EXHIBIT 10.58
PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT ("Agreement") is made as of the 22nd day of
December, 2004 by and among Immersion Corporation, a Delaware corporation (the
"Company"), and the Investors set forth on the signature pages affixed hereto
(each an "Investor" and collectively the "Investors").
Recitals
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the 1933 Act; and
B. The Investors wish to purchase from the Company, and the Company wishes
to sell and issue to the Investors, upon the terms and conditions stated in this
Agreement, (i) an aggregate of $20,000,000 of the Company's 5% Senior
Subordinated Convertible Debentures in the form attached hereto as Exhibit A
(the "Debentures"), which are convertible into shares of the Company's Common
Stock, par value $0.001 per share ("Common Stock"), and (ii) warrants to
purchase an aggregate of 426,955 shares of Common Stock in the form attached
hereto as Exhibit B (the "Warrants"); and
C. Contemporaneous with the sale of the Debentures and Warrants, the
parties hereto will execute and deliver a Registration Rights Agreement, in the
form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company will agree to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere in
this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly through one or more intermediaries Controls, is
controlled by, or is under common control with, such Person.
"Business Day" means a day, other than a Saturday or Sunday, on which banks
in New York City are open for the general transaction of business.
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"Company's Knowledge" means the actual knowledge of the executive officers
(as defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.
"Confidential Information" means trade secrets, confidential information
and know-how (including but not limited to ideas, formulae, compositions,
processes, procedures and techniques, research and development information,
computer program code, performance specifications, support documentation,
drawings, specifications, designs, business and marketing plans, and customer
and supplier lists and related information).
"Control" (including the terms "controlling", "controlled by" or "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Conversion Shares" means the shares of Common Stock issuable upon the
conversion of the Debentures.
"Effective Date" means the date on which the initial Registration Statement
is declared effective by the SEC.
"Effectiveness Deadline" means the date on which the initial Registration
Statement is required to be declared effective by the SEC under the terms of the
Registration Rights Agreement.
"GAAP" has the meaning set forth in Section 4.18.
"Intellectual Property" means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service marks, trade
dress, trade names, corporate names, logos, slogans and Internet domain names,
together with all goodwill associated with each of the foregoing; (iii)
copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).
"Material Adverse Effect" means a material adverse effect on (i) the
assets, liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Person" means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.
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"Purchase Price" means Twenty Million Dollars ($20,000,000).
"Required Investors" means collectively, (i) any Investor who, together
with its Affiliates, is acquiring at least 20% of the aggregate principal amount
of the Debentures, and (ii) the Investors acquiring at least a majority of the
aggregate amount of the Debentures.
"Registration Statement" has the meaning set forth in the Registration
Rights Agreement.
"SEC Filings" has the meaning set forth in Section 4.6.
"Securities" means the Debentures, the Warrants, the Conversion Shares and
the Warrant Shares.
"Subsidiary" of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.
"Transaction Documents" means this Agreement, the Debentures, the Warrants
and the Registration Rights Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
"1933 Act" means the Securities Act of 1933, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Debentures and Warrants. Subject to the terms
and conditions of this Agreement, on the Closing Date, each of the Investors
shall severally, and not jointly, purchase, and the Company shall sell and issue
to the Investors, the Debentures and Warrants in the respective amounts set
forth opposite the Investors' names on the signature pages attached hereto in
exchange for the Purchase Price as specified in Section 3 below.
3. Closing. Upon confirmation that the other conditions to closing
specified herein have been satisfied or duly waived by the Investors, the
Company shall deliver to Lowenstein Sandler PC, in trust, the Debentures and the
Warrants, registered in such name or names as the Investors may designate, with
instructions that such securities are to be held for release to the Investors
only upon payment in full of the Purchase Price to the Company by all the
Investors. Upon such receipt by Lowenstein Sandler PC of the securities, each
Investor shall promptly, but no more than one Business Day thereafter, cause a
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wire transfer in same day funds to be sent to the account of the Company as
instructed in writing by the Company, in an amount representing such Investor's
pro rata portion of the Purchase Price as set forth on the signature pages to
this Agreement. On the date (the "Closing Date") the Company receives the
Purchase Price, the Debentures and the Warrants shall be released to the
Investors (the "Closing"). The Closing of the purchase and sale of the
Debentures and Warrants shall take place at the offices of Lowenstein Sandler
PC, 1251 Avenue of the Americas, 18th Floor, New York, New York 10020, or at
such other location and on such other date as the Company and the Investors
shall mutually agree.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investors that, except as set forth in the
disclosure letter previously delivered to the Investors (the "Disclosure
Letter"):
4.1 Organization, Good Standing and Qualification. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not and could not reasonably be expected to have a
Material Adverse Effect. The Company's Subsidiaries are listed on the Disclosure
Letter.
4.2 Authorization. The Company has full power and authority and has
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Transaction Documents, (ii) the authorization of the performance of all
obligations of the Company hereunder or thereunder, and (iii) the authorization,
issuance (or reservation for issuance) and delivery of the Securities. The
Transaction Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors'
rights generally and to the effects of general principles of equity.
4.3 Capitalization. The Disclosure Letter sets forth as of December 15,
2004 (a) the authorized capital stock of the Company on the date hereof; (b) the
number of shares of capital stock issued and outstanding; (c) the number of
shares of capital stock issuable pursuant to the Company's stock award and/or
option plans; and (d) the number of shares of capital stock issuable and
reserved for issuance pursuant to securities (other than the Debentures and the
Warrants) exercisable for, or convertible into or exchangeable for any shares of
capital stock of the Company. All of the issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in
compliance with applicable state and federal securities law and any rights of
third parties. Except as described in the Disclosure Letter, all of the issued
and outstanding shares of capital stock of each Subsidiary have been duly
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authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in compliance with applicable state and federal
securities law and any rights of third parties and are owned by the Company,
beneficially and of record, subject to no lien, encumbrance or other adverse
claim except for restrictions on transfer set forth in the Transaction Documents
or imposed by applicable securities laws. Except as described in the Disclosure
Letter, no Person is entitled to pre-emptive or similar statutory or contractual
rights with respect to any securities of the Company. Except as described in the
Disclosure Letter, there are no outstanding warrants, options, convertible
securities or other rights, agreements or arrangements of any character under
which the Company or any of its Subsidiaries is or may be obligated to issue any
equity securities of any kind and except as contemplated by this Agreement,
neither the Company nor any of its Subsidiaries is currently in negotiations for
the issuance of any equity securities of any kind. Except as described in the
Disclosure Letter and except for the Registration Rights Agreement, there are no
voting agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among the Company and any of the
securityholders of the Company relating to the securities of the Company held by
them. Except as described in the Disclosure Letter and except as provided in the
Registration Rights Agreement, no Person has the right to require the Company to
register any securities of the Company under the 1933 Act, whether on a demand
basis or in connection with the registration of securities of the Company for
its own account or for the account of any other Person.
Except as described in the Disclosure Letter, the issuance and sale of the
Securities hereunder will not obligate the Company to issue shares of Common
Stock or other securities to any other Person (other than the Investors) and
will not result in the adjustment of the exercise, conversion, exchange or reset
price of any outstanding security.
Except as described in the Disclosure Letter, the Company does not have
outstanding stockholder purchase rights or "poison pill" or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.
4.4 Valid Issuance. The Conversion Shares have been duly and validly
authorized. Upon the due conversion of the Debentures, the Conversion Shares
will be validly issued, fully paid and nonassessable, and shall be free and
clear of all encumbrances and restrictions (other than those created by the
Investors), except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws. The Warrants have been duly
and validly authorized. Upon the due exercise of the Warrants, the Warrant
Shares will be validly issued, fully paid and non-assessable free and clear of
all encumbrances and restrictions, except for restrictions on transfer set forth
in the Transaction Documents or imposed by applicable securities laws and except
for those created by the Investors. The Company has reserved a sufficient number
of shares of Common Stock for issuance upon the conversion of the Debentures and
the exercise of the Warrants, free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws and except for those created
by the Investors.
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4.5 Consents. The execution, delivery and performance by the Company of
the Transaction Documents and the offer, issuance and sale of the Securities
require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws which the Company undertakes to
file within the applicable time periods. Subject to the accuracy of the
representations and warranties of each Investor set forth in Section 5 hereof,
the Company has taken all action necessary to exempt (i) the issuance and sale
of the Securities, (ii) the issuance of the Conversion Shares upon due
conversion of the Debentures, (iii) the issuance of the Warrant Shares upon due
exercise of the Warrants, and (iv) the other transactions contemplated by the
Transaction Documents from the provisions of any stockholder rights plan or
other "poison pill" arrangement, any anti-takeover, business combination or
control share law or statute currently binding on the Company or to which the
Company or any of its assets and properties is currently subject and any
provision of the Company's Certificate of Incorporation or By-laws that is or
could reasonably be expected to become applicable to the Investors as a result
of the transactions contemplated hereby, including without limitation, the
issuance of the Securities and the ownership, disposition or voting of the
Securities by the Investors or the exercise of any right granted to the
Investors pursuant to this Agreement or the other Transaction Documents.
4.6 Delivery of SEC Filings; Business. The Company has made available to
the Investors through the EDGAR system, true and complete copies of the
Company's most recent Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 (the "10-K"), and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the 10-K and prior to the date
hereof (collectively, the "SEC Filings"). The SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period. The Company
and its Subsidiaries are engaged in all material respects only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.
4.7 Use of Proceeds. The net proceeds of the sale of the Debentures and
the Warrants hereunder shall be used by the Company for working capital and
general corporate purposes.
4.8 No Material Adverse Change. Since December 31, 2003, except as
identified and described in the SEC Filings or as described in the Disclosure
Letter, there has not been:
(i) any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004, except for changes in the ordinary course
of business which have not and could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate;
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(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or its
Subsidiaries;
(iv) any waiver, not in the ordinary course of business, by the
Company or any Subsidiary of a material right or of a material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company or a Subsidiary, except in the
ordinary course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company and its
Subsidiaries taken as a whole (as such business is presently conducted);
(vi) any change or amendment to the Company's Certificate of
Incorporation or by-laws, or material change to any material contract or
arrangement by which the Company or any Subsidiary is bound or to which any of
their respective assets or properties is subject;
(vii) any material labor difficulties or labor union organizing
activities with respect to employees of the Company or any Subsidiary;
(viii) any material transaction entered into by the Company or a
Subsidiary other than in the ordinary course of business;
(ix) the loss of the services of any key employee, or material
change in the composition or duties of the senior management of the Company or
any Subsidiary;
(x) the loss or threatened loss of any customer which has had or
could reasonably be expected to have a Material Adverse Effect; or
(xi) any other event or condition of any character relating to the
Company (and excluding macroeconomic events and conditions which have not had a
disproportionate effect on the Company) that has had or could reasonably be
expected to have a Material Adverse Effect.
4.9 SEC Filings; S-3 Eligibility.
(a) At the time of filing thereof, the SEC Filings complied as to
form in all material respects with the requirements of the 1934 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
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(b) Each registration statement and any amendment thereto filed by
the Company since January 1, 2001 pursuant to the 1933 Act, as of the date such
statement or amendment became effective, complied as to form in all material
respects with the 1933 Act and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein not misleading; and
each prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its
issue date and as of the closing of any sale of securities pursuant thereto did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(c) The Company is eligible to use Form S-3 to register the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) for sale by the Investors as contemplated by the Registration Rights
Agreement.
4.10 No Conflict, Breach, Violation or Default. The execution, delivery
and performance of the Transaction Documents by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company's Certificate of Incorporation or the Company's Bylaws, both as in
effect on the date hereof (true and complete copies of which have been made
available to the Investors through the EDGAR system), or (ii)(a) any statute,
rule, regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company, any Subsidiary or any
of their respective assets or properties, or (b) any agreement or instrument to
which the Company or any Subsidiary is a party or by which the Company or a
Subsidiary is bound or to which any of their respective assets or properties is
subject.
4.11 Tax Matters. The Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown thereon or otherwise owed by it, except for such taxes that are being
contested in good faith and for which adequate reserves are maintained in
accordance with GAAP. The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company or
any Subsidiary (other than those being contested in accordance with the
immediately preceding sentence) nor, to the Company's Knowledge, any basis for
the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole. All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or, to the Company's
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property. Except as described in the Disclosure Letter,
there are no outstanding tax sharing agreements or other such arrangements
between the Company and any Subsidiary or other corporation or entity.
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4.12 Title to Properties. Except as disclosed in the SEC Filings, the
Company and each Subsidiary has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
4.13 Certificates, Authorities and Permits. The Company and each
Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
4.14 Labor Matters.
(a) [Intentionally Omitted]
(b) Except as set forth in the Disclosure Letter, the Company is not
a party to or bound by any collective bargaining agreements or other agreements
with labor organizations. The Company has not violated in any material respect
any laws, regulations, orders or contract terms, affecting the collective
bargaining rights of employees, labor organizations or any laws, regulations or
orders affecting employment discrimination, equal opportunity employment, or
employees' health, safety, welfare, wages and hours.
(c) (i) There are no labor disputes existing, or to the Company's
Knowledge, threatened, involving strikes, slow-downs, work stoppages, job
actions, disputes, lockouts or any other disruptions of or by the Company's
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other federal, state or local labor commission relating
to the Company's employees, (iii) no demand for recognition or certification
heretofore made by any labor organization or group of employees is pending with
respect to the Company and (iv) to the Company's Knowledge, the Company enjoys
good labor and employee relations with its employees and labor organizations.
(d) The Company is, and at all times has been, in full compliance in
all material respects with all applicable laws respecting employment (including
laws relating to classification of employees and independent contractors) and
employment practices, terms and conditions of employment, wages and hours, and
immigration and naturalization. No claims are pending against the Company before
the Equal Employment Opportunity Commission or any other administrative body or
in any court asserting any violation of Title VII of the Civil Rights Act of
1964, the Age Discrimination Act of 1967, 42 U.S.C. ss.ss. 1981 or 1983 or any
other federal, state or local Law, statute or ordinance barring discrimination
in employment.
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(e) Except as disclosed in the Company's public filings with the
SEC, the Company is not a party to, or bound by, any employment or other
contract or agreement that contains any severance, termination pay or change of
control liability or obligation, including, without limitation, any "excess
parachute payment," as defined in Section 2806(b) of the Internal Revenue Code.
(f) Except as specified in the Disclosure Letter, each of the
Company's employees is a Person who is either a United States citizen or a
permanent resident entitled to work in the United States. To the Company's
Knowledge, the Company has no liability for the improper classification by the
Company of such employees as independent contractors or leased employees prior
to the Closing.
4.15 Intellectual Property.
(a) All Intellectual Property of the Company and its Subsidiaries is
currently in material compliance with all legal requirements (including timely
filings, proofs and payments of fees) and to the Company's Knowledge is valid
and enforceable. Except as disclosed in the Disclosure Letter, no Intellectual
Property of the Company or its Subsidiaries which is necessary for the conduct
of Company's and each of its Subsidiaries' respective businesses as currently
conducted or as currently proposed to be conducted has been or is now involved
in any cancellation, dispute or litigation, and, to the Company's Knowledge, no
such action is threatened. No patent of the Company or its Subsidiaries has been
or is now involved in any interference, reissue, re-examination or opposition
proceeding.
(b) All of the licenses and sublicenses and consent, royalty or
other agreements concerning Intellectual Property which are necessary for the
conduct of the Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound
(other than generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $10,000 per
license) (collectively, "License Agreements") are valid and binding obligations
of the Company or its Subsidiaries that are parties thereto and, to the
Company's Knowledge, the other parties thereto, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally or
by general principles of equity, and there exists no event or condition which
will result in a material violation or breach of or constitute (with or without
due notice or lapse of time or both) a default by the Company or any of its
Subsidiaries under any such License Agreement.
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(c) To the Company's Knowledge, the Company and its Subsidiaries own
or to the Company's Knowledge have the valid right to use all of the
Intellectual Property that is necessary for the conduct of the Company's and
each of its Subsidiaries' respective businesses as currently conducted or as
currently proposed to be conducted and for the ownership, maintenance and
operation of the Company's and its Subsidiaries' properties and assets, free and
clear of all liens, encumbrances, adverse claims or obligations to license all
such owned Intellectual Property and Confidential Information, other than
licenses entered into in the ordinary course of the Company's and its
Subsidiaries' businesses. To the Company's Knowledge, the Company and its
Subsidiaries have a valid and enforceable right to use all third party
Intellectual Property and Confidential Information used or held for use in the
respective businesses of the Company and its Subsidiaries.
(d) To the Company's Knowledge, the conduct of the Company's and its
Subsidiaries' businesses as currently conducted does not infringe or otherwise
impair or conflict with (collectively, "Infringe") any Intellectual Property
rights of any third party or any confidentiality obligation owed to a third
party, and, except as disclosed in the Disclosure Letter, to the Company's
Knowledge, the Intellectual Property and Confidential Information of the Company
and its Subsidiaries which are necessary for the conduct of Company's and each
of its Subsidiaries' respective businesses as currently conducted or as
currently proposed to be conducted are not being Infringed by any third party.
Except as disclosed in the Disclosure Letter, there is no litigation or order
pending or outstanding or, to the Company's Knowledge, threatened or imminent,
that seeks to limit or challenge or that concerns the ownership, use, validity
or enforceability of any Intellectual Property or Confidential Information of
the Company and its Subsidiaries and the Company's and its Subsidiaries' use of
any Intellectual Property or Confidential Information owned by a third party,
and, to the Company's Knowledge, there is no valid basis for the same.
(e) The consummation of the transactions contemplated hereby and by
the other Transaction Documents will not result in the alteration, loss,
impairment of or restriction on the Company's or any of its Subsidiaries'
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted.
(f) The Company and its Subsidiaries have taken reasonable steps to
protect the Company's and its Subsidiaries' rights in their Intellectual
Property and Confidential Information. Each employee, consultant and contractor
who has had access to Confidential Information which is necessary for the
conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company's standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company's or its
Subsidiaries' Confidential Information to any third party.
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4.16 Environmental Matters. Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws, is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending or, to the Company's Knowledge, threatened
investigation that might lead to such a claim.
4.17 Litigation. Except as described in the Disclosure Letter, there are
no pending actions, suits or proceedings against or affecting the Company, its
Subsidiaries or any of its or their properties; and to the Company's Knowledge,
no such actions, suits or proceedings are threatened or contemplated.
4.18 Financial Statements. The financial statements included in each SEC
Filing present fairly, in all material respects, the consolidated financial
position of the Company as of the dates shown and its consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with United States generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as may be
disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described in the Disclosure Letter, neither
the Company nor any of its Subsidiaries has incurred any liabilities, contingent
or otherwise, except those incurred in the ordinary course of business,
consistent (as to amount and nature) with past practices since the date of such
financial statements, none of which, individually or in the aggregate, have had
or could reasonably be expected to have a Material Adverse Effect.
4.19 Insurance Coverage. The Company and each Subsidiary maintains in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.
4.20 Compliance with Nasdaq Continued Listing Requirements. The Company
is in compliance with applicable Nasdaq continued listing requirements. There
are no proceedings pending or, to the Company's Knowledge, threatened against
the Company relating to the continued listing of the Common Stock on Nasdaq and
the Company has not received any notice of, nor to the Company's Knowledge is
there any basis for, the delisting of the Common Stock from Nasdaq.
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4.21 Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company, other than as
described in the Disclosure Letter.
4.22 No Directed Selling Efforts or General Solicitation. Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.
4.23 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 Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
4.24 Private Placement. Assuming the accuracy of the Investors'
representations and warranties in Section 5, the offer and sale of the
Securities to the Investors as contemplated hereby is exempt from the
registration requirements of the 1933 Act.
4.25 Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company's Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
4.26 Transactions with Affiliates. Except as disclosed in the SEC
Filings or as disclosed in the Disclosure Letter, none of the officers or
directors of the Company and, to the Company's Knowledge, none of the employees
of the Company is presently a party to any transaction with the Company or any
Subsidiary (other than as holders of stock options and/or warrants, and for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Company's Knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
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4.27 Internal Controls. Except as disclosed in the Disclosure Letter,
the Company is in material compliance with the provisions of the Sarbanes-Oxley
Act of 2002 currently applicable to the Company. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient 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 GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including the Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed period report under the
1934 Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the end of the period covered by the most recently filed
periodic report under the 1934 Act (such date, the "Evaluation Date"). The
Company presented in its most recently filed periodic report under the 1934 Act
the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K) or, to the Company's Knowledge, in other factors that
could significantly affect the Company's internal controls. The Company
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP and the applicable
requirements of the 1934 Act.
4.28 Disclosures. Neither the Company nor any Person acting on its
behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information. The written materials delivered to the Investors in connection with
the transactions contemplated by the Transaction Documents do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading. The projections and pro forma
financial information that the Company has provided to the Investors are based
upon good faith estimates and assumptions that the Company believes to be
reasonable at the time made, it being recognized by the Investors that such
financial information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods that such financial
information covers may differ from the projected results set forth therein.
5. Representations and Warranties of the Investors. Each of the Investors
hereby severally, and not jointly, represents and warrants to the Company that:
5.1 Organization and Existence. Such Investor is a validly existing
corporation, limited partnership or limited liability company and has all
requisite corporate, partnership or limited liability company power and
authority to invest in the Securities pursuant to this Agreement.
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5.2 Authorization. The execution, delivery and performance by such
Investor of the Transaction Documents to which such Investor is a party have
been duly authorized and will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally and to the effects of
general principles of equity.
5.3 Purchase Entirely for Own Account. The Securities to be received by
such Investor hereunder will be acquired for such Investor's own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, however, to such Investor's right
at all times to sell or otherwise dispose of all or any part of such Securities
in compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such Investor
to hold the Securities for any period of time.
5.4 Investment Experience. Such Investor acknowledges that it can bear
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. Such Investor has had an opportunity to
receive all information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities. Such
Investor acknowledges receipt of copies of the SEC Filings. Neither such
inquiries nor any other due diligence investigation conducted by such Investor
shall modify, amend or affect such Investor's right to rely on the Company's
representations and warranties contained in this Agreement.
5.6 Restricted Securities. Such Investor understands that the Securities
are characterized as "restricted securities" under the U.S. federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.
5.7 Legends. It is understood that, except as provided below,
certificates evidencing the Securities may bear the following or any similar
legend:
(a) "The securities represented hereby may not be transferred unless
(i) such securities have been registered for sale pursuant to the Securities Act
of 1933, as amended, (ii) such securities may be sold pursuant to Rule 144(k),
or (iii) the Company has received an opinion of counsel reasonably satisfactory
to it that such transfer may lawfully be made without registration under the
Securities Act of 1933 or qualification under applicable state securities laws."
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(b) If required by the authorities of any state in connection with
the issuance of sale of the Securities, the legend required by such state
authority.
5.8 Qualified Institutional Buyer. Such Investor is a "qualified
institutional buyer" as defined in Rule 144A(a) under the 1933 Act.
5.9 No General Solicitation. Such Investor did not learn of the
investment in the Securities as a result of any public advertising or general
solicitation.
5.10 Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.
5.11 Prohibited Transactions. (a) For each Investor other than Morgan
Stanley & Co.: During the last thirty (30) days prior to the date hereof,
neither such Investor nor any Affiliate of such Investor which (x) had knowledge
of the transactions contemplated hereby, (y) has or shares discretion relating
to such Investor's investments or trading or information concerning such
Investor's investments, including in respect of the Securities, or (z) is
subject to such Investor's review or input concerning such Affiliate's
investments or trading (collectively, "Trading Affiliates") has, directly or
indirectly, effected or agreed to effect any short sale, whether or not against
the box, established any "put equivalent position" (as defined in Rule 16a-1(h)
under the 1934 Act) with respect to the Common Stock, granted any other right
(including, without limitation, any put or call option) with respect to the
Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities or sold any Common Stock (each, a
"Prohibited Transaction"). Prior to the earliest to occur of (i) the termination
of this Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline,
such Investor shall not, and shall cause its Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction. Such Investor acknowledges
that the representations, warranties and covenants contained in this Section
5.11 are being made for the benefit of the Investors as well as the Company and
that each of the other Investors shall have an independent right to assert any
claims against such Investor arising out of any breach or violation of the
provisions of this Section 5.11.
(b) For Morgan Stanley & Co.: During the last thirty (30) days prior
to the date hereof, neither the Proprietary Convertibles Desk (the "Desk") of
such Investor nor any employee of such Investor who had knowledge of the
transactions contemplated hereby (collectively, "Trading Affiliates") has,
directly or indirectly, effected or agreed to effect any short sale, whether or
not against the box, established any "put equivalent position" (as defined in
Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
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sought to hedge its position in the Securities or sold any Common Stock (each, a
"Prohibited Transaction"). Prior to the earliest to occur of (i) the termination
of this Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline,
such Desk shall not, and shall cause the Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction. Such Investor acknowledges
that the representations, warranties and covenants contained in this Section
5.11 are being made for the benefit of the Investors as well as the Company and
that each of the other Investors shall have an independent right to assert any
claims against such Investor arising out of any breach or violation of the
provisions of this Section 5.11.
6. Conditions to Closing.
6.1 Conditions to the Investors' Obligations. The obligation of each
Investor to purchase the Debentures and the Warrants at the Closing is subject
to the fulfillment to such Investor's satisfaction, on or prior to the Closing
Date, of the following conditions, any of which may be waived by such Investor
(as to itself only):
(a) The representations and warranties made by the Company in
Section 4 hereof qualified as to materiality shall be true and correct at all
times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct as of such earlier
date, and, the representations and warranties made by the Company in Section 4
hereof not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
material respects all obligations and conditions herein required to be performed
or observed by it on or prior to the Closing Date.
(b) The Company shall have obtained any and all consents, permits,
approvals, registrations and waivers necessary or appropriate for consummation
of the purchase and sale of the Securities and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect.
(c) The Company shall have executed and delivered the Registration
Rights Agreement.
(d) The Company shall have received oral confirmation from Nasdaq to
the effect that (i) the issuance and sale of the Securities as contemplated
hereby will not require stockholder approval pursuant to the requirements of
Nasdaq Marketplace Rule 4350(i), and (ii) that the Conversion Shares and the
Warrant Shares have been approved for inclusion in The Nasdaq National Market
System upon official notice of issuance.
(e) No judgment, writ, order, injunction, award or decree of or by
any court, or judge, justice or magistrate, including any bankruptcy court or
judge, or any order of or by any governmental authority, shall have been issued,
and no action or proceeding shall have been instituted by any governmental
authority, enjoining or preventing the consummation of the transactions
contemplated hereby or in the other Transaction Documents.
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(f) The Company shall have delivered a Certificate, executed on
behalf of the Company by its Chief Executive Officer or its Chief Financial
Officer, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in subsections (a), (b), (d), (e) and (i) of this Section
6.1.
(g) The Company shall have delivered a Certificate, executed on
behalf of the Company by its Secretary, dated as of the Closing Date, certifying
the resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Securities, certifying the current versions of the
Certificate of Incorporation and Bylaws of the Company and certifying as to the
signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company.
(h) The Investors shall have received an opinion from Gray Cary Ware
& Freidenrich, LLP, the Company's counsel, dated as of the Closing Date, in form
and substance reasonably acceptable to the Investors and addressing such legal
matters as the Investors may reasonably request.
(i) No stop order or suspension of trading shall have been imposed
by Nasdaq, the SEC or any other governmental or regulatory body with respect to
public trading in the Common Stock.
6.2 Conditions to Obligations of the Company. The Company's obligation
to sell and issue the Debentures and the Warrants at the Closing is subject to
the fulfillment to the satisfaction of the Company on or prior to the Closing
Date of the following conditions, any of which may be waived by the Company:
(a) The representations and warranties made by the Investors in
Section 5 hereof, other than the representations and warranties contained in
Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the "Investment
Representations"), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date. The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date. The Investors
shall have performed in all material respects all obligations and conditions
herein required to be performed or observed by them on or prior to the Closing
Date.
(b) The Investors shall have executed and delivered the Registration
Rights Agreement.
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(c) The Investors shall have delivered the Purchase Price to the
Company.
6.3 Termination of Obligations to Effect Closing; Effects.
(a) The obligations of the Company, on the one hand, and the
Investors, on the other hand, to effect the Closing shall terminate as follows:
(i) Upon the mutual written consent of the Company and the
Investors;
(ii) By the Company if any of the conditions set forth in
Section 6.2 shall have become incapable of fulfillment, and shall not have been
waived by the Company;
(iii) By an Investor (with respect to itself only) if any of the
conditions set forth in Section 6.1 shall have become incapable of fulfillment,
and shall not have been waived by the Investor; or
(iv) By either the Company or any Investor (with respect to
itself only) if the Closing has not occurred on or prior to December 31, 2004;
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party's seeking to
terminate its obligation to effect the Closing.
(b) In the event of termination by the Company or any Investor of
its obligations to effect the Closing pursuant to this Section 6.3, written
notice thereof shall forthwith be given to the other Investors and the other
Investors shall have the right to terminate their obligations to effect the
Closing upon written notice to the Company and the other Investors. Nothing in
this Section 6.3 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.
7. Covenants and Agreements of the Company.
7.1 Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of providing for the exercise of the Warrants, such
number of shares of Common Stock as shall from time to time equal the number of
shares sufficient to permit the exercise of the Warrants issued pursuant to this
Agreement in accordance with their respective terms.
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7.2 Reports. The Company will furnish to the Investors and/or their
assignees such information relating to the Company and its Subsidiaries as from
time to time may reasonably be requested by the Investors and/or their
assignees; provided, however, that the Company shall not disclose material
nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides
the Investors, such advisors and representatives with the opportunity to accept
or refuse to accept such material nonpublic information for review and any
Investor wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.
7.3 No Conflicting Agreements. The Company will not take any action,
enter into any agreement or make any commitment that would conflict or interfere
in any material respect with the Company's obligations to the Investors under
the Transaction Documents.
7.4 Insurance. The Company shall maintain insurance coverages in
accordance with Section 4.19.
7.5 Compliance with Laws. The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities.
7.6 Listing of Underlying Shares and Related Matters. Promptly following
the date hereof, the Company shall take all necessary action to cause the
Conversion Shares and the Warrant Shares to be listed, subject to official
notice of issuance, on the Nasdaq National Market System no later than the
Filing Deadline (as such term is defined in the Registration Rights Agreement).
Further, if the Company applies to have its Common Stock or other securities
traded on any other principal stock exchange or market, it shall include in such
application the Conversion Shares and the Warrant Shares and will take such
other action as is necessary to cause such Common Stock to be so listed. The
Company will use commercially reasonable efforts to continue the listing and
trading of its Common Stock on the Nasdaq National Market System and, in
accordance, therewith, will use commercially reasonable efforts to comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of such market or exchange, as applicable.
7.7 Termination of Covenants. The provisions of Sections 7.2 through 7.5
shall terminate and be of no further force and effect upon the earlier of (i)
the mutual consent of the Company and the Majority Holders, and (ii) the date on
which the Company's obligations under the Registration Rights Agreement to
register or maintain the effectiveness of any registration covering the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate.
7.8 Removal of Legends. Upon the earlier of (i) registration for resale
pursuant to the Registration Rights Agreement and receipt by the Company of the
Investor's written confirmation that such Securities will not be disposed of
except in compliance with the prospectus delivery requirements of the 1933 Act
or (ii) Rule 144(k) becoming available the Company shall, upon an Investor's
written request, promptly cause certificates evidencing the Investor's
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Securities to be replaced with certificates which do not bear such restrictive
legends, and Conversion Shares subsequently issued upon due conversion of the
Debentures and Warrant Shares subsequently issued upon due exercise of the
Warrants shall not bear such restrictive legends provided the provisions of
either clause (i) or clause (ii) above, as applicable, are satisfied with
respect to such Conversion Shares or Warrant Shares, as applicable. When the
Company is required to cause unlegended certificates to replace previously
issued legended certificates, if unlegended certificates are not delivered to an
Investor within three (3) Business Days of submission by that Investor of
legended certificate(s) to the Company's transfer agent together with a
representation letter in customary form, the Company shall be solely responsible
for, and shall indemnify the Investor for the Losses (as defined in Section 8.2)
that such Investor incurred as a result of such delay, and will pay or reimburse
such Investor for such Losses upon demand.
8. Survival and Indemnification.
8.1 Survival. The representations, warranties, covenants and agreements
contained in this Agreement shall survive the Closing of the transactions
contemplated by this Agreement.
8.2 Indemnification. The Company agrees to indemnify and hold harmless
each Investor and its Affiliates and their respective directors, officers,
employees and agents from and against any and all losses, claims, damages,
liabilities and expenses (including without limitation reasonable attorney fees
and disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, "Losses") to which such
Person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person.
8.3 Conduct of Indemnification Proceedings. Promptly after receipt by
any Person (the "Indemnified Person") of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
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judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Investors,
as applicable; provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a private transaction without
the prior written consent of the Company or the other Investors, after written
notice duly given by such Investor to the Company, provided, that no such
assignment or obligation shall affect the obligations of such Investor
hereunder. The provisions of this Agreement shall inure to the benefit of and be
binding upon the respective permitted successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
9.2 Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.
9.3 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given as hereinafter described (i) if given by personal delivery, then such
notice shall be deemed given upon such delivery, (ii) if given by telex or
telecopier, then such notice shall be deemed given upon receipt of confirmation
of complete transmittal, (iii) if given by mail, then such notice shall be
deemed given upon the earlier of (A) receipt of such notice by the recipient or
(B) three days after such notice is deposited in first class mail, postage
prepaid, and (iv) if given by an internationally recognized overnight air
courier, then such notice shall be deemed given one business day after delivery
to such carrier. All notices shall be addressed to the party to be notified at
the address as follows, or at such other address as such party may designate by
ten days' advance written notice to the other party:
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If to the Company:
Immersion Corporation
801 Fox Lane
San Jose, California 95131
Attention:
Fax:
With a copy to:
Gray Cary Ware & Freidenrich LLP
2000 University Avenue
East Palo Alto, CA 94303-2248
Attention: James Koshland, Esq.
Fax: 650-833-2001
If to the Investors:
to the addresses set forth on the signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs and expenses
in connection herewith, except that the Company shall pay the reasonable fees
and expenses of Lowenstein Sandler PC, not to exceed $40,000. Such expenses
shall be paid not later than the Closing. The Company shall reimburse the
Investors upon demand for all reasonable out-of-pocket expenses incurred by the
Investors, including without limitation reimbursement of fees and disbursements
of one counsel for the Investors, in connection with any amendment, modification
or waiver of this Agreement or the other Transaction Documents. In the event
that legal proceedings are commenced by any party to this Agreement against
another party to this Agreement in connection with this Agreement or the other
Transaction Documents, the party or parties which do not prevail in such
proceedings shall severally, but not jointly, pay their pro rata share of the
reasonable attorneys' fees and other reasonable out-of-pocket costs and expenses
incurred by the prevailing party in such proceedings.
9.6 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Required Investors. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Securities purchased under this Agreement at the time
outstanding, each future holder of all such Securities, and the Company.
9.7 Publicity. Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
-23-
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day immediately following the Closing Date, the Company
shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement. No later than the third trading day following
the Closing Date, the Company will file a Current Report on Form 8-K attaching
the press release described in the foregoing sentence as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and
notices in the manner and time required by the SEC or Nasdaq. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any Investor,
or include the name of any Investor in any filing with the SEC (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the 1934 Act)
or any regulatory agency or Nasdaq, without the prior written consent of such
Investor, except to the extent such disclosure is required by law or trading
market regulations, in which case the Company shall provide the Investors with
prior notice of such disclosure.
9.8 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
9.9 Entire Agreement. This Agreement, including the Exhibits and the
Disclosure Letter, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
9.10 Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
-24-
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A
TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS
THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
9.12 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
[signature page follows]
-25-
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the date first
above written.
The Company: IMMERSION CORPORATION
By: /s/ Victor A Viegas
-----------------------------------------
Name: Victor A. Viegas
Title: President, Chief Executive Officer,
Chief Financial Officer, and Director
-26-
The Investors: SPECIAL SITUATIONS FUND III, L.P.
By: /s/ David M. Greenhouse
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
Aggregate Purchase Price: $3,800,000
Principal Amount of Debentures: $3,800,000
Number of Warrants: 81,121
Address for Notice:
153 E. 53rd Street
55th Floor
New York, NY 10022
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attn: John D. Hogoboom, Esq.
Telephone: 973.597.2500
Facsimile: 973.597.2400
SPECIAL SITUATIONS CAYMAN FUND, L.P.
By: /s/ David M. Greenhouse
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
Aggregate Purchase Price: $1,100,000
Principal Amount of Debentures: $1,100,000
Number of Warrants: 23,482
Address for Notice:
153 E. 53rd Street
55th Floor
New York, NY 10022
-27-
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attn: John D. Hogoboom, Esq.
Telephone: 973.597.2500
Facsimile: 973.597.2400
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By: /s/ David M. Greenhouse
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
Aggregate Purchase Price: $4,000,000
Principal Amount of Debentures: $4,000,000
Number of Warrants: 85,391
153 E. 53rd Street
55th Floor
New York, NY 10022
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attn: John D. Hogoboom, Esq.
Telephone: 973.597.2500
Facsimile: 973.597.2400
SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.
By: /s/ David M. Greenhouse
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
Aggregate Purchase Price: $175,000
Principal Amount of Debentures: $175,000
Number of Warrants: 3,735
-28-
Address for Notice:
153 E. 53rd Street
55th Floor
New York, NY 10022
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attn: John D. Hogoboom, Esq.
Telephone: 973.597.2500
Facsimile: 973.597.2400
SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.
By: /s/ David M. Greenhouse
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
Aggregate Purchase Price: $925,000
Principal Amount of Debentures: $925,000
Number of Warrants: 19,746
Address for Notice:
153 E. 53rd Street
55th Floor
New York, NY 10022
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attn: John D. Hogoboom, Esq.
Telephone: 973.597.2500
Facsimile: 973.597.2400
-29-
DKR SOUNDSHORE OASIS
HOLDING FUND LTD.
By: /s/ Brad Caswell
---------------------------------------------
Name: Brad Caswell
Title: Director
Aggregate Purchase Price: $5,000,000
Principal Amount of Debentures: $5,000,000
Number of Warrants: 106,738
Address for Notice:
1281 East Main Street, 3rd Floor
Stamford, CT 06902-3565
-30-
MORGAN STANLEY & CO., INC.
By: /s/ Andrew Pipa
-----------------------------------------
Name: Andrew Pipa
Title: Authorized Signatory
Aggregate Purchase Price: $5,000,000
Principal Amount of Debentures: $5,000,000
Number of Warrants: 106,738
Address for Notice:
1585 Broadway, Floor #6
New York, NY 10036
-31-
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
5% SENIOR SUBORDINATED CONVERTIBLE DEBENTURE
--------------------------------------------
US$_______________ December 22, 2004
FOR VALUE RECEIVED, Immersion Corporation, a Delaware corporation (the
"Company"), hereby unconditionally promises to pay to the order of
________________ (the "Holder"), having an address at ______________________, at
such address or at such other place as may be designated in writing by the
Holder, or its assigns, the aggregate principal sum of _____________ United
States Dollars ($______________), together with interest from the date set forth
above on the unpaid principal balance of this Debenture outstanding at a rate
equal to five percent (5.0%) (computed on the basis of the actual number of days
elapsed in a 360-day year) per annum and continuing on the outstanding principal
until this 5% Senior Subordinated Convertible Debenture (the "Debenture") is
converted into Common Stock as provided herein or indefeasibly and irrevocably
paid in full by the Company. Interest on this Debenture shall be payable
quarterly on the last day of March, June, September and December of each year
(each, an "Interest Payment Date"), commencing on March 31, 2005, to the Holder
of record on the immediately preceding March 15, June 15, September 15 or
December 15, as applicable (each, an "Interest Record Date"). Subject to the
other provisions of this Debenture, the principal of this Debenture and all
accrued and unpaid interest hereon shall mature and become due and payable on
December 22, 2009 (the "Stated Maturity Date"). Except as provided herein, all
payments of principal and interest by the Company under this Debenture shall be
made in United States dollars in immediately available funds to an account
specified by the Holder.
In the event that any amount due hereunder is not paid when due, such
overdue amount shall bear interest at an annual rate of twelve percent (12%)
until paid. In no event shall any interest charged, collected or reserved under
this Debenture exceed the maximum rate then permitted by applicable law and if
any such payment is paid by the Company, then such excess sum shall be credited
by the Holder as a payment of principal.
This Debenture is one of a series of Debentures (the "Company Debentures")
of like tenor in an aggregate principal amount of Twenty Million United States
Dollars ($20,000,000) issued by the Company pursuant to the terms of the
Purchase Agreement (as defined below).
-1-
1. DEFINITIONS. CAPITALIZED TERMS USED HEREIN SHALL HAVE THE RESPECTIVE
MEANINGS ASCRIBED THERETO IN THE PURCHASE AGREEMENT UNLESS OTHERWISE DEFINED
HEREIN. UNLESS THE CONTEXT OTHERWISE REQUIRES, WHEN USED HEREIN THE FOLLOWING
TERMS SHALL HAVE THE MEANING INDICATED:
"Additional Rights" has the meaning set forth in Section 5 hereof.
"Affiliate" shall mean, with respect to any Person, any other Person which
directly or indirectly through one or more intermediaries Controls, is
controlled by, or is under common control with, such Person.
"Board" shall mean the Board of Directors of Company.
"Business Day" other than a Saturday or Sunday, on which banks in New York
City are open for the general transaction of business.
"Change of Control" means, at any time (i) any Person or any Persons acting
together that would constitute a "group" for purposes of Section 13(d) under the
1934 Act, or any successor provision thereto, shall acquire beneficial ownership
(within the meaning of Rule 13d-3 under the 1934 Act, or any successor provision
thereto) in a single transaction or a series of related transactions, of more
than 50% of the aggregate voting power of the Company; or (ii) the Company
merges into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction, the
stockholders of the Company immediately prior to such transaction own less than
50% of the aggregate voting power of the Company or the successor entity of such
transaction; or (iii) the Company sells or transfers its assets, as an entirety
or substantially as an entirety, to another Person and the stockholders of the
Company immediately prior to such transaction own less than 50% of the aggregate
voting power of the acquiring entity immediately after the transaction; or (iv)
any "change of control" or similar event under any loan agreement, mortgage,
indenture or other agreement relating to any indebtedness for borrowed money of
the Company shall occur and, as a result thereof, such indebtedness shall be
accelerated, the holders thereof shall have the right to cause the Company to
repurchase such indebtedness or any other similar adverse consequence shall
occur and not be waived; or (v) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board (together
with any new directors whose election by the stockholders of the Company was
proposed by a vote of the majority of directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board then in office.
"Common Stock" shall mean the Common Stock, par value $0.001 per share, of
the Company.
"Company" has the meaning set forth in the first paragraph hereof.
-2-
"Company Debentures" has the meaning set forth in the third paragraph
hereof.
"Control" (including the terms "controlling", "controlled by" or "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise
"Conversion Price" shall mean initially $7.0265 per share, subject to
adjustment as provided in Section 6.
"Convertible Securities" has the meaning set forth in Section 5 hereof.
"Debenture" has the meaning set forth in the first paragraph hereof.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Event of Default" has the meaning set forth in Section 6 hereof.
"Excluded Issuances" has the meaning set forth in Section 5 hereof.
"Holder" has the meaning set forth in the first paragraph hereof.
"Indebtedness" has the meaning set forth in Section 7 hereof.
"Interest Payment Date" has the meaning set forth in the first paragraph
hereof.
"Interest Record Date" has the meaning set forth in the first paragraph
hereof.
"Investors" has the meaning set forth in the Purchase Agreement.
"Mandatory Conversion Date" has the meaning set forth in Section 6 hereof.
"Market Price", as of a particular date (the "Valuation Date"), shall mean
the following with respect to any class of securities: (A) if such security is
then listed on a national stock exchange, the Market Price shall be the closing
bid price of one share of such security on such exchange on the last Trading Day
prior to the Valuation Date, provided that if such security has not traded in
the prior ten (10) trading sessions, the Market Price shall be the average
closing bid price of such security in the most recent ten (10) trading sessions
during which such security has traded; (B) if such security is then included in
The Nasdaq Stock Market, Inc. ("Nasdaq"), the Market Price shall be the closing
bid price of one share of such security on Nasdaq on the last Trading Day prior
to the Valuation Date or, if no such closing sale price is available, the
average of the high bid and the low ask price quoted on Nasdaq as of the end of
the last Trading Day prior to the Valuation Date, provided that if such security
has not traded in the prior ten (10) trading sessions, the Market Price shall be
the average closing price of one share of such security in the most recent ten
(10) trading sessions during which such security has traded; (C) if such
security is then included in the Over-the-Counter Bulletin Board, the Market
Price shall be the closing sale price of one share of such security on the
Over-the-Counter Bulletin Board on the last Trading Day prior to the Valuation
-3-
Date or, if no such closing sale price is available, the average of the high bid
and the low ask price quoted on the Over-the-Counter Bulletin Board as of the
end of the last Trading Day prior to the Valuation Date, provided that if such
stock has not traded in the prior ten (10) trading sessions, the Market Price
shall be the average closing price of one share of such security in the most
recent ten (10) trading sessions during which such security has traded; or (D)
if such security is then included in the "pink sheets," the Market Price shall
be the closing sale price of one share of such security on the "pink sheets" on
the last Trading Day prior to the Valuation Date or, if no such closing sale
price is available, the average of the high bid and the low ask price quoted on
the "pink sheets" as of the end of the last Trading Day prior to the Valuation
Date, provided that if such stock has not traded in the prior ten (10) trading
sessions, the Market Price shall be the average closing price of one share of
such security in the most recent ten (10) trading sessions during which such
security has traded.
"Options" has the meaning set forth in Section 5 hereof.
"Permitted Indebtedness" means:
(a) Indebtedness existing on the Closing Date and refinancings, renewals
and extensions of any such Indebtedness if the average life to maturity thereof
is greater than or equal to that of the Indebtedness being refinanced or
extended and if the principal amount thereof is not increased;
(b) Deferred taxes;
(c) Guaranties by any Subsidiary of any "Permitted Indebtedness" of the
Company or another Subsidiary;
(d) Indebtedness of the Company to any Subsidiary and Indebtedness of
any Subsidiary to another Subsidiary which constitutes "Permitted Indebtedness";
(e) Senior Debt and capital lease obligations which do not exceed
$10,000,000 in aggregate principal amount; and
(f) Subordinated Debt.
"Person" means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of
December 22, 2004, and as that agreement may be amended from time to time, by
and among the Company and the Investors.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of December 22, 2004, and as that agreement may be amended
from time to time, by and among the Company and the Investors.
-4-
"Repurchase Date" has the meaning set forth in Section 4 hereof.
"Repurchase Notice" has the meaning set forth in Section 4 hereof.
"Repurchase Price" has the meaning set forth in Section 4 hereof.
"Required Holders" means collectively, (i) any holder of Company Debentures
who, together with its Affiliates, holds 20% or more of the outstanding
principal amount of the Company Debentures, and (ii) the holders of at least a
majority of the outstanding Company Debentures.
"Senior Debt" means Indebtedness which ranks on a parity with or senior to
the Company Debentures in right of payment.
"Stated Maturity Date" has the meaning set forth in the first paragraph
hereof.
"Subordinated Debt" means Indebtedness which is subordinated in right of
payment to the Company Debentures on terms reasonably acceptable to the Majority
Holders.
"Subsidiary" of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board or other governing body
(or, if there are no such voting interests, 50% or more of the equity interests
of which) is owned directly or indirectly by such first Person.
"Trading Day" means (i) if the relevant stock or security is listed or
admitted for trading on The New York Stock Exchange, Inc. or any other national
securities exchange, a day on which such exchange is open for business; (ii) if
the relevant stock or security is quoted on the Nasdaq Stock Market or any other
system of automated dissemination of quotations of securities prices, a day on
which trades may be effected through such system; or (iii) if the relevant stock
or security is not listed or admitted for trading on any national securities
exchange or quoted on the Nasdaq Stock Market or any other system of automated
dissemination of quotation of securities prices, a day on which the relevant
stock or security is traded in a regular way in the over-the-counter market and
for which a closing bid and a closing asked price for such stock or security are
available, shall mean a day, other than a Saturday or Sunday, on which The New
York Stock Exchange, Inc. is open for trading.
"Trigger Issuance" has the meaning set forth in Section 5 hereof.
2. Purchase Agreement. This Debenture is one of the several 5% Senior
Subordinated Convertible Debentures of the Company issued pursuant to the
Purchase Agreement. This Debenture is subject to the terms and conditions of,
and entitled to the benefit of, the provisions of the Purchase Agreement. This
Debenture is transferable and assignable to any Person to whom such transfer is
permissible under the Purchase Agreement and applicable law. The Company agrees
to issue from time to time a replacement Debenture in the form hereof to
facilitate such transfers and assignments. In addition, after delivery of an
indemnity in form and substance reasonably satisfactory to the Company, the
Company also agrees to promptly issue a replacement Debenture if this Debenture
is lost, stolen, mutilated or destroyed.
-5-
3. No Right of Prepayment or Redemption. Except as provided in Section 6
hereof, this Debenture shall not be prepayable or redeemable by the Company
prior to the Stated Maturity Date.
4. Repurchase of the Debenture at the Option of the Holder Upon Change of
Control.
(a) If a Change of Control occurs, this Debenture shall be purchased by
the Company, at the option of the Holder thereof, at a cash purchase price equal
to (i) 110% of the principal amount of this Debenture if the Change of Control
occurs on or prior to the first anniversary of the Closing Date, (ii) 105% of
the principal amount of this Debenture if the Change of Control occurs after the
first anniversary of the Closing Date and on or prior to the second anniversary
of the Closing Date and (iii) 100% of the principal amount of this Debenture if
the Change of Control occurs after the second anniversary of the Closing Date,
plus, in each case, accrued and unpaid interest (the "Repurchase Price") to, but
not including, the date that is 30 days following the date of the notice of a
Change of Control delivered by the Company pursuant to clause (b) below (the
"Repurchase Date"), subject to satisfaction by or on behalf of the Holder of the
requirements set forth in clause (c) below. If the Repurchase Date is on a date
that is after an Interest Record Date and on or prior to the corresponding
Interest Payment Date, the Company shall pay such interest to the holder of
record on the corresponding Interest Record Date and the Repurchase Price shall
not include accrued interest.
(b) No later than 30 days after the occurrence of a Change of Control,
the Company shall give written notice thereof to the Holder, which notice shall
include a form of repurchase notice to be completed by the Holder and shall (i)
state briefly, the events causing a Change of Control and the date of such
Change of Control, (ii) specify the Repurchase Price and (iii) the Repurchase
Date.
(c) The Holder may exercise its rights specified in this Section 4 upon
delivery to the Company of (i) a written notice of purchase (a "Repurchase
Notice") to the Company at any time on or prior to 5:00 p.m., New York time, on
the Repurchase Date stating the portion of the Debenture which the Holder will
deliver to be purchased, which portion must be in principal amounts of $1,000 or
an integral multiple of $1,000, and irrevocably agreeing that such principal
amount of the Debenture shall be purchased by the Company as of the Repurchase
Date and (ii) this Debenture.
(d) In the event that this Debenture is repurchased in part, upon
surrender of this Debenture, the Company shall execute and deliver to the Holder
a new Debenture equal in principal amount to the unpurchased portion of the
Debenture surrendered.
5. Conversion Rights.
(a) Subject to and upon compliance with the provisions of this
Debenture, prior to the Stated Maturity Date, the Holder shall have the right,
at its option at any time, to convert some or all of the Debenture into such
number of fully paid and nonassessable shares of Common Stock as is obtained by:
(i) adding (A) the principal amount of this Debenture to be converted and (B)
-6-
the amount of any accrued but unpaid interest with respect to such portion of
this Debenture to be converted; and (ii) dividing the result obtained pursuant
to clause (i) above by the Conversion Price then in effect The rights of
conversion set forth in this Section 5 shall be exercised by the Holder by
giving written notice to the Company that the Holder elects to convert a stated
amount of this Debenture into Common Stock and by surrender of this Debenture
(or, in lieu thereof, by delivery of an appropriate lost security affidavit in
the event this Debenture shall have been lost or destroyed) to the Company at
its principal office (or such other office or agency of the Company as the
Company may designate by notice in writing to the Holder) at any time on the
date set forth in such notice (which date shall not be earlier than the
Company's receipt of such notice), together with a statement of the name or
names (with address) in which the certificate or certificates for shares of
Common Stock shall be issued.
(b) Promptly after receipt of the written notice referred to in Section
5(a) above and surrender of this Debenture (or, in lieu thereof, by delivery of
an appropriate lost security affidavit in the event this Debenture shall have
been lost or destroyed), but in no event more than three (3) Business Days
thereafter, the Company shall issue and deliver, or cause to be issued and
delivered, to the Holder, registered in such name or names as the Holder may
direct in writing, a certificate or certificates for the number of whole shares
of Common Stock issuable upon the conversion of such portion of this Debenture.
To the extent permitted by law, such conversion shall be deemed to have been
effected, and the Conversion Price shall be determined, as of the close of
business on the date on which such written notice shall have been received by
the Company and this Debenture shall have been surrendered as aforesaid (or, in
lieu thereof, an appropriate lost security affidavit has been delivered to the
Company), and at such time, the rights of the Holder shall cease with respect to
the principal amount and accrued interest of the Debentures being converted, and
the Person or Persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
(c) No fractional shares shall be issued upon any conversion of this
Debenture into Common Stock. If any fractional share of Common Stock would,
except for the provisions of the first sentence of this Section 5(c), be
delivered upon such conversion, the Company, in lieu of delivering such
fractional share, shall pay to the Holder an amount in cash equal to the Market
Price of such fractional share of Common Stock. In case the principal amount of
this Debenture exceeds the principal amount being converted, the Company shall,
upon such conversion, execute and deliver to the Holder, at the expense of the
Company, a new Debenture for the principal amount of this Debenture surrendered
which is not to be converted.
(d) If the Company shall, at any time or from time to time while this
Debenture is outstanding, pay a dividend or make a distribution on its Common
Stock in shares of Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares or combine its outstanding shares of
Common Stock into a smaller number of shares or issue by reclassification of its
outstanding shares of Common Stock any shares of its capital stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then the Conversion Price in effect
immediately prior to the date upon which such change shall become effective,
shall be adjusted by the Company so that the Holder thereafter converting this
Debenture shall be entitled to receive the number of shares of Common Stock or
other capital stock which the Holder would have received if the Debenture had
been converted immediately prior to such event upon payment of a Conversion
Price that has been adjusted to reflect a fair allocation of the economics of
such event to the Holder, without regard to any conversion limitation specified
in this Section 5. Such adjustments shall be made successively whenever any
event listed above shall occur.
-7-
(e) If any capital reorganization, reclassification of the capital stock
of the Company, consolidation or merger of the Company with another corporation
in which the Company is not the survivor, or sale, transfer or other disposition
of all or substantially all of the Company's assets to another corporation shall
be effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate
provision shall be made whereby the Holder shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions herein
specified and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion of this Debenture such shares of stock, securities or
assets as would have been issuable or payable with respect to or in exchange for
a number of shares of Common Stock equal to the number of shares of Common Stock
immediately theretofore issuable upon conversion of this Debenture, had such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the Holder to the end that the
provisions hereof (including, without limitation, provision for adjustment of
the Conversion Price) shall thereafter be applicable, as nearly equivalent as
may be practicable in relation to any shares of stock, securities or assets
thereafter deliverable upon the conversion hereof. The Company shall not effect
any such consolidation, merger, sale, transfer or other disposition unless prior
to or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger, or the
corporation purchasing or otherwise acquiring such assets or other appropriate
corporation or entity shall assume the obligation to deliver to the Holder, at
the last address of the Holder appearing on the books of the Company, such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase, without regard to any
conversion limitation specified in Section 5, and the other obligations under
this Debenture. The provisions of this paragraph (e) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales,
transfers or other dispositions.
(f) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 5(d)), or
subscription rights or Debentures, the Conversion Price to be in effect after
such payment date shall be determined by multiplying the Conversion Price in
effect immediately prior to such payment date by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding multiplied
by the Market Price of Common Stock immediately prior to such payment date, less
the fair market value (as determined by the Board in good faith) of said assets
or evidences of indebtedness so distributed, or of such subscription rights or
Debentures, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such Market Price immediately prior to
such payment date. Such adjustment shall be made successively whenever such a
payment date is fixed.
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(g) An adjustment to the Conversion Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.
(h) In the event that, as a result of an adjustment made pursuant to
this Section 5, the Holder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon conversion of this Debenture shall be
subject thereafter to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions contained in this Debenture.
(i) Except as provided in Section 5(j) hereof, if and whenever the
Company shall issue or sell, or is, in accordance with any of Sections 5(i)(i)
through 5(i)(viii) hereof, deemed to have issued or sold, any shares of Common
Stock for no consideration or for a consideration per share less than the
Conversion Price in effect immediately prior to the time of such issue or sale,
then and in each such case (a "Trigger Issuance") the then-existing Conversion
Price, shall be reduced, as of the close of business on the effective date of
the Trigger Issuance, to a price determined as follows:
Adjusted Conversion Price = (A x B) + D
-----------
A+C
where
"A" equals the number of shares of Common Stock
outstanding, including Additional Shares of Common Stock (as defined below)
deemed to be issued hereunder, immediately preceding such Trigger Issuance;
"B" equals the Conversion Price in effect immediately
preceding such Trigger Issuance;
"C" equals the number of Additional Shares of Common Stock
issued or deemed issued hereunder as a result of the Trigger Issuance; and
"D" equals the aggregate consideration, if any, received
or deemed to be received by the Company upon such Trigger Issuance;
provided, however, that in no event shall the Conversion Price after giving
effect to such Trigger Issuance be greater than the Conversion Price in effect
prior to such Trigger Issuance.
For purposes of this subsection (i), "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued by the Company or deemed to be
issued pursuant to this subsection (i), other than Excluded Issuances (as
defined in subsection (j) hereof).
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For purposes of this Section 5(i), the following subsections (i)(i) to
(i)(vii) shall also be applicable (subject, in each such case, to the provisions
of Section 5(j) hereof):
(i) In case at any time the Company shall in any manner grant (directly
and not by assumption in a merger or otherwise) any Debentures or other rights
to subscribe for or to purchase, or any options for the purchase of, Common
Stock or any stock or security convertible into or exchangeable for Common Stock
(such Debentures, rights or options being called "Options" and such convertible
or exchangeable stock or securities being called "Convertible Securities")
whether or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the sum (which sum shall constitute the applicable consideration) of (x) the
total amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus (y) the aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options, plus
(z), in the case of such Options which relate to Convertible Securities, the
aggregate amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Market Price of the Common Stock immediately prior to the time of the
granting of such Options, then the total number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued for such price per share as of the
date of granting of such Options or the issuance of such Convertible Securities
and thereafter shall be deemed to be outstanding for purposes of adjusting the
Conversion Price. Except as otherwise provided in subsection 5(i)(iii), no
adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such Options or
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) In case the Company shall in any manner issue (directly and not by
assumption in a merger or otherwise) or sell any Convertible Securities, whether
or not the rights to exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the sum
(which sum shall constitute the applicable consideration) of (x) the total
amount received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus (y) the aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be less than
the Market Price of the Common Stock immediately prior to the time of such issue
or sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued for such price per share as of the date of the issue or sale of
such Convertible Securities and thereafter shall be deemed to be outstanding for
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purposes of adjusting the Conversion Price, provided that (a) except as
otherwise provided in subsection 5(i)(iii), no adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities and (b) no further
adjustment of the Conversion Price shall be made by reason of the issue or sale
of Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Conversion Price have been
made pursuant to the other provisions of subsection 6(i).
(iii) Upon the happening of any of the following events, namely, if the
purchase price provided for in any Option referred to in subsection 5(i)(i)
hereof, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subsections 5(i)(i) or
5(i)(ii), or the rate at which Convertible Securities referred to in subsections
5(i)(i) or 5(i)(ii) are convertible into or exchangeable for Common Stock shall
change at any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Conversion Price in effect
at the time of such event shall forthwith be readjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the termination of any Option for which
any adjustment was made pursuant to this subsection 5(i) or any right to convert
or exchange Convertible Securities for which any adjustment was made pursuant to
this subsection 5(i) (including without limitation upon the redemption or
purchase for consideration of such Convertible Securities by the Company), the
Conversion Price then in effect hereunder shall forthwith be changed to the
Conversion Price which would have been in effect at the time of such termination
had such Option or Convertible Securities, to the extent outstanding immediately
prior to such termination, never been issued.
(iv) Subject to the provisions of this Section 5(i), in case the Company
shall declare a dividend or make any other distribution upon any stock of the
Company (other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(v) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the net amount received by the Company therefor, after
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith. In case any
shares of Common Stock, Options or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Company shall be deemed to be the fair value of such
consideration as determined in good faith by the Board, after deduction of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith. In case any Options shall be issued in
connection with the issue and sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued for such consideration as determined in good faith by the
Board of the Company. If Common Stock, Options or Convertible Securities shall
be issued or sold by the Company and, in connection therewith, other Options or
-11-
Convertible Securities (the "Additional Rights") are issued, then the
consideration received or deemed to be received by the Company shall be reduced
by the fair market value of the Additional Rights (as determined using the
Black-Scholes option pricing model or another method mutually agreed to by the
Company and the Holder). The Board shall respond promptly, in writing, to an
inquiry by the Holder as to the fair market value of the Additional Rights. In
the event that the Board and the Holder are unable to agree upon the fair market
value of the Additional Rights, the Company and the Holder shall jointly select
an appraiser, who is experienced in such matters. The decision of such appraiser
shall be final and conclusive, and the cost of such appraiser shall be borne
evenly by the Company and the Holder.
(vi) In case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(vii) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the Company or
any of its wholly-owned subsidiaries, and the disposition of any such shares
(other than the cancellation or retirement thereof) shall be considered an issue
or sale of Common Stock for the purpose of this subsection (i).
(viii) Notwithstanding any other provision in Section 5(i) to the
contrary, if a reduction in the Conversion Price pursuant to Section 5(i) (other
than as set forth in this clause (viii)) would require the Company to obtain
stockholder approval of the transactions contemplated by the Purchase Agreement
pursuant to Nasdaq Marketplace Rule 4350(i) and such stockholder approval has
not been obtained, (i) the Conversion Price shall be reduced to the maximum
extent that would not require stockholder approval under such Rule, and (ii) the
Company shall use its commercially reasonable efforts to obtain such stockholder
approval as soon as reasonably practicable, including by calling a special
meeting of stockholders to vote on such Conversion Price adjustment.
(j) Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Conversion Price in the case of
the issuance of (A) capital stock, Options or Convertible Securities issued to
directors, officers, employees or consultants of the Company in connection with
their service as directors of the Company, their employment by the Company or
their retention as consultants by the Company pursuant to an equity compensation
program approved by the Board or the compensation committee of the Board, (B)
shares of Common Stock issued upon the conversion or exercise of Options or
Convertible Securities issued prior to the date hereof, provided such securities
are not amended after the date hereof, (C) securities issued pursuant to the
Purchase Agreement and securities issued upon the exercise or conversion of
those securities, and (D) shares of Common Stock issued or issuable by reason of
a dividend, stock split or other distribution on shares of Common Stock (but
only to the extent that such a dividend, split or distribution results in an
adjustment in the Conversion Price pursuant to the other provisions of this
Debenture) (collectively, "Excluded Issuances").
-12-
(k) In case at any time:
(i) the Company shall declare any dividend upon its Common Stock or any
other class or series of capital stock of the Company payable in cash or stock
or make any other distribution to the holders of its Common Stock or any such
other class or series of capital stock;
(ii) the Company shall offer for subscription pro rata to the holders of
its Common Stock or any other class or series of capital stock of the Company
any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, any acquisition or a liquidation, dissolution
or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by delivery in
person or by certified or registered mail, return receipt requested, addressed
to the Holder at the address of such Holder as shown on the books of the
Company, (a) at least 20 Business Days' prior written notice of the date on
which the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any event set forth in clause (iii) of this Section 5(k) and (b)
in the case of any event set forth in clause (iii) of this Section 5(k), at
least 20 Business Days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock or such other class or series of
capital stock shall be entitled thereto and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Common
Stock and such other series or class of capital stock shall be entitled to
exchange their Common Stock and other stock for securities or other property
deliverable upon consummation of the applicable event set forth in clause (iii)
of this Section 5(k).
(l) Upon any adjustment of the Conversion Price, then and in each such
case the Company shall give prompt written notice thereof, by delivery in person
or by certified or registered mail, return receipt requested, addressed to the
Holder at the address of such Holder as shown on the books of the Company, which
notice shall state the Conversion Price resulting from such adjustment and
setting forth in reasonable detail the method upon which such calculation is
based.
(m) The Company shall at all times to reserve and keep available out of
its authorized Common Stock, solely for the purpose of issuance upon conversion
of this Debenture as herein provided, such number of shares of Common Stock as
shall then be issuable upon the conversion of this Debenture. The Company
covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and nonassessable, and free from all taxes,
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liens and charges with respect to the issue thereof, and, without limiting the
generality of the foregoing, and that the Company will from time to time take
all such action as may be requisite to assure that the par value per share of
the Common Stock is at all times equal to or less than the Conversion Price in
effect at the time. The Company shall take all such action as may be necessary
to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirement of any
national securities exchange upon which the Common Stock may be listed. The
Company shall not take any action which results in any adjustment of the
Conversion Price if the total number of shares of Common Stock issued and
issuable after such action upon conversion of this Debenture would exceed the
total number of shares of Common Stock then authorized by the Company's
Certificate of Incorporation.
(n) The issuance of certificates for shares of Common Stock upon
conversion of this Debenture shall be made without charge to the holders thereof
for any issuance tax in respect thereof, provided that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
Holder.
(o) The Company will not at any time close its transfer books against
the transfer, as applicable, of this Debenture or of any shares of Common Stock
issued or issuable upon the conversion of this Debenture in any manner which
interferes with the timely conversion of this Debenture, except as may otherwise
be required to comply with applicable securities laws.
(p) To the extent permitted by applicable law and the listing
requirements of the Nasdaq Stock Market and any exchange on which the Common
Stock is then listed, the Company from time to time may decrease the Conversion
Price by any amount for any period of time if the period is at least twenty (20)
days, the decrease is irrevocable during the period and the Board shall have
made a determination that such decrease would be in the best interests of the
Company, which determination shall be conclusive. Whenever the Conversion Price
is decreased pursuant to the preceding sentence, the Company shall provide
written notice thereof to the Holder at least fifteen (15) days prior to the
date the decreased Conversion Price takes effect, and such notice shall state
the decreased Conversion Price and the period during which it will be in effect.
6. Mandatory Redemption and Mandatory Conversion Options. Notwithstanding
any other provision contained herein to the contrary, in the event that the
closing bid price of a share of Common Stock as traded on the Nasdaq (or such
other exchange or stock market on which the Common Stock may then be listed or
quoted) equals or exceeds 200% of the Conversion Price then in effect for twenty
(20) consecutive Trading Days commencing after the first anniversary of the
Closing Date, the Company, upon thirty (30) days prior written notice (the
"Notice Period") given to the Holder within one Business Day immediately
following the end of such twenty (20) Trading Day period, may (i) redeem this
Debenture (the "Mandatory Redemption Option") or (ii) effect the mandatory
conversion of this Debenture (the "Mandatory Conversion Option") effective as of
the close of business on the date of such notice (the "Mandatory Date");
provided that (i) the Company simultaneously gives a similar notice to all
holders of Company Debentures (as defined below) and (ii) all of the shares of
Common Stock issuable hereunder either (A) are registered pursuant to an
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effective Registration Statement (as defined in the Registration Rights
Agreement) which has not been suspended and for which no stop order is in
effect, and pursuant to which the Holder is able to sell such shares of Common
Stock at all times during the Notice Period or (B) no longer constitute
Registrable Securities (as defined in the Registration Rights Agreement). From
and after such Mandatory Date this Debenture shall cease to accrue interest,
shall cease to be outstanding and shall represent only the right (i) to receive
payment of the principal amount and interest accrued on this Debenture as of the
Mandatory Date, in the case of the Company's exercise of the Mandatory
Redemption Option or (ii) to receive shares of Common Stock upon compliance with
the provisions of Sections 5(a) and (b) hereof, in the case of the Company's
exercise of the Mandatory Conversion Option. Notwithstanding the Company's
exercise of the Mandatory Redemption Option, this Debenture shall continue to be
convertible into shares of Common Stock as provided in this Debenture prior to
the close of business on the Mandatory Date.
7. Covenants.
(a) Indebtedness Covenant. The Company agrees that, so long as any
amount payable under this Debenture remains unpaid, it will not, and will cause
its Subsidiaries not to, without the prior written consent of the Majority
Holders: create, incur, guarantee, issue, assume or in any manner become liable
in respect of, any obligation (i) for borrowed money, other than trade payables
incurred in the ordinary course of business, (ii) evidenced by bonds,
debentures, notes, or other similar instruments, (iii) in respect of letters of
credit or other similar instruments (or reimbursement obligations with respect
thereto), except letters of credit or other similar instruments issued to secure
payment of trade payables arising in the ordinary course of business consistent
with past practices, (iv) to pay the deferred purchase price of property or
services, except trade payables arising in the ordinary course of business
consistent with past practices, (v) as lessee under capitalized leases, (vi)
secured by a Lien (as defined below) on any asset of the Company or a
Subsidiary, whether or not such obligation is assumed by the Company or such
Subsidiary and (vii) of any other Person (collectively, "Indebtedness"), other
than Permitted Indebtedness.
(b) Subordination to Senior Debt. By its acceptance of this Debenture,
Holder agrees that the Company's obligations to it hereunder shall be
subordinated to the Senior Debt as provided herein. Upon any distribution of the
Company's assets in the event of any dissolution or winding up or total or
partial liquidation or reorganization, whether voluntary or involuntary, or
adjustment or protection or relief or composition of the Company or the
Company's debts, or in any bankruptcy, insolvency, receivership, arrangement,
reorganization, relief or other proceeding of the Company or upon an arrangement
for the benefit of the Company's creditors or any other marshalling of the
Company's assets and liabilities, all Senior Debt shall first be paid in full,
in cash, before Holder may receive any distribution with respect to the
Company's obligations hereunder. Holder may receive regularly scheduled
principal and interest installments of the Company's obligations hereunder as
they become due and payable, without acceleration, in accordance with the terms
hereof; however (i) if a payment default occurs with respect to the Senior Debt,
no payment may be made with respect to the Company's obligations hereunder
unless and until such default is cured or waived and (ii) if a non-payment
default occurs with respect to the Senior Debt (a "Non-Payment Default"), no
payment may be made with respect to the Company's obligations hereunder until
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one hundred eighty (180) days have elapsed from the happening of such default if
the holder of the Senior Debt gives the Company notice of the default, unless
the maturity of the defaulted Senior Debt is accelerated during such period, in
which case no payment may be made with respect to the Company's obligations
hereunder unless and until such acceleration is rescinded, whether by action of
the Senior Debt holder or by cure or waiver of the default. No more than one
payment blockage may be declared by the holder of Senior Debt based on a
Non-Payment Default during any 360 day period. In no event shall the provisions
of this Section 7(b) be deemed to relieve the Company of its obligation, which
is absolute and unconditional, to pay the principal, premium, if any, and
interest on this Debenture when due.
8. Event of Default. The occurrence of any of following events shall
constitute an "Event of Default" hereunder:
(a) the failure of the Company to make any payment of principal on this
Debenture when due, whether at maturity, upon acceleration or otherwise;
(b) the failure of the Company to make any payment of interest on this
Debenture, or any other amounts due under the Purchase Agreement, the
Registration Rights Agreement, this Debenture or the Warrants when due, whether
at maturity, upon acceleration or otherwise, and such failure continues for more
than five (5) days;
(c) the Company and/or its Subsidiaries fail to make a required payment
or payments on Indebtedness of Two Hundred Fifty Thousand United States Dollars
($250,000) or more in aggregate principal amount and such failure continues for
more than ten (10) days;
(d) there shall have occurred an acceleration of the stated maturity of
any Indebtedness of the Company or its Subsidiaries of Two Hundred Fifty
Thousand United States Dollars ($250,000) or more in aggregate principal amount
(which acceleration is not rescinded, annulled or otherwise cured within ten
(10) days of receipt by the Company or a Subsidiary of notice of such
acceleration);
(e) the Company makes an assignment for the benefit of creditors or
admits in writing its inability to pay its debts generally as they become due;
or an order, judgment or decree is entered adjudicating the Company as bankrupt
or insolvent; or any order for relief with respect to the Company is entered
under the Federal Bankruptcy Code or any other bankruptcy or insolvency law; or
the Company petitions or applies to any tribunal for the appointment of a
custodian, trustee, receiver or liquidator of the Company or of any substantial
part of the assets of the Company, or commences any proceeding relating to it
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction; or any such petition
or application is filed, or any such proceeding is commenced, against the
Company and either (i) the Company by any act indicates its approval thereof,
consents thereto or acquiescence therein or (ii) such petition application or
proceeding is not dismissed within sixty (60) days;
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(f) a final, non-appealable judgment which, in the aggregate with other
outstanding final judgments against the Company and its Subsidiaries, exceeds
One Hundred Thousand United States Dollars ($100,000) shall be rendered against
the Company or a Subsidiary and within sixty (60) days after entry thereof, such
judgment is not discharged or execution thereof stayed pending appeal, or within
sixty (60) days after the expiration of such stay, such judgment is not
discharged;
(g) the Company is in breach of the requirements of Section 7 hereof;
(h) if any representation or statement of fact made in the Purchase
Agreement or furnished to the Holder at any time by or on behalf of the Company
proves to have been false in any material respect when made or furnished; or
(i) if the Company fails to observe or perform in any material respect
any of its covenants contained in the Purchase Agreement, the Registration
Rights Agreement, the Warrants or this Debenture (other than any failure which
is covered by Section 8(a), (b) or (g)), and such failure continues for thirty
(30) days after receipt by the Company of notice thereof.
Upon the occurrence of any such Event of Default all unpaid
principal and accrued interest under this Debenture shall become immediately due
and payable (A) upon election of the Holder, with respect to (a) through (d) and
(f) through (i), and (B) automatically, with respect to (e). Upon the occurrence
of an Event of Default, the Holder shall have the right to exercise any other
right, power or remedy as may be provided herein or as may be provided at law or
in equity.
9. No Waiver. No delay or omission on the part of the Holder in exercising
any right under this Debenture shall operate as a waiver of such right or of any
other right of the Holder, nor shall any delay, omission or waiver on any one
occasion be deemed a bar to or waiver of the same or any other right on any
future occasion.
10. Amendments in Writing. Any term of this Debenture may be amended or
waived upon the written consent of the Company and the Required Holders;
provided, that (x) any such amendment or waiver must apply to all outstanding
Company Debentures; and (y) without the consent of the Holder hereof, no
amendment or waiver shall (i) change the Stated Maturity Date of this Debenture,
(ii) reduce the principal amount of this Debenture or the interest rate due
hereon, (iii) change the Conversion Price or (iv) change the place of payment of
this Debenture. No such waiver or consent on any one instance shall be construed
to be a continuing waiver or a waiver in any other instance unless it expressly
so provides.
11. Waivers. The Company hereby forever waives presentment, demand,
presentment for payment, protest, notice of protest, notice of dishonor of this
Debenture and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Debenture.
12. Waiver of Jury Trial. EACH OF THE COMPANY AND, BY ACCEPTING THIS
DEBENTURE, THE HOLDER, HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS NOTE OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. EACH
OF THE COMPANY AND THE HOLDER HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
-17-
13. Governing Law; Consent to Jurisdiction. This Debenture shall be
governed by and construed under the law of the State of New York, without giving
effect to the conflicts of law principles thereof. The Company and, by accepting
this Debenture, the Holder, each irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Debenture and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Debenture. The Company and, by accepting this
Debenture, the Holder, each irrevocably consents to the jurisdiction of any such
court in any such suit, action or proceeding and to the laying of venue in such
court. The Company and, by accepting this Debenture, the Holder, each
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
14. Costs. If an Event of Default has occurred and is continuing and an
action is instituted to collect on this Debenture, the Company promises to pay
all costs and expenses, including reasonable attorney's fees, incurred in
connection with such action.
15. Notices. All notices hereunder shall be given in writing and shall be
deemed delivered when received by the other party hereto at the address set
forth in the Purchase Agreement or at such other address as may be specified by
such party from time to time in accordance with the Purchase Agreement.
16. Successors and Assigns. This Debenture shall be binding upon the
successors or assigns of the Company and shall inure to the benefit of the
successors and assigns of the Holder.
[Remainder of Page Intentionally Left Blank]
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IMMERSION CORPORATION
By:
---------------------------
Name:
Title:
-19-
THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID
AFTER 5:00 P.M. EASTERN TIME ON DECEMBER 23, 2009 (the "EXPIRATION DATE").
No. __________
IMMERSION CORPORATION
WARRANT TO PURCHASE _______ SHARES OF
COMMON STOCK, PAR VALUE $0.001 PER SHARE
For VALUE RECEIVED, ____________________ ("Warrantholder"), is entitled to
purchase, subject to the provisions of this Warrant, from Immersion Corporation,
a Delaware corporation ("Company"), at any time not later than 5:00 P.M.,
Eastern time, on the Expiration Date (as defined above), at an exercise price
per share equal to $7.0265 (the exercise price in effect being herein called the
"Warrant Price"), ______ shares ("Warrant Shares") of the Company's Common
Stock, par value $0.001 per share ("Common Stock"). The number of Warrant Shares
purchasable upon exercise of this Warrant and the Warrant Price shall be subject
to adjustment from time to time as described herein.
Section 1. Registration. The Company shall maintain books for the transfer
and registration of the Warrant. Upon the initial issuance of this Warrant, the
Company shall issue and register the Warrant in the name of the Warrantholder.
Section 2. Transfers. As provided herein, this Warrant may be transferred
only pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Securities Act"), or an exemption from such registration.
Subject to such restrictions, the Company shall transfer this Warrant from time
to time upon the books to be maintained by the Company for that purpose, upon
surrender thereof for transfer properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be reasonably required
by the Company, including, if required by the Company, an opinion of its counsel
to the effect that such transfer is exempt from the registration requirements of
the Securities Act, to establish that such transfer is being made in accordance
with the terms hereof, and a new Warrant shall be issued to the transferee and
the surrendered Warrant shall be canceled by the Company.
-1-
Section 3. Exercise of Warrant. Subject to the provisions hereof, the
Warrantholder may exercise this Warrant in whole or in part at any time prior to
its expiration upon surrender of the Warrant, together with delivery of the duly
executed Warrant exercise form attached hereto as Appendix A (the "Exercise
Agreement") and payment by cash, certified check or wire transfer of funds for
the aggregate Warrant Price for that number of Warrant Shares then being
purchased, to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Warrantholder). The Warrant Shares
so purchased shall be deemed to be issued to the Warrantholder or the
Warrantholder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered (or
evidence of loss, theft or destruction thereof and security or indemnity
satisfactory to the Company), the Warrant Price shall have been paid and the
completed Exercise Agreement shall have been delivered. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Warrantholder
within a reasonable time, not exceeding three (3) business days, after this
Warrant shall have been so exercised. The certificates so delivered shall be in
such denominations as may be requested by the Warrantholder and shall be
registered in the name of the Warrantholder or such other name as shall be
designated by the Warrantholder. If this Warrant shall have been exercised only
in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the
Warrantholder a new Warrant representing the number of shares with respect to
which this Warrant shall not then have been exercised. As used herein, "business
day" means a day, other than a Saturday or Sunday, on which banks in New York
City are open for the general transaction of business. Each exercise hereof
shall constitute the re-affirmation by the Warrantholder that the
representations and warranties contained in Section 5 of the Purchase Agreement
(as defined below) are true and correct in all material respects with respect to
the Warrantholder as of the time of such exercise.
Section 4. Compliance with the Securities Act of 1933. Except as provided
in the Purchase Agreement (as defined below), the Company may cause the legend
set forth on the first page of this Warrant to be set forth on each Warrant or
similar legend on any security issued or issuable upon exercise of this Warrant,
unless counsel for the Company is of the opinion as to any such security that
such legend is unnecessary.
Section 5. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the Warrantholder in respect of which such shares are
issued, and in such case, the Company shall not be required to issue or deliver
any certificate for Warrant Shares or any Warrant until the person requesting
the same has paid to the Company the amount of such tax or has established to
the Company's reasonable satisfaction that such tax has been paid. The
Warrantholder shall be responsible for income taxes due under federal, state or
other law, if any such tax is due.
-2-
Section 6. Mutilated or Missing Warrants. In case this Warrant shall be
mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and for the purchase of a like number of Warrant Shares, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of the Warrant, and with respect to a lost, stolen or
destroyed Warrant, reasonable indemnity or bond with respect thereto, if
requested by the Company.
Section 7. Reservation of Common Stock. The Company hereby represents and
warrants that there have been reserved, and the Company shall at all applicable
times keep reserved until issued (if necessary) as contemplated by this Section
7, out of the authorized and unissued shares of Common Stock, sufficient shares
to provide for the exercise of the rights of purchase represented by this
Warrant. The Company agrees that all Warrant Shares issued upon due exercise of
the Warrant shall be, at the time of delivery of the certificates for such
Warrant Shares, duly authorized, validly issued, fully paid and non-assessable
shares of Common Stock of the Company.
Section 8. Adjustments. Subject and pursuant to the provisions of this
Section 8, the Warrant Price and number of Warrant Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter.
(a) If the Company shall, at any time or from time to time while this
Warrant is outstanding, pay a dividend or make a distribution on its Common
Stock in shares of Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares or combine its outstanding shares of
Common Stock into a smaller number of shares or issue by reclassification of its
outstanding shares of Common Stock any shares of its capital stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then the number of Warrant Shares
purchasable upon exercise of the Warrant and the Warrant Price in effect
immediately prior to the date upon which such change shall become effective,
shall be adjusted by the Company so that the Warrantholder thereafter exercising
the Warrant shall be entitled to receive the number of shares of Common Stock or
other capital stock which the Warrantholder would have received if the Warrant
had been exercised immediately prior to such event upon payment of a Warrant
Price that has been adjusted to reflect a fair allocation of the economics of
such event to the Warrantholder. Such adjustments shall be made successively
whenever any event listed above shall occur.
(b) If any capital reorganization, reclassification of the capital stock
of the Company, consolidation or merger of the Company with another corporation
in which the Company is not the survivor, or sale, transfer or other disposition
of all or substantially all of the Company's assets to another corporation shall
be effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate
provision shall be made whereby each Warrantholder shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets as would have been issuable or payable with respect to or in exchange for
-3-
a number of Warrant Shares equal to the number of Warrant Shares immediately
theretofore issuable upon exercise of the Warrant, had such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of each Warrantholder to the end that the
provisions hereof (including, without limitation, provision for adjustment of
the Warrant Price) shall thereafter be applicable, as nearly equivalent as may
be practicable in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any such consolidation, merger, sale, transfer or other disposition unless prior
to or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger, or the
corporation purchasing or otherwise acquiring such assets or other appropriate
corporation or entity shall assume the obligation to deliver to the
Warrantholder, at the last address of the Warrantholder appearing on the books
of the Company, such shares of stock, securities or assets as, in accordance
with the foregoing provisions, the Warrantholder may be entitled to purchase,
and the other obligations under this Warrant. The provisions of this paragraph
(b) shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers or other dispositions.
(c) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 8(a)), or
subscription rights or warrants, the Warrant Price to be in effect after such
payment date shall be determined by multiplying the Warrant Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price (as defined below) per share of Common Stock immediately prior
to such payment date, less the fair market value (as determined by the Company's
Board of Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding multiplied
by such Market Price per share of Common Stock immediately prior to such payment
date. "Market Price" as of a particular date (the "Valuation Date") shall mean
the following: (a) if the Common Stock is then listed on a national stock
exchange, the closing sale price of one share of Common Stock on such exchange
on the last trading day prior to the Valuation Date; (b) if the Common Stock is
then quoted on The Nasdaq Stock Market, Inc. ("Nasdaq"), the National
Association of Securities Dealers, Inc. OTC Bulletin Board (the "Bulletin
Board") or such similar exchange or association, the closing sale price of one
share of Common Stock on Nasdaq, the Bulletin Board or such other exchange or
association on the last trading day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low asked
price quoted thereon on the last trading day prior to the Valuation Date; or (c)
if the Common Stock is not then listed on a national stock exchange or quoted on
Nasdaq, the Bulletin Board or such other exchange or association, the fair
market value of one share of Common Stock as of the Valuation Date, shall be
determined in good faith by the Board of Directors of the Company and the
Warrantholder. If the Common Stock is not then listed on a national securities
exchange, the Bulletin Board or such other exchange or association, the Board of
-4-
Directors of the Company shall respond promptly, in writing, to an inquiry by
the Warrantholder prior to the exercise hereunder as to the fair market value of
a share of Common Stock as determined by the Board of Directors of the Company.
In the event that the Board of Directors of the Company and the Warrantholder
are unable to agree upon the fair market value in respect of subpart (c) hereof,
the Company and the Warrantholder shall jointly select an appraiser, who is
experienced in such matters. The decision of such appraiser shall be final and
conclusive, and the cost of such appraiser shall be borne equally by the Company
and the Warrantholder. Such adjustment shall be made successively whenever such
a payment date is fixed.
(d) An adjustment to the Warrant Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.
(e) In the event that, as a result of an adjustment made pursuant to
this Section 8, the Warrantholder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon exercise of this Warrant shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Warrant.
(f) Except as provided in subsection (g) hereof, if and whenever the
Company shall issue or sell, or is, in accordance with any of subsections (f)(l)
through (f)(7) hereof, deemed to have issued or sold, any shares of Common Stock
for no consideration or for a consideration per share less than the Warrant
Price in effect immediately prior to the time of such issue or sale, then and in
each such case (a "Trigger Issuance") the then-existing Warrant Price, shall be
reduced, as of the close of business on the effective date of the Trigger
Issuance, to a price determined as follows:
Adjusted Warrant Price = (A x B) + D
-----------
A+C
where
"A" equals the number of shares of Common Stock
outstanding, including Additional Shares of Common Stock (as defined below)
deemed to be issued hereunder, immediately preceding such Trigger Issuance;
"B" equals the Warrant Price in effect immediately
preceding such Trigger Issuance;
"C" equals the number of Additional Shares of Common Stock
issued or deemed issued hereunder as a result of the Trigger Issuance; and
-5-
"D" equals the aggregate consideration, if any, received
or deemed to be received by the Company upon such Trigger Issuance;
provided, however, that in no event shall the Warrant Price after giving effect
to such Trigger Issuance be greater than the Warrant Price in effect prior to
such Trigger Issuance.
For purposes of this subsection (f), "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued by the Company or deemed to be
issued pursuant to this subsection (f), other than Excluded Issuances (as
defined in subsection (g) hereof).
For purposes of this subsection (f), the following subsections (f)(l) to
(f)(8) shall also be applicable:
(f)(1) Issuance of Rights or Options. In case at any time the Company
shall in any manner grant (directly and not by assumption in a merger
or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any
stock or security convertible into or exchangeable for Common Stock
(such warrants, rights or options being called "Options" and such
convertible or exchangeable stock or securities being called
"Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i)
the sum (which sum shall constitute the applicable consideration) of
(x) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus (y) the aggregate
amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options
which relate to Convertible Securities, the aggregate amount of
additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such Options) shall be less than the Warrant Price in effect
immediately prior to the time of the granting of such Options, then
the total number of shares of Common Stock issuable upon the exercise
of such Options or upon conversion or exchange of the total amount of
such Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per share as of the
date of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding for
purposes of adjusting the Warrant Price. Except as otherwise provided
in subsection 8(f)(3), no adjustment of the Warrant Price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible
Securities.
-6-
(f)(2) Issuance of Convertible Securities. In case the Company shall
in any manner issue (directly and not by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible
Securities, plus (y) the aggregate amount of additional consideration,
if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities)
shall be less than the Warrant Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be
outstanding for purposes of adjusting the Warrant Price, provided that
(a) except as otherwise provided in subsection 8(f)(3), no adjustment
of the Warrant Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible
Securities and (b) no further adjustment of the Warrant Price shall be
made by reason of the issue or sale of Convertible Securities upon
exercise of any Options to purchase any such Convertible Securities
for which adjustments of the Warrant Price have been made pursuant to
the other provisions of subsection 8(f).
(f)(3) Change in Option Price or Conversion Rate. Upon the happening
of any of the following events, namely, if the purchase price provided
for in any Option referred to in subsection 8(f)(l) hereof, the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subsections
8(f)(l) or 8(f)(2), or the rate at which Convertible Securities
referred to in subsections 8(f)(l) or 8(f)(2) are convertible into or
exchangeable for Common Stock shall change at any time (including, but
not limited to, changes under or by reason of provisions designed to
protect against dilution), the Warrant Price in effect at the time of
such event shall forthwith be readjusted to the Warrant Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold. On the termination of any
Option for which any adjustment was made pursuant to this subsection
8(f) or any right to convert or exchange Convertible Securities for
which any adjustment was made pursuant to this subsection 8(f)
(including without limitation upon the redemption or purchase for
consideration of such Convertible Securities by the Company), the
Warrant Price then in effect hereunder shall forthwith be changed to
the Warrant Price which would have been in effect at the time of such
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been issued.
-7-
(f)(4) Stock Dividends. Subject to the provisions of this Section
8(f), in case the Company shall declare a dividend or make any other
distribution upon any stock of the Company (other than the Common
Stock) payable in Common Stock, Options or Convertible Securities,
then any Common Stock, Options or Convertible Securities, as the case
may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(f)(5) Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash,
the consideration received therefor shall be deemed to be the net
amount received by the Company therefor, after deduction therefrom of
any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed
to be the fair value of such consideration as determined in good faith
by the Board of Directors of the Company, after deduction of any
expenses incurred or any underwriting commissions or concessions paid
or allowed by the Company in connection therewith. In case any Options
shall be issued in connection with the issue and sale of other
securities of the Company, together comprising one integral
transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have
been issued for such consideration as determined in good faith by the
Board of Directors of the Company. If Common Stock, Options or
Convertible Securities shall be issued or sold by the Company and, in
connection therewith, other Options or Convertible Securities (the
"Additional Rights") are issued, then the consideration received or
deemed to be received by the Company shall be reduced by the fair
market value of the Additional Rights (as determined using the
Black-Scholes option pricing model or another method mutually agreed
to by the Company and the Warrantholder). The Board of Directors of
the Company shall respond promptly, in writing, to an inquiry by the
Warrantholder as to the fair market value of the Additional Rights. In
the event that the Board of Directors of the Company and the
Warrantholder are unable to agree upon the fair market value of the
Additional Rights, the Company and the Warrantholder shall jointly
select an appraiser, who is experienced in such matters. The decision
of such appraiser shall be final and conclusive, and the cost of such
appraiser shall be borne evenly by the Company and the Warrantholder.
(f)(6) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock,
Options or Convertible Securities or (ii) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date
of the granting of such right of subscription or purchase, as the case
may be.
-8-
(f)(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Company or any of its wholly-owned
subsidiaries, and the disposition of any such shares (other than the
cancellation or retirement thereof) shall be considered an issue or
sale of Common Stock for the purpose of this subsection (f).
(f)(8) Nasdaq Limitation. Notwithstanding any other provision in
Section 8(f) to the contrary, if a reduction in the Warrant Price
pursuant to Section 8(f) (other than as set forth in this clause
(f)(8)) would require the Company to obtain stockholder approval of
the transactions contemplated by the Purchase Agreement pursuant to
Nasdaq Marketplace Rule 4350(i) and such stockholder approval has not
been obtained, (i) the Warrant Price shall be reduced to the maximum
extent that would not require stockholder approval under such Rule,
and (ii) the Company shall use its commercially reasonable efforts to
obtain such stockholder approval as soon as reasonably practicable,
including by calling a special meeting of stockholders to vote on such
Warrant Price adjustment.
(g) Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Warrant Price in the case of the
issuance of (A) capital stock, Options or Convertible Securities issued to
directors, officers, employees or consultants of the Company in connection with
their service as directors of the Company, their employment by the Company or
their retention as consultants by the Company pursuant to an equity compensation
program approved by the Board of Directors of the Company or the compensation
committee of the Board of Directors of the Company, (B) shares of Common Stock
issued upon the conversion or exercise of Options or Convertible Securities
issued prior to the date hereof, provided such securities are not amended after
the date hereof, (C) securities issued pursuant to that certain Purchase
Agreement dated December 22, 2004, among the Company and the Investors named
therein (the "Purchase Agreement") and securities issued upon the exercise or
conversion of those securities, and (D) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution on shares of
Common Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the Warrant Price pursuant to the other provisions
of this Warrant) (collectively, "Excluded Issuances").
(h) Upon any adjustment to the Warrant Price pursuant to Section 8(f)
above, the number of Warrant Shares purchasable hereunder shall be adjusted by
multiplying such number by a fraction, the numerator of which shall be the
Warrant Price in effect immediately prior to such adjustment and the denominator
of which shall be the Warrant Price in effect immediately thereafter.
-9-
Section 9. Fractional Interest. The Company shall not be required to issue
fractions of Warrant Shares upon the exercise of this Warrant. If any fractional
share of Common Stock would, except for the provisions of the first sentence of
this Section 9, be deliverable upon such exercise, the Company, in lieu of
delivering such fractional share, shall pay to the exercising Warrantholder an
amount in cash equal to the Market Price of such fractional share of Common
Stock on the date of exercise.
Section 10. Extension of Expiration Date. If the Company fails to cause any
Registration Statement covering Registrable Securities (unless otherwise defined
herein, capitalized terms are as defined in the Registration Rights Agreement
relating to the Warrant Shares (the "Registration Rights Agreement")) to be
declared effective prior to the applicable dates set forth therein, or if any of
the events specified in Section 2(c)(ii) of the Registration Rights Agreement
occurs, and the Blackout Period (whether alone, or in combination with any other
Blackout Period) continues for more than 60 days in any 12 month period, or for
more than a total of 90 days, then the Expiration Date of this Warrant shall be
extended one day for each day beyond the 60-day or 90-day limits, as the case
may be, that the Blackout Period continues.
Section 11. Benefits. Nothing in this Warrant shall be construed to give
any person, firm or corporation (other than the Company and the Warrantholder)
any legal or equitable right, remedy or claim, it being agreed that this Warrant
shall be for the sole and exclusive benefit of the Company and the
Warrantholder.
Section 12. Notices to Warrantholder. Upon the happening of any event
requiring an adjustment of the Warrant Price, the Company shall promptly give
written notice thereof to the Warrantholder at the address appearing in the
records of the Company, stating the adjusted Warrant Price and the adjusted
number of Warrant Shares resulting from such event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. Failure to give such notice to the Warrantholder or any
defect therein shall not affect the legality or validity of the subject
adjustment.
Section 13. Identity of Transfer Agent. The Transfer Agent for the Common
Stock is ___________________. Upon the appointment of any subsequent transfer
agent for the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the Warrant,
the Company will mail to the Warrantholder a statement setting forth the name
and address of such transfer agent.
Section 14. Notices. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or facsimile, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one business day after
delivery to such carrier. All notices shall be addressed as follows: if to the
Warrantholder, at its address as set forth in the Company's books and records
and, if to the Company, at the address as follows, or at such other address as
the Warrantholder or the Company may designate by ten days' advance written
notice to the other:
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If to the Company:
Immersion Corporation
801 Fox Lane
San Jose, California 95131
Attention:
Fax:
With a copy to:
Gray Cary Ware & Freidenrich LLP
2000 University Avenue
East Palo Alto, California 94303
Attention: James M. Koshland, Esq.
Fax: 650.833.2001
Section 15. Registration Rights. The initial Warrantholder is entitled to
the benefit of certain registration rights with respect to the shares of Common
Stock issuable upon the exercise of this Warrant as provided in the Registration
Rights Agreement, and any subsequent Warrantholder may be entitled to such
rights.
Section 16. Successors. All the covenants and provisions hereof by or for
the benefit of the Warrantholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.
Section 17. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Warrant shall be governed by, and construed in accordance with, the
internal laws of the State of New York, without reference to the choice of law
provisions thereof. The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this Warrant
and the transactions contemplated hereby. Service of process in connection with
any such suit, action or proceeding may be served on each party hereto anywhere
in the world by the same methods as are specified for the giving of notices
under this Warrant. The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably consents to the jurisdiction of any such court
in any such suit, action or proceeding and to the laying of venue in such court.
The Company and, by accepting this Warrant, the Warrantholder, each irrevocably
waives any objection to the laying of venue of any such suit, action or
proceeding brought in such courts and irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE
WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.
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Section 18. No Rights as Stockholder. Prior to the exercise of this
Warrant, the Warrantholder shall not have or exercise any rights as a
stockholder of the Company by virtue of its ownership of this Warrant.
Section 19. Amendment; Waiver. This Warrant is one of a series of Warrants
of like tenor issued by the Company pursuant to the Purchase Agreement and
initially covering an aggregate of 426,955 shares of Common Stock (collectively,
the "Company Warrants"). Any term of this Warrant may be amended or waived
(including the adjustment provisions included in Section 8 of this Warrant) upon
the written consent of the Company and the holders of Company Warrants
representing at least 50% of the number of shares of Common Stock then subject
to all outstanding Company Warrants (the "Majority Holders"); provided, that (x)
any such amendment or waiver must apply to all Company Warrants; and (y) the
number of Warrant Shares subject to this Warrant, the Warrant Price and the
Expiration Date may not be amended, and the right to exercise this Warrant may
not be altered or waived, without the written consent of the Warrantholder.
Section 20. Section Headings. The section headings in this Warrant are for
the convenience of the Company and the Warrantholder and in no way alter,
modify, amend, limit or restrict the provisions hereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of the ______ day of ___________, 200_.
IMMERSION CORPORATION
By:
-----------------------------
Name:
Title:
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APPENDIX A
IMMERSION CORPORATION
WARRANT EXERCISE FORM
To Immersion Corporation:
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant ("Warrant") for, and to purchase thereunder by
the payment of the Warrant Price and surrender of the Warrant, _______________
shares of Common Stock ("Warrant Shares") provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:
_____________________________________
Name
_____________________________________
Address
_____________________________________
_____________________________________
Federal Tax ID or Social Security No.
and delivered by (certified mail to the above address, or
(electronically (provide DWAC
Instructions:___________________), or
(other (specify):
_________________________________________________).
and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares purchasable upon exercise of this Warrant be registered in
the name of the undersigned Warrantholder or the undersigned's Assignee as below
indicated and delivered to the address stated below.
Dated: ___________________, ____
Note: The signature must correspond with Signature:_____________________
the name of the Warrantholder as written
on the first page of the Warrant in every _______________________________
particular, without alteration or enlargement Name (please print)
or any change whatever, unless the Warrant
has been assigned. _______________________________
_______________________________
Address
_______________________________
Federal Identification or
Social Security No.
Assignee:
_______________________________
_______________________________
_______________________________
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REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is made and entered
into as of this 22nd day of December, 2004 by and among Immersion Corporation, a
Delaware corporation (the "Company"), and the "Investors" named in that certain
Purchase Agreement by and among the Company and the Investors (the "Purchase
Agreement").
The parties hereby agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliate" means, with respect to any person, any other person which
directly or indirectly controls, is controlled by, or is under common control
with, such person.
"Business Day" means a day, other than a Saturday or Sunday, on which banks
in New York City are open for the general transaction of business.
"Common Stock" shall mean the Company's common stock, par value $0.001 per
share, and any securities into which such shares may hereinafter be
reclassified.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Debentures.
"Debentures" means the Company's 5% Senior Convertible Debentures issued to
the Investors pursuant to the Purchase Agreement, the form of which is attached
to the Purchase Agreement as Exhibit A.
"Investors" shall mean the Investors identified in the Purchase Agreement
and any Affiliate or permitted transferee of any Investor who is a subsequent
holder of any Warrants or Registrable Securities.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"Register," "registered" and "registration" refer to a registration made by
preparing and filing a Registration Statement or similar document in compliance
with the 1933 Act (as defined below), and the declaration or ordering of
effectiveness of such Registration Statement or document.
"Registrable Securities" shall mean (i) the Conversion Shares, (ii) the
Warrant Shares, and (iii) any other securities issued or issuable with respect
to or in exchange for Registrable Securities; provided, that, a security shall
cease to be a Registrable Security upon (A) sale pursuant to a Registration
Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible
for sale by the Investors pursuant to Rule 144(k).
-1-
"Registration Statement" shall mean any registration statement of the
Company filed under the 1933 Act that covers the resale of any of the
Registrable Securities pursuant to the provisions of this Agreement, amendments
and supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.
"Required Investors" means collectively, (i) any Investor who, together
with its Affiliates, owns or has the right to acquire 20% or more of the
Registrable Securities, and (ii) the Investors owning or having the right to
acquire at least a majority of the Registrable Securities.
"SEC" means the U.S. Securities and Exchange Commission.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Warrants" means, the warrants to purchase shares of Common Stock issued to
the Investors pursuant to the Purchase Agreement, the form of which is attached
to the Purchase Agreement as Exhibit B.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
2. Registration.
(a) Registration Statements.
(i) Promptly following the closing of the purchase and sale of the
securities contemplated by the Purchase Agreement (the "Closing Date") but no
later than thirty (30) days after the Closing Date (the "Filing Deadline"), the
Company shall prepare and file with the SEC one Registration Statement on Form
S-3 (or, if Form S-3 is not then available to the Company, on such form of
registration statement as is then available to effect a registration for resale
of the Registrable Securities, subject to the Required Investors' reasonable
consent), covering the resale of the Registrable Securities in an amount at
least equal to the Conversion Shares and the Warrant Shares. Such Registration
Statement shall include the plan of distribution attached hereto as Exhibit A.
Such Registration Statement also shall cover, to the extent allowable under the
1933 Act and the rules promulgated thereunder (including Rule 416), such
indeterminate number of additional shares of Common Stock resulting from stock
splits, stock dividends or similar transactions with respect to the Registrable
Securities. The Company shall use its reasonable best efforts to obtain from
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each person who now has piggyback registration rights a waiver of those rights
with respect to the Registration Statement. The Company shall provide the
Registration Statement (and each amendment or supplement thereto, and each
request for acceleration of effectiveness thereof) to the Investors and their
counsel prior to its filing or other submission in accordance with the timing
provisions of Section 3(c). If a Registration Statement covering the Registrable
Securities is not filed with the SEC on or prior to the Filing Deadline, the
Company will make pro rata payments to each Investor, as liquidated damages and
not as a penalty, in an amount equal to 1.5% of the aggregate amount invested by
such Investor for each 30-day period or pro rata for any portion thereof
following the Filing Deadline for which no Registration Statement is filed with
respect to the Registrable Securities. Such payments shall be in partial
compensation to the Investors, and shall not constitute the Investors' exclusive
remedy for such events. Such payments shall be made to each Investor in cash.
(ii) Additional Registrable Securities. Upon the written demand of any
Investor and upon any change in the Conversion Price (as defined in the
Debentures) or the Warrant Price (as defined in the Warrants) such that
additional shares of Common Stock become issuable upon the conversion of the
Debentures or the exercise of the Warrants, the Company shall prepare and file
with the SEC one or more Registration Statements on Form S-3 or amend the
Registration Statement filed pursuant to clause (i) above, if such Registration
Statement has not previously been declared effective (or, if Form S-3 is not
then available to the Company, on such form of registration statement as is then
available to effect a registration for resale of such additional shares of
Common Stock (the "Additional Shares"), subject to the Required Investors'
consent, which consent shall not be unreasonably withheld) covering the resale
of the Additional Shares, but only to the extent the Additional Shares are not
at the time covered by an effective Registration Statement. Such Registration
Statement also shall cover, to the extent allowable under the 1933 Act and the
rules promulgated thereunder (including Rule 416), such indeterminate number of
additional shares of Common Stock resulting from stock splits, stock dividends
or similar transactions with respect to the Additional Shares. The Company shall
use its reasonable best efforts to obtain from each person who now has piggyback
registration rights a waiver of those rights with respect to such Registration
Statement. The Company shall provide the Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) to the Investors and their counsel prior to its filing or
other submission in accordance with the timing provisions of Section 3(c). If a
Registration Statement covering the Additional Shares is required to be filed
under this Section 2(a)(ii) and is not filed with the SEC within five Business
Days of the request of any Investor or upon the occurrence of any of the events
specified in this Section 2(a)(ii), the Company will make pro rata payments to
each Investor, as liquidated damages and not as a penalty, in an amount equal to
1.5% of the aggregate amount invested by such Investor for each 30-day period or
pro rata for any portion thereof following the date by which such Registration
Statement should have been filed for which no Registration Statement is filed
with respect to the Additional Shares. Such payments shall be in partial
compensation to the Investors, and shall not constitute the Investors' exclusive
remedy for such events. Such payments shall be made to each Investor in cash.
(b) Expenses. The Company will pay all expenses associated with each
registration, including filing and printing fees, the Company's counsel and
accounting fees and expenses, costs associated with clearing the Registrable
Securities for sale under applicable state securities laws, listing fees, fees
and expenses of one counsel to the Investors (in an amount not to exceed
$10,000) in connection with the registration, but excluding discounts,
commissions, fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals with respect to the Registrable Securities
being sold.
-3-
(c) Effectiveness.
(i) The Company shall use commercially reasonable efforts to have the
Registration Statement declared effective as soon as practicable. The Company
shall notify the Investors by facsimile or e-mail as promptly as practicable,
and in any event, within twenty-four (24) hours, after any Registration
Statement is declared effective and shall simultaneously provide the Investors
with copies of any related Prospectus to be used in connection with the sale or
other disposition of the securities covered thereby. If (A)(x) a Registration
Statement covering the Registrable Securities is not declared effective by the
SEC prior to the earlier of (i) five (5) Business Days after the SEC shall have
informed the Company that no review of the Registration Statement will be made
or (ii) the 90th day after the Closing Date (or the 120th day if the SEC reviews
the Registration Statement), or (y) a Registration Statement covering Additional
Shares is not declared effective by the SEC within ninety (90) days following
the time such Registration Statement was required to be filed pursuant to
Section 2(a)(ii) (or one hundred twenty (120) days if such Registration
Statement is reviewed by the SEC), or (B) after a Registration Statement has
been declared effective by the SEC, sales cannot be made pursuant to such
Registration Statement for any reason (including without limitation by reason of
a stop order, or the Company's failure to update the Registration Statement),
but excluding the inability of any Investor to sell the Registrable Securities
covered thereby due to market conditions and except as excused pursuant to
subparagraph (ii) below, then the Company will make pro rata payments to each
Investor, as liquidated damages and not as a penalty, in an amount equal to 1.5%
of the aggregate amount invested by such Investor for each 30- day period or pro
rata for any portion thereof following the date by which such Registration
Statement should have been effective (the "Blackout Period"). Such payments
shall be in partial compensation to the Investors, and shall not constitute the
Investors' exclusive remedy for such events. The amounts payable as liquidated
damages pursuant to this paragraph shall be paid monthly within three (3)
Business Days of the last day of each month following the commencement of the
Blackout Period until the termination of the Blackout Period. Such payments
shall be made to each Investor in cash.
(ii) For not more than twenty (20) consecutive days or for a total of
not more than forty-five (45) days in any twelve (12) month period, the Company
may delay the disclosure of material non-public information concerning the
Company, by suspending the use of any Prospectus included in any registration
contemplated by this Section containing such information, the disclosure of
which at the time is not, in the good faith opinion of the Company, in the best
interests of the Company (an "Allowed Delay"); provided, that the Company shall
promptly (a) notify the Investors in writing of the existence of (but in no
event, without the prior written consent of an Investor, shall the Company
disclose to such Investor any of the facts or circumstances regarding) material
non-public information giving rise to an Allowed Delay, (b) advise the Investors
in writing to cease all sales under the Registration Statement until the end of
the Allowed Delay and (c) use commercially reasonable efforts to terminate an
Allowed Delay as promptly as practicable.
-4-
3. Company Obligations. The Company will use commercially reasonable
efforts to effect the registration of the Registrable Securities in accordance
with the terms hereof, and pursuant thereto the Company will, as expeditiously
as possible:
(a) use commercially reasonable efforts to cause such Registration
Statement to become effective and to remain continuously effective for a period
that will terminate upon the earlier of (i) the date on which all Registrable
Securities covered by such Registration Statement as amended from time to time,
have been sold, and (ii) the date on which all Registrable Securities covered by
such Registration Statement may be sold pursuant to Rule 144(k) (the
"Effectiveness Period") and advise the Investors in writing when the
Effectiveness Period has expired;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement and the Prospectus as may be necessary
to keep the Registration Statement effective for the period specified in Section
3(a) and to comply with the provisions of the 1933 Act and the 1934 Act with
respect to the distribution of all of the Registrable Securities covered
thereby;
(c) provide copies to and permit counsel designated by the Investors to
review each Registration Statement and all amendments and supplements thereto no
fewer than three (3) Business Days prior to their filing with the SEC and not
file any document to which such counsel reasonably objects;
(d) furnish to the Investors and their legal counsel (i) promptly after
the same is prepared and publicly distributed, filed with the SEC, or received
by the Company (but not later than two (2) Business Days after the filing date,
receipt date or sending date, as the case may be) one (1) copy of any
Registration Statement and any amendment thereto, each preliminary prospectus
and Prospectus and each amendment or supplement thereto, and each letter written
by or on behalf of the Company to the SEC or the staff of the SEC, and each item
of correspondence from the SEC or the staff of the SEC, in each case relating to
such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential treatment),
and (ii) such number of copies of a Prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents
as each Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor that are covered by the
related Registration Statement;
(e) use commercially reasonable efforts to (i) prevent the issuance of
any stop order or other suspension of effectiveness and, (ii) if such order is
issued, obtain the withdrawal of any such order at the earliest possible moment;
(f) prior to any public offering of Registrable Securities, use
commercially reasonable efforts to register or qualify or cooperate with the
Investors and their counsel in connection with the registration or qualification
of such Registrable Securities for offer and sale under the securities or blue
sky laws of such jurisdictions requested by the Investors and do any and all
other commercially reasonable acts or things necessary or advisable to enable
the distribution in such jurisdictions of the Registrable Securities covered by
the Registration Statement; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (i) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(f), (ii) subject itself to general taxation in any
jurisdiction where it would not otherwise be so subject but for this Section
3(f), or (iii) file a general consent to service of process in any such
jurisdiction;
-5-
(g) use commercially reasonable efforts to cause all Registrable
Securities covered by a Registration Statement to be listed on each securities
exchange, interdealer quotation system or other market on which similar
securities issued by the Company are then listed;
(h) immediately notify the Investors, at any time when a Prospectus
relating to Registrable Securities is required to be delivered under the 1933
Act, upon discovery that, or upon the happening of any event as a result of
which, the Prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and at the request
of any such holder, promptly prepare and furnish to such holder a reasonable
number of copies of a supplement to or an amendment of such Prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such Prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing; and
(i) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act,
take such other actions as may be reasonably necessary to facilitate the
registration of the Registrable Securities hereunder; and make available to its
security holders, as soon as reasonably practicable, but not later than the
Availability Date (as defined below), an earnings statement covering a period of
at least twelve (12) months, beginning after the effective date of each
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act, including Rule 158 promulgated thereunder (for
the purpose of this subsection 3(i), "Availability Date" means the 45th day
following the end of the fourth fiscal quarter that includes the effective date
of such Registration Statement, except that, if such fourth fiscal quarter is
the last quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter).
(j) With a view to making available to the Investors the benefits of
Rule 144 (or its successor rule) and any other rule or regulation of the SEC
that may at any time permit the Investors to sell shares of Common Stock to the
public without registration, the Company covenants and agrees to: (i) make and
keep public information available, as those terms are understood and defined in
Rule 144, until the earlier of (A) six months after such date as all of the
Registrable Securities may be resold pursuant to Rule 144(k) or any other rule
of similar effect or (B) such date as all of the Registrable Securities shall
have been resold; (ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the 1934 Act; and (iii) furnish to
each Investor upon request, as long as such Investor owns any Registrable
Securities, (A) a written statement by the Company that it has complied with the
reporting requirements of the 1934 Act, (B) a copy of the Company's most recent
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other
information as may be reasonably requested in order to avail such Investor of
any rule or regulation of the SEC that permits the selling of any such
Registrable Securities without registration.
-6-
4. Due Diligence Review; Information. The Company shall make available,
during normal business hours, for inspection and review by the Investors,
advisors to and representatives of the Investors (who may or may not be
affiliated with the Investors and who are reasonably acceptable to the Company),
all financial and other records, all SEC Filings (as defined in the Purchase
Agreement) and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees, within a
reasonable time period, to supply all such information reasonably requested by
the Investors or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of such Registration Statement.
The Company shall not disclose material nonpublic information to the
Investors, or to advisors to or representatives of the Investors, unless prior
to disclosure of such information the Company identifies such information as
being material nonpublic information and provides the Investors, such advisors
and representatives with the opportunity to accept or refuse to accept such
material nonpublic information for review and any Investor wishing to obtain
such information enters into an appropriate confidentiality agreement with the
Company with respect thereto.
5. Obligations of the Investors.
(a) Each Investor shall furnish in writing to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least five (5) Business Days prior to
the first anticipated filing date of any Registration Statement, the Company
shall notify each Investor of the information the Company requires from such
Investor if such Investor elects to have any of the Registrable Securities
included in the Registration Statement. An Investor shall provide such
information to the Company at least two (2) Business Days prior to the first
anticipated filing date of such Registration Statement if such Investor elects
to have any of the Registrable Securities included in the Registration
Statement.
(b) Each Investor, by its acceptance of the Registrable Securities
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of a Registration Statement
hereunder, unless such Investor has notified the Company in writing of its
election to exclude all of its Registrable Securities from such Registration
Statement.
-7-
(c) Each Investor agrees that, upon receipt of any notice from the
Company of either (i) the commencement of an Allowed Delay pursuant to Section
2(c)(ii) or (ii) the happening of an event pursuant to Section 3(h) hereof, such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities,
until the Investor's receipt of the copies of the supplemented or amended
prospectus filed with the SEC and until any related post-effective amendment is
declared effective and, if so directed by the Company, the Investor shall
deliver to the Company (at the expense of the Company) or destroy (and deliver
to the Company a certificate of destruction) all copies in the Investor's
possession of the Prospectus covering the Registrable Securities current at the
time of receipt of such notice.
6. Indemnification.
(a) Indemnification by the Company. The Company will indemnify and hold
harmless each Investor and its officers, directors, members, employees and
agents, successors and assigns, and each other person, if any, who controls such
Investor within the meaning of the 1933 Act, against any losses, claims, damages
or liabilities, joint or several, to which they may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof; (ii) any blue sky application
or other document executed by the Company specifically for that purpose or based
upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Registrable Securities under
the securities laws thereof (any such application, document or information
herein called a "Blue Sky Application"); (iii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; (iv) any violation by the Company or
its agents of any rule or regulation promulgated under the 1933 Act applicable
to the Company or its agents and relating to action or inaction required of the
Company in connection with such registration; or (v) any failure to register or
qualify the Registrable Securities included in any such Registration in any
state where the Company or its agents has affirmatively undertaken or agreed in
writing that the Company will undertake such registration or qualification on an
Investor's behalf and will reimburse such Investor, and each such officer,
director or member and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by such Investor or any such
controlling person in writing specifically for use in such Registration
Statement or Prospectus, and provided further, that the Company will not be
liable in any such case to the extent any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any preliminary prospectus (provided
that in each case the Company has performed its obligations under Section 3(c)
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hereof) if either (A)(i) such Investor failed to send or deliver a copy of the
Prospectus with or prior to the delivery of written confirmation of the sale by
such Investor to the person asserting the claim from which such loss, claim,
damage or liability arise and (ii) the Prospectus would have corrected such
untrue statement or alleged untrue statement or such omission or alleged
omission, or (B)(x) such untrue statement or alleged untrue statement, omission
or alleged omission is corrected in an amendment or supplement to the Prospectus
and (y) having previously been furnished by or on behalf of the Company with
copies of the Prospectus as so amended or supplemented, such Investor thereafter
fails to deliver such Prospectus as so amended or supplemented with or prior to
the delivery of written confirmation of the sale of a Registrable Security to
the person asserting the claim from which the loss, claim, damage or liability
arises.
(b) Indemnification by the Investors. Each Investor agrees, severally
but not jointly, to indemnify and hold harmless, to the fullest extent permitted
by law, the Company, its directors, officers, employees, stockholders and each
person who controls the Company (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expense (including reasonable attorney
fees) resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the Registration Statement or Prospectus or preliminary prospectus
or amendment or supplement thereto or necessary to make the statements therein
not misleading, to the extent, but only to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission is contained in any
information furnished in writing by such Investor to the Company specifically
for inclusion in such Registration Statement or Prospectus or amendment or
supplement thereto. In no event shall the liability of an Investor be greater in
amount than the dollar amount of the proceeds (net of all expense paid by such
Investor in connection with any claim relating to this Section 6 and the amount
of any damages such Investor has otherwise been required to pay by reason of
such untrue statement or alleged untrue statement or omission or alleged
omission) received by such Investor upon the sale of the Registrable Securities
included in the Registration Statement giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying party
has agreed to pay such fees or expenses, or (b) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists
between such person and the indemnifying party with respect to such claims (in
which case, if the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations hereunder, except to the extent that such
failure to give notice shall materially adversely affect the indemnifying party
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in the defense of any such claim or litigation. It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of
attorneys at any time for all such indemnified parties. No indemnifying party
will, except with the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation.
(d) Contribution. If for any reason the indemnification provided for in
the preceding paragraphs (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless, other than as expressly specified therein,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
within the meaning of Section 11(f) of the 1933 Act shall be entitled to
contribution from any person not guilty of such fraudulent misrepresentation. In
no event shall the contribution obligation of a holder of Registrable Securities
be greater in amount than the dollar amount of the proceeds (net of all expenses
paid by such holder in connection with any claim relating to this Section 6 and
the amount of any damages such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission) received by it upon the sale of the Registrable Securities giving rise
to such contribution obligation.
7. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be amended only by a
writing signed by the Company and the Required Investors. The Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company shall have obtained the written consent to
such amendment, action or omission to act, of the Required Investors.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made as set forth in Section 9.4 of the Purchase
Agreement.
(c) Assignments and Transfers by Investors. The provisions of this
Agreement shall be binding upon and inure to the benefit of the Investors and
their respective successors and assigns. An Investor may transfer or assign, in
whole or from time to time in part, to one or more persons its rights hereunder
in connection with the transfer of Registrable Securities by such Investor to
such person, provided that such Investor complies with all laws applicable
thereto and provides written notice of assignment to the Company promptly after
such assignment is effected.
(d) Assignments and Transfers by the Company. This Agreement may not be
assigned by the Company (whether by operation of law or otherwise) without the
prior written consent of the Required Investors, provided, however, that the
-10-
Company may assign its rights and delegate its duties hereunder to any surviving
or successor corporation in connection with a merger or consolidation of the
Company with another corporation, or a sale, transfer or other disposition of
all or substantially all of the Company's assets to another corporation, without
the prior written consent of the Required Investors, after notice duly given by
the Company to each Investor.
(e) Benefits of the Agreement. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
(f) Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.
(g) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(h) Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provisions hereof prohibited or unenforceable in any respect.
(i) Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
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(k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A
TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS
THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
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IN WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the date first
above written.
The Company: IMMERSION CORPORATION
By:
-----------------------------------------
Name:
Title:
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The Investors: SPECIAL SITUATIONS FUND III, L.P.
By:
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
SPECIAL SITUATIONS CAYMAN FUND, L.P.
By:
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By:
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.
By:
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.
By:
-----------------------------------------
Name: David M. Greenhouse
Title: General Partner
DKR SOUNDSHORE OASIS HOLDING FUND LTD.
By:
-----------------------------------------
Name:
Title:
MORGAN STANLEY & CO., INC.
By:
------------------------------------------
Name: Andrew Pipa
Title: Authorized Signatory
-14-
Exhibit A
---------
Plan of Distribution
The selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.
The selling stockholders may use any one or more of the following methods
when disposing of shares or interests therein:
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the shares
as agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
- an exchange distribution in accordance with the rules of the applicable
exchange;
- privately negotiated transactions;
- short sales effected after the date the registration statement of which
this Prospectus is a part is declared effective by the SEC;
- through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
- broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
- a combination of any such methods of sale; and
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- any other method permitted pursuant to applicable law.
The selling stockholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In connection with the sale of our common stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling stockholders from the sale of the
common stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering. Upon
any exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided that they meet the criteria and conform to the requirements of
that rule.
The selling stockholders and any underwriters, broker-dealers or agents
that participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.
To the extent required, the shares of our common stock to be sold, the
names of the selling stockholders, the respective purchase prices and public
offering prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable,
the common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
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We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, we will make copies of this prospectus (as it may be supplemented
or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this prospectus.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of (1) such time as all of the shares covered by this prospectus have
been disposed of pursuant to and in accordance with the registration statement
or (2) the date on which the shares may be sold pursuant to Rule 144(k) of the
Securities Act.
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