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Exhibit 10.1
PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT ("Agreement") is made as of the 2nd day
of
March, 2007 by and among Narrowstep Inc., 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
Securities Act of 1933, as amended; 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) up to $10,000,000 in aggregate
principal amount of
the Company's 12% Mandatorily Convertible Notes in the form
attached hereto as
EXHIBIT A (the "Notes") which Notes are convertible into securities
of the
Company as provided therein and an (ii) warrants to purchase up to
an aggregate
of 5,000,000 shares of the Company's Common Stock, par value
$0.000001 per share
(together with any securities into which such shares may be
reclassified the
"Common Stock") (subject to adjustment) at an exercise price of
$0.60 per share
(subject to adjustment) in the form attached hereto as EXHIBIT B
(the
"Warrants"); and
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.
"COMPANY'S KNOWLEDGE" means the actual knowledge of the
executive officers (as defined in Rule 405 under the 1933 Act) of
the Company.
"CONFIDENTIAL INFORMATION" means trade secrets, confidential
information and know-how (including but not limited to ideas,
formulae,
compositions, processes, procedures and
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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 SECURITIES" means the securities issued upon
conversion of the Notes, including any shares of Common Stock
issuable upon the
exercise or conversion of any Conversion Securities.
"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 results of operations or financial condition 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.
"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 PRICE" means up to Ten Million Dollars ($10,000,000).
"SEC
FILINGS" has the meaning set forth in Section 4.6.
"SECURITIES" means the Notes, the Conversion Securities, the
Warrants 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 Notes and the
Warrants.
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"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 NOTES 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 Notes 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, (i) the
Investors shall cause a 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 and (ii) the Company shall
execute and
FedEx to each Investor a Note and a Warrant representing the Notes
and Warrants
purchased by such Investor, registered in such name or names as the
Investor may
designate. The date on which the Company receives the Purchase
Price is
hereinafter referred to as the Closing Date. The closing of the
purchase and
sale of the Shares and Warrants (the "Closing Date") 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
schedules delivered herewith (collectively, the "Disclosure
Schedules"):
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 had and could
not reasonably
be expected to have a Material Adverse Effect.
4.2
AUTHORIZATION. The Company has the corporate power 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
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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.
4.3
CAPITALIZATION. The SEC Filings (as defined below) set
forth the capitalization of the Company as of December 31, 2006 and
the
outstanding warrants, options, convertible securities or other
rights to
subscribe for Common Stock as of such date. 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 in all material respects with applicable state
and federal
securities law and any rights of third parties. All of the issued
and
outstanding shares of capital stock of each Subsidiary have been
duly authorized
and validly issued and are fully paid, nonassessable and free of
pre-emptive
rights, were issued in compliance in all material respects 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. No Person is entitled to pre-emptive or similar
statutory or
contractual rights with respect to any securities of the Company.
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.
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.
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 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 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.
Upon the due conversion of the Notes, the Conversion Securities
will (i) to the extent constituting capital stock of the Company,
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 and (ii) in all other cases, constitute the legal,
valid and
binding obligations of the Company, enforceable against the Company
in
accordance with their terms, subject to
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bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and
similar laws of general applicability, relating to or affecting
creditors'
rights generally. No later than the Mandatory Conversion Date, the
Company will
have reserved a sufficient number of shares of Common Stock for
issuance upon
the exercise or conversion of any Conversion Securities exercisable
for or
convertible into Common Stock, 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.
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 Warrant Shares
upon due
exercise of the Warrants, (iii) the issuance of the Conversion
Securities and
(iv) the other transactions contemplated by the Transaction
Documents from the
provisions of any anti-takeover, business combination or control
share law or
statute binding on the Company or to which the Company or any of
its assets and
properties may be subject and any provision of the Company's
Certificate of
Incorporation or Bylaws that is or could reasonably be expected to
become
applicable to the Investors as a result of the transactions
contemplated hereby.
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-KSB for the
fiscal year ended
February 28, 2006 (the "10-KSB"), and all other reports filed by
the Company
pursuant to the 1934 Act since the filing of the 10-KSB 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.
4.7
USE OF PROCEEDS. The net proceeds of the sale of the
Notes and the Warrants hereunder shall be used by the Company for
working
capital and general corporate purposes.
4.8
NO MATERIAL ADVERSE CHANGE. Since February 28, 2006,
except as identified and described in the SEC Filings, there has
not been:
(i)
any material adverse 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-QSB for the quarter ended December 31,
2006;
(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;
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(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
material labor difficulties or labor union
organizing activities with respect to employees of the Company or
any
Subsidiary;
(v)
any material transaction entered into by the
Company or a Subsidiary other than in the ordinary course of
business; or
(vi) any
other event or condition of any character
that has had or could reasonably be expected to have a Material
Adverse Effect.
4.9
SEC FILINGS. At the time of filing thereof as amended on
or prior to the date hereof, 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.
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, except, in the case of clause (ii), for such
breaches,
violations or defaults as would not reasonably be expected to
result in a
Material Adverse Effect.
4.11 TAX
MATTERS. The Company and each Subsidiary has filed
all tax returns required to have been filed by the Company or such
Subsidiary
with all appropriate governmental agencies and paid all taxes shown
thereon or
otherwise owed by it, except where such taxes are being contested
in good faith
by appropriate proceedings. 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 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.
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
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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, except where the failure to possess such
certificates,
authorities or permits as have not had and would not reasonably be
expected to
have a Material Adverse Effect and neither the Company nor any
Subsidiary has
received any written 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, would reasonably be
expected to
have a Material Adverse Effect, individually or in the
aggregate.
4.14 LABOR
MATTERS.
(a)
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.
(b)
(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.
4.15
INTELLECTUAL PROPERTY.
(a)
To the Company's Knowledge, all Intellectual Property
used by the Company and its Subsidiaries in their respective
businesses is valid
and enforceable. No patent of the Company or its Subsidiaries is
involved in any
interference, reissue, re-examination or opposition proceeding.
(b)
To the Company's Knowledge, 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
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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
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, 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.
(c)
The Company and its Subsidiaries own or 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.
(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. There is no litigation or order pending or outstanding
or, to the
Company's Knowledge, threatened, 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.
4.16
ENVIRONMENTAL MATTERS. To the Company's Knowledge, (i)
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"), except for violations which have not had and would not be
reasonably
expected to have a Material Adverse Effect, (ii) is liable for any
off-site
disposal or contamination pursuant to any Environmental Laws, or
(iii) 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.
4.17
LITIGATION. There are no pending or, to the Company's
Knowledge, threatened actions, suits or proceedings against or
affecting the
Company, its Subsidiaries or any of its or their properties which
would
reasonably be expected to have a Material Adverse Effect.
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-QSB 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, neither the Company nor any of its
Subsidiaries
has incurred any liabilities, contingent or otherwise, except
those
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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
BROKERS AND FINDERS. Except for Brimberg & Co., no
Person will have, as a result of the transactions contempla
