NOTE AND WARRANT PURCHASE AGREEMENT

 

Exhibit 10.1

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

among

 

CRITICAL PATH, INC.,

 

GENERAL ATLANTIC PARTNERS 74, L.P.,

 

GAPSTAR, LLC,

 

GAP COINVESTMENT PARTNERS II, L.P.,

 

GAPCO GMBH & CO. KG,

 

CAMPINA ENTERPRISES LIMITED,

 

AND

 

RICHMOND III, LLC

 

 

Dated: December 29, 2004

 

 

Table of Contents

 

Page

 

 

i

 

ii

EXHIBITS

 

 

SCHEDULES

 

 

iii

NOTE AND WARRANT PURCHASE AGREEMENT

 

NOTE AND WARRANT PURCHASE AGREEMENT, dated December 29, 2004 (this “ Agreement ”), among General Atlantic Partners 74, L.P., a Delaware limited partnership, GapStar, LLC, a Delaware limited liability company, GAP Coinvestment Partners II, L.P., a Delaware limited partnership, GAPCO GmbH & Co. KG, a German limited partnership, Campina Enterprises Limited (“Campina”), and Richmond III, LLC (collectively, the “ Investors ”) and Critical Path, Inc., a California corporation (the “ Company ”),

 

WHEREAS, upon the terms and conditions set forth in this Agreement, the Company proposes to issue and sell to the Investors, at the Initial Closing (as hereinafter defined), (i) senior notes, substantially in the form attached hereto as Exhibit A (each a “ Note ” and, collectively, the “ Notes ”) having an aggregate principal amount of eleven million dollars ($11,000,000), allocated among each Investor in the principal amount set forth opposite such Investor’s name on Schedule 2.1(a) hereto and (ii) warrants, substantially in the form attached hereto as Exhibit B (each a “ Warrant ” and, collectively, the “ Warrants ”) to purchase, subject to the terms and conditions thereof, the aggregate number of shares of the Company’s Series F Redeemable Convertible Preferred Stock, $0.001 par value per share (the “ Series F Preferred Stock ”) set forth opposite each Investor’s name on Schedule 2.1(a) hereto, at an exercise price per share equal to $14.00 (the “ Warrant Exercise Price ”); and

 

WHEREAS, upon the terms and conditions set forth in this Agreement, the Company proposes to issue and sell to the Investors, at the Second Closing, (i) Notes having an aggregate principal amount of seven million dollars ($7,000,000), allocated among each Investor in the principal amount set forth opposite such Investor’s name on Schedule 2.1(b) hereto and (ii) Warrants to purchase, subject to the terms and conditions thereof, the aggregate number of shares of Series F Preferred Stock set forth opposite each Investor’s name on Schedule 2.1(b) hereto, at the Warrant Exercise Price.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.1 Definitions . As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated:

 

“ Affiliate ” shall mean any Person who is an “affiliate” as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.

 

“ Agreement ” means this Agreement as the same may be amended, supplemented or modified in accordance with the terms hereof.

 

“ Registration Rights Agreement ” means the Company’s Third Amended and Restated Registration Rights Agreement, dated as of March 9, 2004.

 

“ Amendment to Preferred Stock Rights Agreement ” means an amendment to the Company’s Preferred Stock Rights Agreement to permit the Investors to purchase the Warrants hereunder without causing such Investors to become Acquiring Persons (as defined in the Preferred Stock Rights Agreement).

 

“ Articles of Incorporation ” means the Amended and Restated Articles of Incorporation of the Company in effect on the Initial Closing Date and attached hereto as Exhibit C .

 

“ Board of Directors ” means the Board of Directors of the Company.

 

“ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York or the State of California are authorized or required by law or executive order to close.

 

“ By-laws ” means the by-laws of the Company in effect on the Initial Closing Date and attached hereto as Exhibit D .

 

“ CK Purchasers ” means Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and their transferees.

 

“ Claims ” has the meaning set forth in Section 3.5 of this Agreement.

 

“ Code ” means the Internal Revenue Code of 1986, as amended, or any successor statute thereto.

 

“ Commission ” means the United States Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act and Exchange Act.

 

“ Common Stock ” means the common stock of the Company, par value $0.001 per share.

 

“ Common Stock Warrant ” or “ Common Stock Warrants ,” as the case may be, means those certain warrants to purchase Common issued to General Atlantic Entities pursuant to that certain Stock and Warrant Purchase and Exchange Agreement, dated as of November 8, 2001.

 

“ Commonly Controlled Entity ” means any entity which is under common control with the Company within the meaning of Code Section 414(b) , (c) , (m) , (o) or (t) .

 

2

“ Common Shares ” means the shares of Common Stock issuable on conversion of the shares of Series F Preferred Stock.

 

“ Company ” has the meaning set forth in the preamble to this Agreement.

 

“ Company Plans ” has the meaning set forth in Section 3.15 of this Agreement.

 

“ Condition of the Company ” means the assets, business, properties, operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole.

 

“ Contingent Obligation ” means, as applied to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, lease, dividend, guaranty, letter of credit or other obligation, contractual or otherwise (the “ primary obligation ”) of another Person (the “ primary obligor ”), whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss or failure or inability to perform in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof.

 

“ Contractual Obligations ” means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument to which such Person is a party or by which it or any of its property is bound.

 

“ Conversion ” has the meaning set forth in Section 2.1(a) .

 

“ Conversion Notice ” has the meaning set forth in Section 2.5 of this Agreement.

 

“ Copyrights ” means any foreign or United States copyright registrations and applications for registration thereof, and any non-registered copyrights.

 

“ Environmental Laws ” means federal, state, local and foreign laws, principles of common laws, civil laws, regulations, and codes, as well as orders, decrees, judgments or injunctions, issued, promulgated, approved or entered thereunder relating to pollution, protection of the environment or public health and safety.

 

3

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder.

 

“ Financial Statements ” has the meaning set forth in Section 3.10 of this Agreement.

 

“ GAAP ” means United States generally accepted accounting principles in effect from time to time.

 

“ General Atlantic Entities ” means General Atlantic Partners 74, L.P., a Delaware limited partnership, GAP Coinvestment Partners II, L.P., a Delaware limited partnership, GapStar, LLC, a Delaware limited liability company, and GAPCO GmbH & Co. KG, a German limited partnership.

 

“ Governmental Authority ” means the government of any nation, state, city, locality or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

 

“ Indebtedness ” means, as to any Person, (a) all obligations of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers’ acceptances, whether or not matured), (b) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable and accrued commercial or trade liabilities arising in the ordinary course of business, (c) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be made by such Person, whether periodically or upon the happening of a contingency, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or Investor under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as capital leases, (f) all indebtedness secured by any Lien (other than Permitted Liens) on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person, and (g) any Contingent Obligation of such Person.

 

“ Indemnified Party ” has the meaning set forth in Section 7.1 of this Agreement.

 

“ Indemnifying Party ” has the meaning set forth in Section 7.1 of this Agreement.

 

4

“ Initial Closing ” has the meaning set forth in Section 2.4(a) of this Agreement.

 

“ Initial Closing Date ” has the meaning set forth in Section 2.4(a) of this Agreement.

 

“ Intellectual Property ” has the meaning set forth in Section 3.18 of this Agreement.

 

“ Internet Assets ” means any Internet domain names and other computer user identifiers and any rights in and to sites on the worldwide web, including rights in and to any text, graphics, audio and video files and html or other code incorporated in such sites.

 

“ Investment ” means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), (iii) any other capital contribution to or investment in such Person, including, without limitation, any guaranty obligation incurred for the benefit of such Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary.

 

“ IP Agreements ” has the meaning set forth in Section 3.18(a)(iii) of this Agreement.

 

“ Knowledge ” means the knowledge of the Company and Chief Executive Officer, Chief Financial Officer, and Senior Vice President, General Counsel of the Company (who are Mark J. Ferrer, James Clark and Michael J. Zukerman) after due inquiry.

 

“ Liabilities ” has the meaning set forth in Section 3.16 of this Agreement.

 

“ Lien ” means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or preference, priority, right or other security interest or preferential arrangement of any kind or nature whatsoever (excluding preferred stock and equity related preferences).

 

“ Losses ” has the meaning set forth in Section 7.1 of this Agreement.

 

“ Material Contractual Obligations ” has the meaning set forth in Section 3.8 of this Agreement.

 

5

“ NASD Rules ” has the meaning set forth in Section 3.27(b) .

 

“ Nasdaq ” means The Nasdaq Stock Market, Inc.

 

“ Notes ” has the meaning set forth in the recitals to this Agreement.

 

“ Orders ” has the meaning set forth in Section 3.2 of this Agreement.

 

“ Patents ” means any foreign or United States patents and patent applications, including any divisions, continuations, continuations-in-part, substitutions or reissues thereof, whether or not patents are issued on such applications and whether or not such applications are modified, withdrawn or resubmitted.

 

“ Permitted Investments ” means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the Initial Closing Date, and listed on Schedule 3.26 hereto, (iv) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (v) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vi) loans, advances and Investments in or by foreign Subsidiaries; (vii) any acquisition for which the prior written consent of the holders of a majority of the outstanding principal amount of Notes issued by the Company pursuant to this Agreement has been obtained, or (viii) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding.

 

“ Permitted Liens ” has the meaning set forth in the Note.

 

“ Person ” means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity.

 

“ Plan ” means any employee benefit plan, arrangement, policy, program, agreement or commitment (whether or not an employee plan within the meaning of Section 3(3) of ERISA), including, without limitation, any employment, consulting or deferred compensation agreement, executive compensation, bonus, incentive, pension, profit-sharing, savings, retirement, stock option, stock purchase or severance pay plan, any life, health, disability or accident insurance plan, whether oral or written, whether or not subject to ERISA, as to which the Company or any Commonly Controlled Entity has or in the future could have any direct or indirect, actual or contingent liability.

 

“ Requirements of Law ” means, as to any Person, any law (including Environmental Laws), statute, treaty, rule, regulation, right, privilege, qualification,

 

6

license or franchise or determination of an arbitrator or a court or other Governmental Authority or stock exchange, in each case applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject or pertaining to any or all of the transactions contemplated or referred to herein.

 

“ Retiree Welfare Plan ” means any welfare plan (as defined in Section 3(1) of ERISA) that provides benefits to current or former employees beyond their retirement or other termination of service (other than coverage mandated by Section 4980A of the Code, commonly referred to as “ COBRA, ” the cost of which is fully paid by the current or former employee or his or her dependents).

 

“ Richmond III ” means Richmonds III, LLC.

 

“ Sarbanes-Oxley Act ” has the meaning set forth in Section 3.27(a) of this Agreement.

 

“ SEC Reports ” has the meaning set forth in Section 3.10 of this Agreement.

 

“ Securities ” has the meaning set forth in Section 4.8 of this Agreement.

 

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.

 

“ Second Closing ” has the meaning set forth in Section 2.4(b) of this Agreement.

 

“ Second Closing Date ” has the meaning set forth in Section 2.4(b) of this Agreement.

 

“ Series D Preferred Stock ” means the Series D Cumulative Redeemable Convertible Preferred Stock of the Company, par value $0.001 per share.

 

“ Series F Certificate of Determination ” means the Certificate of Determination of Preferences of Series F Redeemable Convertible Preferred Stock, substantially in the form attached hereto as Exhibit E .

 

“ Series E Preferred Stock ” means the Series E Redeemable Convertible Preferred Stock of the Company, par value $0.001 per share.

 

“ Series F Preferred Stock ” has the meaning set forth in the recitals to this Agreement.

 

“ Software ” means any computer software programs, source code, object code, data and documentation, including, without limitation, any computer software programs that incorporate and run the Company’s pricing models, formulae and algorithms.

 

7

“ Stock Equivalents ” means any security or obligation which is by its terms convertible into or exchangeable or exercisable for shares of common stock or other capital stock of the Company, and any option, warrant or other subscription or purchase right with respect to common stock or such other capital stock.

 

“ Stock Option Plans ” means the Company’s stock option plans and employee purchase plans pursuant to which shares of restricted stock and options to purchase shares of Common Stock are reserved and available for grant to officers, directors, employees and consultants of the Company.

 

“ Stockholders Agreement ” means the Amended and Restated Stockholders Agreement, dated as of November 26, 2003, by and among the Company and the parties named therein.

 

“ Subsidiaries ” means, as of the relevant date of determination, with respect to any Person, a corporation or other Person of which 50% or more of the voting power of the outstanding voting equity securities or 50% or more of the outstanding economic equity interest is held, directly or indirectly, by such Person. Unless otherwise qualified, or the context otherwise requires, all references to a “ Subsidiary ” or to “ Subsidiaries ” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.

 

“ Taxes ” means any federal, state, provincial, county, local, foreign and other taxes (including, without limitation, income, profits, windfall profits, alternative, minimum, accumulated earnings, personal holding company, capital stock, premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, withholding, employment, unemployment compensation, payroll and property taxes, import duties and other governmental charges and assessments), whether or not measured in whole or in part by net income, and including deficiencies, interest, additions to tax or interest, and penalties with respect thereto, and including expenses associated with contesting any proposed adjustments related to any of the foregoing.

 

“ Trade Secrets ” means any trade secrets, research records, processes, procedures, manufacturing formulae, technical know-how, technology, blue prints, designs, plans, inventions (whether patentable and whether reduced to practice), invention disclosures and improvements thereto.

 

“ Trademarks ” means any foreign or United States trademarks, service marks, trade dress, trade names, brand names, designs and logos, corporate names, product or service identifiers, whether registered or unregistered, and all registrations and applications for registration thereof.

 

“ Transaction Documents ” means, collectively, this Agreement, the Notes, the Warrants, the Amendment to the Preferred Stock Rights Agreement and the Waivers.

 

8

“ Waivers ” means the waivers and consents, dated the date hereof, executed by (i) the requisite holders of the Company’s Series D Preferred Stock and (ii) the requisite General Atlantic Entities, CK Purchasers and Vectis CP Holdings, LLC, in each case to consent to and approve, to the extent necessary, the transactions and agreements contemplated by the Transaction Documents and to waive any rights they may have under that certain Amended and Restated Stockholders Agreement, dated November 26, 2003.

 

“ Warrant ” or “ Warrants ,” as the case may be, has the meaning set forth in the recitals to this Agreement.

 

“ Warrant Exercise Price ” has the meaning set forth in the recitals to this Agreement.

 

“ Warrant Shares ” means the shares of Series F Preferred Stock issuable upon exercise of the Warrants.

 

ARTICLE II

 

PURCHASE AND SALE OF NOTES AND WARRANTS

 

2.1 Purchase and Sale of Notes and Warrants . Subject to the terms and conditions of this Agreement, (a) on the Initial Closing Date, each of the Investors, severally and not jointly, agrees to purchase, and the Company agrees to sell and issue to each Investor, (i) a Note, in the aggregate principal amount set forth opposite such Investor’s name on Schedule 2.1(a) hereto and (ii) a Warrant to purchase the aggregate number of shares of Series F Preferred Stock set forth opposite such Investor’s name on Schedule 2.1(a) hereto and (b) on the Second Closing Date, each of the Investors, severally and not jointly, agrees to purchase, and the Company agrees to sell and issue to each Investor, (i) a Note, in the aggregate principal amount set forth opposite such Investor’s name on Schedule 2.1(b) hereto and (ii) a Warrant to purchase the aggregate number of shares of Series F Preferred Stock set forth opposite such Investor’s name on Schedule 2.1(b) hereto. Each of the Notes shall be due and payable upon the terms and conditions set forth in the Notes and herein. All payments by the Company under the Notes of principal and interest shall be as set forth in the Notes.

 

2.2 Filings . Upon the terms and conditions of this Agreement, on the Initial Closing Date, the Company shall file with the Secretary of State of the State of California the Series F Certificate of Determination.

 

2.3 Certificate of Determination . The Series F Preferred Stock shall have the preferences and rights set forth in the Series F Certificate of Determination.

 

2.4 Closings; Deliveries .

 

(a) Initial Closing . Subject to the terms and conditions of this Agreement, the initial purchase and sale of the Notes and Warrants contemplated by

 

9

Section 2.1(a) of this Agreement (the “ Initial Closing ”) shall be held on December 30, 2004 (the “ Initial Closing Date ”), at the offices of Paul, Hastings, Janofsky & Walker, LLP, 55 Second Street, San Francisco, California, or at such other time and place as the Company and the Investors may mutually agree. At the Initial Closing, signature pages transmitted by facsimile will be acceptable, with originals to immediately follow.

 

(b) Second Closing . Subject to the terms and conditions of this Agreement, the second purchase and sale of the Notes and Warrants contemplated by Section 2.1(b) of this Agreement (the “ Second Closing ”) shall be held on the third Business Day after the last to occur of the satisfaction or waiver by the Investors of the conditions set forth in Section 6.1 and the satisfaction or waiver by the Company of the conditions set forth in Section 6.2 (the “ Second Closing Date ”), at the offices of Paul, Hastings, Janofsky & Walker, LLP, 55 Second Street, San Francisco, California, or at such other time and place as the Company and the Investors may mutually agree. At the Second Closing, signature pages transmitted by facsimile will be acceptable, with originals to immediately follow.

 

(c) Deliveries by the Company at the Initial Closing . At the Initial Closing, subject to the terms and conditions hereof, the Company shall execute and deliver to each Investor:

 

(i) a duly executed Note representing the aggregate principal amount set forth opposite such Investor’s name on Schedule 2.1(a) , a duly executed Warrant to purchase the aggregate number of shares of Series F Preferred Stock set forth opposite such Investor’s name on Schedule 2.1(a) and each of the other Transaction Documents to which the Company is a party; and

 

(ii) such other documentation required to be provided by the Company pursuant to Section 5.1 .

 

(d) Deliveries by each Investor at the Initial Closing . At the Initial Closing, subject to the terms and conditions hereof, each Investor shall:

 

(i) execute and deliver to the Company each of the other Transaction Documents to which it is a party; and

 

(ii) pay the aggregate purchase price for the Notes and the Warrants to be purchased at the Initial Closing, by wire transfer, in the aggregate amount set forth opposite such Investor’s name on Schedule 2.1(a) to the following account (the “Account”):

 

Silicon Valley Bank

3003 Tasman Dr

Santa Clara, CA 95054

Tel: 415-512-4224

 

10

 

Bank Acct: 3300229151

 

ABA: 121140399

 

SWIFT CODE: SVBKUS6S

 

(e) Deliveries by the Company at the Second Closing . At the Second Closing, subject to the terms and conditions hereof, the Company shall execute and deliver to each Investor a duly executed Note representing the aggregate principal amount set forth opposite such Investor’s name on Schedule 2.1(b) , a duly executed Warrant to purchase the aggregate number of shares of Series F Preferred Stock set forth opposite such Investor’s name on Schedule 2.1(b) and such documentation required to be provided by the Company pursuant to Section 6.1 .

 

(f) Deliveries by each Investor at the Second Closing . At the Second Closing, subject to the terms and conditions hereof, each Investor shall pay the aggregate purchase price for the Notes and the Warrants to be purchased at the Second Closing by wire transfer to the Account, in the aggregate amount set forth opposite such Investor’s name on Schedule 2.1(b) .

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to each of the Investors that, except as disclosed or incorporated by reference in the SEC Reports or the Disclosure Schedules:

 

3.1 Corporate Existence and Power . The Company and each of its Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged; (c) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction in which its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a material adverse effect on the Condition of the Company and (d) has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and each of the other Transaction Documents. No jurisdiction, other than those referred to in clause (c) above, has claimed, in writing or otherwise, that the Company or any of its Subsidiaries is required to qualify as a foreign corporation or other entity therein, and the Company or any of its Subsidiaries does not file any franchise,

 

11

income or other tax returns in any other jurisdiction based upon the ownership or use of property therein or the derivation of income therefrom.

 

3.2 Authorization; No Contravention . The execution, delivery and performance by the Company of this Agreement and each of the other Transaction Documents and the transactions contemplated hereby and thereby (a) have been duly authorized by all necessary corporate action of the Company; (b) do not contravene the terms of the Articles of Incorporation or the By-laws; (c) do not violate, conflict with or result in any breach, default or contravention of (or with due notice or lapse of time or both would result in any breach, default or contravention of), or the creation of any Lien under, any Contractual Obligation of the Company or any of its Subsidiaries or any Requirement of Law applicable to the Company or any of its Subsidiaries except such violations or conflicts that would not reasonably be expected to have a material adverse effect on the Condition of the Company; and (d) do not violate any judgment, injunction, writ, award, decree or order of any nature (collectively, “ Orders ”) of any Governmental Authority against, or binding upon, the Company or any of its Subsidiaries.

 

3.3 Governmental Authorization; Third Party Consents . Except as set forth in Schedule 3.3 , no approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any Governmental Authority or any other Person, and no lapse of a waiting period under a Requirement of Law, is necessary or required in connection with the execution, delivery or performance (including, without limitation, the sale, issuance and delivery of the Warrants, the Warrant Shares or the Common Shares) by, or enforcement against, the Company of this Agreement and the other Transaction Documents or the transactions contemplated hereby and thereby, other than (a) the notification to The NASDAQ National Market for the listing of the shares of Common Shares and applicable blue-sky filings, (b) such as have already been obtained or such exemptive filings as may be required under applicable securities laws, and (c) such other filings as may be required following the Initial Closing Date or the Second Closing Date under the Exchange Act.

 

3.4 Binding Effect . This Agreement and each of the other Transaction Documents to which the Company is a party have been duly executed and delivered by the Company, and this Agreement and each of the other Transaction Documents to which the Company is a party constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

 

3.5 Litigation . Except as set forth on Schedule 3.5 , there are no actions, suits, proceedings, claims, complaints, disputes, arbitrations or investigations

 

12

(collectively, “ Claims ”) pending or, to the Knowledge of the Company, threatened, at law, in equity, in arbitration or before any Governmental Authority against the Company or any of its Subsidiaries that seeks in excess of $50,000 in damages nor is the Company aware that there is any basis for any of the foregoing. The foregoing includes, without limitation, Claims pending or, to the Knowledge of the Company, threatened or any basis therefor known by the Company involving the prior employment of any employee of the Company or any of its Subsidiaries, their use in connection with the business of the Company or any of its Subsidiaries of any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers. No Order has been issued by any court or other Governmental Authority against the Company or any of its Subsidiaries purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any of the other Transaction Documents.

 

3.6 Compliance with Laws . The Company and each of its Subsidiaries is in compliance in all material respects with all Requirements of Law and all Orders issued by any court or Governmental Authority against the Company in all respects. To the Company’s Knowledge, there are no Requirements of Law which could reasonably be expected to prohibit or restrict the Company or any of its Subsidiaries from, or otherwise materially adversely effect the Company or any of its Subsidiaries in, conducting its business in any jurisdiction in which it now conducts its business.

 

3.7 Capitalization .

 

(a) (i) As of the Initial Closing Date, the authorized capital stock of the Company shall consist of (A) 200,000,000 shares of Common Stock, of which 23,025,902 shares are outstanding, (B) one share of Special Voting Stock, par value $0.001 per share, of the Company (C) 4,188,587 shares of Series D Preferred Stock, of which 4,102,355 shares are outstanding, (E) 68,000,000 shares of Series E Preferred Stock, of which 55,894,801 shares are outstanding, (F) 450,000 shares of Series F Preferred Stock, 385,710 of which shall be reserved for issuance upon exercise of the Warrants, and (G) 2,286,412 shares of undesignated “blank check” preferred stock. As of the date of this Agreement, the aggregate number of shares of restricted stock and options to purchase shares of Common Stock which may be issued under the Stock Option Plans are 18,745,440, of which 17,427,864 have been granted. The Company has reserved an adequate number of shares of Common Stock for issuance upon conversion of the Series F Preferred Stock.

 

(ii) As of the Second Closing Date, the authorized capital stock of the Company shall consist of (A) 200,000,000 shares of Common Stock, (B) one share of Special Voting Stock, par value $0.001 per share, of the Company, (C) 4,188,587 shares of Series D Preferred Stock, of which 4,102,355 shares shall be outstanding, except that the number of shares of Series D Preferred Stock outstanding may decrease due to the conversion of such shares to Common Stock, (E) 68,000,000 shares of Series E Preferred Stock, of which 55,894,801 shares shall be outstanding, (F) 450,000 of shares of Series F Preferred Stock,

 

13

385,710 of which shall be reserved for issuance upon exercise of the Warrants, except that the number of shares of Series E Preferred Stock outstanding may decrease due to the conversion of such shares to Common Stock, and (G) 2,286,412 shares of undesignated blank check ” preferred stock.

 

(iii) Except as set forth on Schedule 3.7(a) and except for the Warrants and the Common Stock Warrants, there are no options, warrants, conversion privileges, subscription or purchase rights or other rights presently outstanding to purchase or otherwise acquire (A) any authorized but unissued, unauthorized or treasury shares of the Company’s capital stock, (B) any Stock Equivalents or (C) any other securities of the Company and there are no commitments, contracts, agreements, arrangements or understandings to which the Company is a party to issue any shares of the Company’s capital stock or any Stock Equivalents or other securities of the Company.

 

(b) Effective as of not later than the Initial Closing Date and the Second Closing Date, the Notes and Warrants to be issued at the First Closing and the Second Closing, respectively, shall be duly authorized, and assuming the accuracy of the representations and warranties of the Investors set forth in Article IV of this Agreement, will be issued in compliance with the registration and qualification requirements of all applicable federal, state and foreign securities laws and will be free and clear of all other Liens.

 

(c) Effective as of not later than the Initial Closing Date and the Second Closing Date, the Series F Preferred Stock issuable upon exercise of the Warrants issued at the First Closing and the Warrants issued at the Second Closing, respectively, and the shares of Common Stock issuable upon conversion of such Series F Preferred Stock, respectively, shall in each case be duly authorized and duly reserved for issuance, and when issued and delivered to the Investors, will be validly issued, fully paid and non-assessable, not be subject to any preemptive right or similar rights that have not been satisfied and assuming the accuracy of the representations and warranties of the Investors set forth in Article IV of this Agreement, will be issued in compliance with the registration and qualification requirements of all applicable federal, state and foreign securities laws and will be free and clear of all other Liens. None of the issued and outstanding shares of Common Stock were issued in violation of any preemptive rights.

 

3.8 No Default or Breach; Contractual Obligations . All of the Contractual Obligations to which the Company or any of its Subsidiaries is a party, whether written or oral, which are required by the Exchange Act to be disclosed in the SEC Reports (collectively, “ Material Contractual Obligations ”) are valid, subsisting, in full force and effect and binding upon the Company or its Subsidiary, as the case may be, and the other parties thereto, and the Company or its Subsidiary, as the case may be, has paid in full or accrued all amounts due thereunder and has satisfied in full or provided for all of its liabilities and obligations thereunder, except for such amounts as are being contested by the Company in good faith. Neither the Company nor any of its Subsidiaries has received notice of a default and is not in default under, or with respect to, any Material Contractual Obligation nor, to the Knowledge of the Company, does any

 

14

condition exist that with notice or lapse of time or both would constitute a default thereunder. To the Knowledge of the Company, no other party to any such Contractual Obligation is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default by such other party thereunder.

 

3.9 Title to Properties . The Company and each of its Subsidiaries has good, record and marketable title in fee simple to, or holds interests as lessee under leases in full force and effect in, all real property used in connection with its business or otherwise owned or leased by it. The Company and each of its Subsidiaries owns and has good, valid and marketable title to all of its properties and assets used in its business or reflected as owned on the Financial Statements, in each case free and clear of all Liens, except for Permitted Liens, or that would required to be described in the notes to the Financial Statements.

 

3.10 Reports; Financial Statements . As of the respective dates of their filing with the Commission, all reports, registration statements and other filings, together with any amendments thereto, filed by the Company with the Commission since June 30, 2000 (the “ SEC Reports ”), complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act, and the rules and regulations of the Commission promulgated thereunder, except as disclosed in the SEC Reports. The SEC Reports did not at the time they were filed with the Commission, or will not at the time they are filed with the Commission, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Company has delivered or made available to the Investors true and complete copies of, or will make available at each Investor’s request the SEC Reports and any exhibits thereto. Except as set forth in Schedule 3.10(a) , the Company is not aware of any issues raised by the Commission with respect to any of the SEC Reports, other than those disclosed in the SEC Reports.

 

(a) The consolidated financial statements (including, in each case, any related schedules or notes thereto) contained in or incorporated by reference in the SEC Reports and any such reports, registration statements and other filings to be filed by the Company with the Commission prior to the Initial Closing Date or the Second Closing Date, as the case may be (the “ Financial Statements ”), (i) have been or will be prepared in accordance with the published rules and regulations of the Commission and GAAP consistently applied during the periods involved (except as may be indicated in the notes thereto) and (ii) fairly present or will fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated results of operations, statements of stockholders’ equity and cash flows for the periods indicated, except that any unaudited interim financial statements were or will be subject to normal and recurring year-end adjustments and may omit footnote disclosure as permitted by regulations of the Commission.

 

3.11 Taxes . (a) The Company and each of its Subsidiaries has paid all Taxes which have come due and are required to be paid by it through the date hereof, and all deficiencies or other additions