conversion of the Notes and exercise of the
Warrants are exempt from the registration requirements of the Securities Act of
1933, as amended.
8. The Company is not, and as a result of and immediately upon
Closing will not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
9. The Security Agreement will create a valid security interest
in favor of the Purchasers in such assets of the Company that is subject to such
Security Agreement. Upon the filing of a UCC financing statement with the
Secretary of State of the State of Delaware, the Purchasers will have a
perfected security interest in such assets of the Company that is subject to the
Security Agreement.
xiv