Exhibit
4.1


 


PURCHASE AGREEMENT


 


 


                                THIS
PURCHASE AGREEMENT (“Agreement”) is made as of the 29th day of March, 2002 by
and among First Virtual Communications, 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 such Investors, on the
First Closing Date (as defined below), upon the terms and conditions stated in
this Agreement, (i) up to an aggregate of 6,686,000 shares of Common Stock, and
(ii) warrants to purchase up to an aggregate of 3,343,000 shares of Common
Stock in the form attached hereto as Exhibit A (individually, the “Warrants”
and collectively, the “Initial Securities”) for an aggregate purchase price of
up to $4,813,920 (the “Initial Purchase Price”).  The Investors purchasing the Initial Securities at the First
Closing Date are referred to herein as the “Initial Investors”; and


 


                C.            Upon the satisfaction of the
conditions set forth herein, the Remaining Investors (as defined below) may
purchase on one or more Subsequent Closing Dates (as defined below) up to (i)
an aggregate of 3,036,222 additional shares of Common Stock and (ii) Warrants
to purchase up to an aggregate of 1,518,111 shares of Common Stock
(collectively, the “Remaining Securities”) for an aggregate purchase price of
up to $2,186,080 (the “Remaining Purchase Price” and, collectively with the
Initial Purchase Price, the “Purchase Price”); and


 


                D.            Contemporaneous with the sale of the
Initial Securities, the Company and the Initial Investors will execute and
deliver a Registration Rights Agreement, in the form attached hereto as Exhibit
B (the “Registration Rights Agreement”), pursuant to which the Company will
agree to provide certain registration rights under the Securities Act of 1933,
as amended, 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 is 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 here set forth:


 

















 


 


                                “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” means the common stock, par value $0.001 per share, of the Company
and any securities into which the Common Stock may be reclassified.


 


                                “Company’s
Knowledge” means the actual knowledge of the officers of the Company, after
reasonable inquiry.


 


                                “Confidential
Information” means trade secrets, know-how (including but not limited to
ideas, formulae, compositions, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, business and marketing plans, and customer and supplier lists and
related information) and other similar proprietary or confidential information;


 


                                “Control”
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.


 


                                “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; (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 the assets, liabilities,
results of operations, condition (financial or otherwise), business, or
prospects of the Company and its Subsidiaries taken as a whole.


 


                                “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.


 


                                “Required
Investors” means the Investors holding a majority of the outstanding Shares
and outstanding Warrants being issued pursuant to this Agreement.


 


                                “SEC
Reports” has the meaning set forth in Section 4.6.


 


 


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                                “Securities”
means the Shares, the Warrants and the Warrant Shares.


 


                                “Shares”
means the shares of Common Stock being purchased by the Investors hereunder on
the First Closing Date and any Subsequent Closing Date.


 


                                “Subsidiary”
has the meaning set forth in Section 4.1.


 


                                “Transaction
Documents” means this Agreement, the Warrants and the Registration Rights
Agreement.


 


                                “Warrant
Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.


 


                                “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.


 


                2.             Purchase and Sale of the Shares
and Warrants.  (a)  Subject to the terms and conditions of this
Agreement, on the First Closing Date, each of the Initial Investors shall
severally, and not jointly, purchase, and the Company shall sell and issue to
the Initial Investors, the Initial Securities in the respective amounts set
forth opposite the Initial Investors’ names on the signature pages attached
hereto in exchange for the Initial Purchase Price as specified in Section 3
below.


 


                                (b)           Subject to the terms and conditions
of this Agreement, on any Subsequent Closing Date, the Remaining Investors may
severally, and not jointly, purchase, and the Company may sell and issue to the
Remaining Investors, up to the balance of the Remaining Securities.


 


                3.             Closing.  (a) Upon confirmation that the conditions to
closing specified herein have been satisfied, the Company shall deliver to
Lowenstein Sandler PC, in trust, a certificate or certificates, registered in
such name or names as the Initial Investors may designate, representing the
Initial Securities, with instructions that such certificates are to be held for
release to the Initial Investors only upon payment of the Initial Purchase
Price to the Company.  Upon receipt by
Lowenstein Sandler PC of the certificates, each Initial Investor shall promptly
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
Initial Investor’s pro rata portion of the Initial Purchase Price as set forth
on the signature pages to this Agreement. 
On the date (the “First Closing Date”) the Company receives such funds,
the certificates evidencing the Initial Securities shall be released to the
Initial Investors (the “First Closing”).


 


                                (b)           At any time on or before June 30,
2002 or at such time thereafter as the Company and the Required Investors may
mutually agree, the Company may sell up to the balance of the Remaining
Securities to such additional investors as may be approved by the 


 


 


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Company (the “Remaining Investors”)
at one or more additional closings.  All
such sales made at any additional closing (each a “Subsequent Closing”) shall
be made on the terms and conditions set forth in this Agreement.  Any Remaining Investor shall become a party
to this Agreement by executing a counter-part signature page hereto and shall
be deemed to be an “Investor” for all purposes under this Agreement.  Upon confirmation that the conditions to
closing specified herein have been satisfied, the Company shall deliver to
Lowenstein Sandler PC, in trust, a certificate or certificates, registered in
such name or names as the Remaining Investors may designate, representing the
Remaining Securities, with instructions that such certificates are to be held
for release to the Remaining Investors only upon payment of the Remaining
Purchase Price to the Company.  Upon
receipt by Lowenstein Sandler PC of the certificates, each Remaining Investor
shall promptly 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 Remaining Investor’s pro rata portion of the Remaining
Purchase Price to be set forth on a counterpart signature page to this
Agreement.  Upon receipt by the Company
of such funds, the certificates evidencing the Remaining Securities shall be
released to the Remaining Investors (a “Subsequent Closing Date”).


 


                                (c)           The First Closing and any Subsequent
Closing shall take place at the offices of Lowenstein Sandler PC, 65 Livingston
Avenue, Roseland, New Jersey, or at such other location and on such other date
as the Company and the Initial Investors or Remaining Investors, as applicable,
shall mutually agree.


 


                4.             Representations and Warranties
of the Company.  The Company hereby
represents and warrants to the Investors as of the date of this Agreement 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 and could not reasonably be expected to have a Material Adverse
Effect.  The Company’s subsidiaries are
reflected on Schedule 4.1 hereto (the “Subsidiaries”).


 


                                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) 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, other than, in the case of the issuance of the Remaining
Securities, the approval of the Proposal (as defined in Section 7.8) by the
Company’s stockholders.  The Transaction Documents constitute the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, subject to (a) bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability, relating to or affecting 


 


 


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creditors’ rights generally, (b) general principles of equity that restrict the
availability of equitable remedies, and (c) to the extent the indemnification
provisions in the Transaction Documents may be limited by applicable laws.


 


                                4.3           Capitalization.  Schedule 4.3 sets forth as of the
date hereof (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
plans; and (d) the number of shares of capital stock issuable and reserved for
issuance pursuant to securities (other than the Shares 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 were issued in full
compliance with applicable law and any rights of third parties.  Except as set forth on Schedule 4.3,
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 full compliance with applicable
law and the shares of such Subsidiaries owned by the Company are owned
beneficially and of record, subject to no lien, encumbrance or other adverse
claim.  Except as set forth on Schedule
4.3, no Person is entitled to pre-emptive or similar statutory or
contractual rights with respect to any securities of the Company.  Except as described on Schedule 4.3,
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 on Schedule
4.3 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.  The Company has not granted
any Person 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 on Schedule 4.3, the issuance of the Securities hereunder will
not trigger any outstanding anti-dilution rights.


 


                                The
Company does not have outstanding stockholder purchase rights 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 Shares have been duly and validly
authorized and, when issued and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable 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.  The Warrants have been duly and validly
authorized.  Upon the due exercise of
the Warrants, the Warrant Shares issuable upon such exercise 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.  The Company has reserved a sufficient number of shares of Common
Stock for issuance upon the exercise of the 


 


 


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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.


 


                                4.5           Consents.  Except, in the case of the issuance of the
Remaining Securities, for the approval of the Proposal by the stockholders of
the Company, 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. 
The Company has taken all action necessary to exempt (i) the sale of the
Securities, (ii) the issuance of the Warrant Shares upon due exercise of the
Warrants, and (iii) the other transactions contemplated by this Agreement from
the provisions of any anti-takeover or business combination law or statute
binding on the Company or to which the Company or any of its assets and
properties may be subject.


 


                                4.6           Delivery of SEC Reports; Business.  The Company has provided the Investors with
copies of (i) the Company’s most recent Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 (the “2000 10-K”), (ii) all other reports
filed by the Company pursuant to the 1934 Act since the filing of the 2000 10-K
and prior to the date hereof (the “Update Reports”), and (iii) a draft, dated
March 28, 2002, of its Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (individually, the “2001 10-K” and, collectively, the “SEC
Reports”).  The SEC Reports are the only
filings required or to be required of the Company pursuant to the 1934 Act for
the period commencing on January 1, 2001 and ending on March 31, 2002.  The Company and its Subsidiaries are engaged
only in the business described in the SEC Reports and the SEC Reports contain a
complete and accurate description in all material respects of the business of
the Company and its Subsidiaries, taken as a whole.  Whenever a representation or warranty of the Company contained
herein is qualified by reference to the SEC Reports, with respect to the 2001
10-K, such reference shall not include (i) information which is to be
incorporated by reference from any proxy or information statement of the
Company, and (ii) any exhibits which were not included as exhibits to the 2000
10-K or the Update Reports.


 


                                4.7           Use of Proceeds.  The proceeds of the sale of the Common Stock
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, 2001, except as
identified and described in the SEC Reports or as described on Schedule 4.8,
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 2001 10-K,
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 and as it is proposed to be 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 that has had or could reasonably be expected to have a Material
Adverse Effect.


 


                                4.9           SEC Reports; S-3 Eligibility.


 


                                                (a)           At the time of filing thereof, the
SEC Reports that have been filed prior to the date hereof 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.  Except as set forth in Schedule 4.9,
the 2001 10-K complies as to form in all material respects with the
requirements of the 1934 Act (except that the financial statements contained
therein are not accompanied by a signed audit opinion and the exhibit index
thereto has not been updated from the 2000 10-K) and does not contain any
untrue 


 


 


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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.


 


                                                (b)           During the preceding two years, each
registration statement and any amendment thereto filed by the Company pursuant
to the 1933 Act and the rules and regulations thereunder, 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, in light of the
circumstances under which they were made, 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 resale 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 (copies of which have been provided to the
Investors before the date hereof), 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.  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 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
on Schedule 4.11, 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 Reports, 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 Reports, 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         No Labor Disputes.  No material labor dispute with the employees
of the Company or any Subsidiary exists or, to the Company’s Knowledge, is
imminent.


 


                                4.15         Intellectual Property.


 


                                                (a)           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 is now involved in any cancellation, dispute
or litigation, and, to the Company’s Knowledge, no such action is
threatened.  Except as set forth in the
SEC Reports, neither the Company nor any Subsidiary has any issued patents or
any pending patent applications.


 


                                                (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, 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)           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 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.  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, to the Company’s
Knowledge, the Intellectual Property and Confidential Information of the
Company 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.  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 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)            To the Company’s Knowledge, all
software owned by the Company or any of its Subsidiaries, (i) is free from any
material defect; and (ii) conforms in all material respects to the
specifications and purposes thereof.


 


                                                (g)           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 by the
Company or any Subsidiary or, to the Company’s Knowledge, any other Person 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 (i)
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”), (ii) owns or operates
any real property contaminated with any substance that is subject to any
Environmental Laws, (iii) is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or (iv) 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 SEC Reports or on
Schedule 4.17, 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 (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 Reports filed or provided to the
Investors prior to the date hereof or as described on Schedule 4.18,
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 maintain 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.  Except as
described in Schedule 4.20, the Company is in compliance with applicable
Nasdaq continued listing requirements. 
Except as described in Schedule 4.20, there are no proceedings
pending or, to the Company’s Knowledge, threatened against the Company relating
to the continued listing of the Company’s Common Stock on Nasdaq and except as
described in Schedule 4.20, 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.


 


 


11

















 


 


                                4.21         Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by this Agreement, 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.


 


                                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 representation
and warranties of the Investors set forth in Section 5 below, 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         Disclosures.  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.


 


                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.  The Investor is an individual or a validly
existing corporation, limited partnership or limited liability company and has
all requisite power and authority to invest in the Securities pursuant to this
Agreement.


 


 


12

















 


 


                                5.2           Authorization.  The execution, delivery and performance by
the Investor of the Transaction Documents have been duly authorized and the
Transaction Documents will each constitute the valid and legally binding
obligation of the Investor, enforceable against the Investor in accordance with
their respective terms, subject to (a) bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally, (b) general principles of equity that restrict the
availability of equitable remedies, and (c) to the extent the indemnification
provisions in the Transaction Documents may be limited by applicable laws.


 


                                5.3           Purchase Entirely for Own Account.  The Securities to be received by the
Investor hereunder will be acquired for the 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 the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same
in violation of the 1933 Act.  The
Investor is not a registered broker dealer or an entity engaged in the business
of being a broker dealer.


 


                                5.4           Investment Experience.  The 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.  The Investor has had an opportunity to
receive all additional 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.  The Investor acknowledges receipt
of copies of the SEC Reports.  Neither
such inquiries nor any other due diligence investigation conducted by the
Investor shall modify, amend or affect the Investor’s right to rely on the
Company’s representations and warranties contained in this Agreement.


 


                                5.6           Restricted Securities.  The 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 such 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 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.”


 


 


13

















 


 


                                                (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.


 


                                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 Securities to be replaced with certificates which
do not bear such restrictive legends, and Warrant Shares subsequently issued in
respect 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 Warrant Shares.


 


                                5.8           Accredited Investor.  The Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.


 


                                5.9           No General Solicitation.  The 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 this Agreement, 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 Investors.


 


                6.  Conditions to the Closings.


 


                                6.1           Conditions to the Investors’
Obligations to Effect the First Closing. The obligation of the Initial
Investors to purchase the Initial Securities at the First Closing is subject to
the fulfillment to the Initial Investors’ satisfaction, on or prior to the
First Closing Date, of the following conditions, any of which may be waived by
the Initial Investors agreeing hereunder to purchase a majority of the Initial
Securities (the “Required Initial Investors”):


 


                                                (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 First 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
First 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 First Closing Date.


 


                                                (b)           The Company shall have obtained in a
timely fashion any and all consents, permits, approvals, registrations and
waivers necessary or appropriate for 


 


 


14

















 


 


consummation
of the purchase and sale of the Initial Securities all of which shall be in
full force and effect, including, without limitation, the consents of Vulcan
Ventures Incorporated referenced in Schedule 4.5.


 


                                                (c)           The Company shall have executed and
delivered the Registration Rights Agreement.


 


                                                (d)           The total gross proceeds to be
received by the Company from the sale of the Initial Securities at the Closing
Date shall be not less than $4,300,000.


 


                                                (e)           The Company shall have notified
Nasdaq in writing pursuant to Nasdaq’s rules that the Shares and the Warrant
Shares, excluding the Remaining Securities, are to be included for listing on
Nasdaq by filing a Listing of Additional Shares form with Nasdaq.


 


                                                (f)            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.


 


                                                (g)           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 First Closing Date, certifying
to the fulfilment of the conditions specified in subsections (a), (b), (d), (e)
and (f) of this Section 6.1.


 


                                                (h)           The Company shall have delivered a
Certificate, executed on behalf of the Company by its Secretary or an Assistant
Secretary, dated as of the First 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.


 


                                                (i)            The Initial Investors shall have
received an opinion from Cooley Godward llp,
the Company’s counsel, dated as of the First Closing Date, in substantially the
form approved by the Investors’ counsel.


 


                                                (j)            No stop order or suspension of
trading shall have been imposed by Nasdaq, the SEC or any other governmental
regulatory body with respect to public trading in the Common Stock.


 


                                6.2           Conditions to Obligations of the
Company to Effect the First Closing. The Company’s obligation to sell and
issue the Initial Securities at the First Closing is subject to the fulfillment
to the satisfaction of the Company on or prior to the First Closing Date of the
following conditions, any of which may be waived by the Company:


 


 


15

















 


 


                                                (a)           The representations and warranties
made by the Initial 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 (collectively, Sections 5.3-5.9 are referred to as 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 First
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 First Closing Date with the same
force and effect as if they had been made on and as of said date.  The Initial 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 First Closing Date.


 


                                                (b)           The Investors shall have executed and
delivered the Registration Rights Agreement.


 


                                                (c)           The Initial Investors shall have
delivered the Initial Purchase Price to the Company.


 


                                6.3           Conditions to the Investors’
Obligations to Effect Subsequent Closings. The obligation of the Remaining
Investors to purchase the Remaining Securities at any Subsequent Closing is
subject to the fulfillment to the Remaining Investors’ satisfaction, on or
prior to such Subsequent Closing Date, of the following conditions, any of
which may be waived by the Remaining Investors:


 


                                                (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 Subsequent 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
Subsequent 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 Subsequent
Closing Date.


 


                                                (b)           The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary or
appropriate for consummation of the purchase and sale of the Remaining
Securities all of which shall be in full force and effect.


 


                                                (c)           The First Closing shall have been
consummated in accordance with the terms of this Agreement.


 


                                                (d)           To the extent required, the Company’s
stockholders shall have approved the Proposal by the vote and in the manner
required by applicable law, the Company’s Certificate of Incorporation and
By-laws and the Nasdaq Marketplace Rules.


 


 


16

















 


 


                                                (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.


 


                                                (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 Subsequent Closing Date,
certifying to the fulfillment of the conditions specified in subsections (a),
(b), (c), (d) and (e) of this Section 6.3.


 


                                                (g)           The Company shall have delivered a
Certificate, executed on behalf of the Company by its Secretary or Assistant Secretary,
dated as of the Subsequent 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 Remaining Investors shall have
received an opinion from Cooley Godward llp,
the Company’s counsel, dated as of the Subsequent Closing Date, in
substantially the form approved by the Investors’ counsel.


 


                                                (i)            No stop order or suspension of
trading shall have been imposed by Nasdaq, the SEC or any other governmental
regulatory body with respect to public trading in the Common Stock.


 


                                6.4           Conditions to Obligations of the
Company to Effect the Subsequent Closings. The Company’s obligation to sell
and issue the Remaining Securities at any Subsequent Closing is subject to the
fulfillment to the satisfaction of the Company on or prior to such Subsequent
Closing Date of the following conditions, any of which may be waived by the
Company:


 


                                                (a)           The representations and warranties
made by the Remaining Investors in Section 5 hereof, other than 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 Subsequent
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 Subsequent Closing Date with the
same force and effect as if they had been made on and as of said date.  The Remaining 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 Subsequent Closing Date.


 


 


17

















 


 


                                                (b)           If required, the Company’s
stockholders shall have approved the Proposal by the vote and in the manner
required by applicable law, the Company’s Certificate of Incorporation and
By-laws and the Nasdaq Marketplace Rules.


 


                                                (c)           The First Closing shall have been
consummated in accordance with the terms of this Agreement.


 


                                                (d)           The Remaining Investors shall have
delivered the Remaining Purchase Price to the Company.


 


                                6.5           Termination; Effects.


 


                                                (a)           The obligations of the Company, on
the one hand, and the Initial Investors, on the other hand, to effect the First
Closing shall terminate as follows:


 


                                                                (i)            Upon the mutual written consent of
the Company and the Required Initial 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 the Required Initial Investors 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 Required Initial Investors;
or


 


                                                                (iv)          By either the Company or the Required
Initial Investors if the First Closing has not occurred on or prior to April
16, 2002;


 


provided,
however, that, except in the case of clause (i) above, the party seeking to
terminate its obligation to effect the First 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 First Closing.


 


                                                (b)           The obligations of the Company, on
the one hand, and the Remaining Investors, on the other hand, to effect any
Subsequent Closing shall terminate as follows:


 


                                                                (i)            Upon the mutual written consent of
the Company and the Remaining Investors;


 


                                                                (ii)           By the Company if any of the
conditions set forth in Section 6.4 shall have become incapable of fulfillment,
and shall not have been waived by the Company;


 


 


18

















 


 


                                                                (iii)          By the Required Investors if any of
the conditions set forth in Section 6.3 shall have become incapable of
fulfillment, and shall not have been waived by the Required Remaining
Investors; or


 


                                                                (iv)          By either the Company or the Remaining
Investors if such Subsequent Closing has not occurred on or prior to June 30,
2002;


 


provided,
however, that, except in the case of clause (i) above, the party seeking to
terminate its obligation to effect the Subsequent 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 Subsequent Closing.


 


                                (c)           In the event of any termination of
the obligations of any party to effect the First Closing or any Subsequent
Closing, as applicable, pursuant to this Section 6.5, written notice thereof
shall forthwith be given to the other parties hereto and the obligation of all
parties to effect the First Closing or such Subsequent Closing, as applicable,
shall be terminated, without further action by any party; provided, however,
that in the event that any Investor terminates its obligation to effect the
First Closing or any Subsequent Closing, as applicable, pursuant to the terms
hereof, the other Investors shall have the right, for a period of ten days
following receipt of notice by them of such termination, to require the Company
to consummate the affected Closing with respect to such Investors only.  In the event that the other Investors do not
exercise such right prior to the end of such ten-day period, the obligation of
such Investors to effect the affected Closing shall automatically terminate
without the necessity of any further act on the part of such Investors.  Nothing in this Section 6.5 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.


 


                                7.2           Reports.  The Company will furnish to such Investors
and/or their assignees such information relating to the Company and its
Subsidiaries as from time to time may reasonably be requested by such 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.


 


 


19

















 


 


                                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 obligations to the Investors under the
Transaction Documents.


 


                                7.4           Insurance.  The Company shall not materially reduce the
insurance coverages described in 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
Shares and the Warrant Shares to be listed on the Nasdaq National Market.  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 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 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 Required Investors or (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           Proxy Statement;
Stockholders Meeting.  (a) 
Promptly following the execution and delivery of this Agreement, if
required, the Company shall take all action necessary to call a meeting of its
stockholders (the “Stockholders Meeting”) for the purpose of seeking approval of the Company’s
stockholders for the issuance and sale to the Investors of the Securities (the
“Proposal”).  In connection therewith,
the Company will promptly prepare and file with the SEC proxy materials
(including a proxy
statement and form of proxy) for use at the Stockholders Meeting and, after
receiving and promptly responding to any comments of the SEC thereon, shall
promptly mail such proxy materials to the stockholders of the Company.  Each Investor shall promptly furnish in writing to
the Company such information relating to such Investor and its investment in
the Company as the Company may reasonably request for inclusion in the Proxy
Statement.  The Company will comply with
Section 14(a) of the 1934 Act and the rules promulgated thereunder in relation to any proxy statement (as
amended or supplemented, the “Proxy Statement”) and any form of proxy to be
sent to the stockholders of the Company in connection with the Stockholders
Meeting, and the Proxy Statement shall not, on the date of the Proxy Statement (or any amendment thereof
or supplement thereto) is first mailed to stockholders or at the time of the
Stockholders Meeting, contain any untrue statement 


 


 


20

















 


 


of a material fact or omit to state any material fact necessary in order
to make the statements made therein not false or misleading, or omit to state
any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies or the Stockholders Meeting which has become
false or misleading.  If the Company
should discover at any time prior to the Closing, any event relating to the
Company or any of its Subsidiaries or any of their respective affiliates, officers or directors that
is required to be set forth in a supplement or amendment to the Proxy
Statement, in addition to the Company’s obligations under the 1934 Act, the
Company will promptly inform the Investors thereof.


 


                                (b)           Subject
to their fiduciary
obligations under applicable law (as determined in good faith by the Company’s
Board of Directors after consultation with the Company’s outside counsel), the
Company’s Board of Directors shall recommend to the Company’s stockholders (and
not revoke or amend
such recommendation) that the stockholders vote in favor of the Proposal and
shall cause the Company to take all commercially reasonable action (including,
without limitation, the hiring of a proxy solicitation firm of nationally
recognized standing) to
solicit the approval of the stockholders for the Proposal.  Whether or not the Company’s Board of
Directors determines at any time after the date hereof that, due to its
fiduciary duties, it must revoke or amend its recommendation to the Company’s
stockholders, the
Company shall be required to, and will take, in accordance with applicable law
and its Certificate of Incorporation and Bylaws, all action necessary to
convene the Stockholders Meeting as promptly as practicable to consider and
vote upon the approval
of the Proposal.


 


                8.             Survival and Indemnification.


 


                                8.1  Survival.  All representations, warranties, covenants and agreements
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement for a period of three (3) years from the date of
this Agreement; provided, however, that the provisions contained in Section 7
hereof shall survive in accordance therewith.


 


                                8.2 
Indemnification.  The
Company agrees to indemnify and hold harmless, on an after-tax and after
insurance recovery basis, 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 hereof)
(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 


 


 


21

















 


 


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 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 Required
Investors, as applicable, provided, however, 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 portion or all of its Securities in a private
transaction without the prior written consent of the Company or the other
Investors, after notice duly given by such Investor to the Company and the
other Investors, provided, that such transfer complies with the requirements of
the 1933 Act and no such assignment or obligation shall affect the obligations
of such Investor hereunder.  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.


 


                                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.


 


 


22

















 


 


                                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
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:


 


                                                If
to the Company:


 


First Virtual Communications, Inc.


3393 Octavius Drive


Santa Clara, California 95054


Attention: 
Chief Financial Officer


Fax: 
(408) 748-2241


 


                                                With
a copy to:


 


Cooley Godward LLP


4401 Eastgate Mall


San Diego, California 92121-1909


Attention: 
Julie M. Robinson, Esq.


Fax: 
(858) 550-6420


 


                                                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 one counsel to the Initial Investors at the
First Closing, but not in excess of $25,000 in the aggregate.  The Company shall reimburse the Investors
upon demand for all reasonable out-of-pocket expenses incurred by the
Investors, including without limitation reimbursement of attorneys’ fees and
disbursements, in connection with any amendment, modification or waiver of this
Agreement or the other Transaction Documents requested by the Company.  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.


 


 


23

















 


 


                                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.  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 Special Situations Fund III, L.P.  (“SSF”) (in the case of a release or
announcement by the Company) (which consents shall not be 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 SSF 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.


 


                                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 Schedules, 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.  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 


 


 


24

















 


 


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.


 


[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:

  	
  FIRST VIRTUAL
  COMMUNICATIONS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy A. Rogers

  
	
   

  	
  Name:

  	
  Timothy A. Rogers

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  



 


 


 


 


26

















 


 


	
  The Investors:

  	
  SPECIAL SITUATIONS FUND
  III, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Austin Marxe

  
	
   

  	
  Name:

  	
  Austin Marxe

  
	
   

  	
  Title:

  	
  General Partner

  
	
   

  	
   

  	
   

  
	
  Initial Purchase Price: 
  $1,800,000

  	
   

  	
   

  
	
  Number of Shares:  2,500,000

  	
   

  	
   

  
	
  Number of Warrants:  1,250,000

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  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/ Austin Marxe

  
	
   

  	
  Name:

  	
  Austin Marxe

  
	
   

  	
  Title:

  	
  General Partner

  
	
   

  	
   

  	
   

  
	
  Initial Purchase Price: 
  $600,048

  	
   

  	
   

  
	
  Number of Shares:  833,400

  	
   

  	
   

  
	
  Number of Warrants:  416,700

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  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
  TECHNOLOGY FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Austin Marxe

  
	
   

  	
  Name:

  	
  Austin Marxe

  
	
   

  	
  Title:

  	
  General Partner

  
	
   

  	
   

  	
   

  
	
  Initial Purchase Price: 
  $599,976

  	
   

  	
   

  
	
  Number of Shares:  833,300

  	
   

  	
   

  
	
  Number of Warrants:  416,650

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  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

  



 


 


28

















 


 


	
   

  	
   

  	
   

  
	
   

  	
  STRATFORD PARTNERS, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Fain

  
	
   

  	
  Name:

  	
  Mark Fain

  
	
   

  	
  Title:

  	
  General Partner

  
	
   

  	
   

  	
   

  
	
  Purchase Price:  $300,000.24

  	
   

  	
   

  
	
  Number of Shares:  416,667

  	
   

  	
   

  
	
  Number of Warrants:  208,334

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address for Notice:

  	
   

  	
   

  
	
   

  	
   

  	
  17 Battery Place

  
	
   

  	
   

  	
  Suite 709

  
	
   

  	
   

  	
  New York, NY  10004

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  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

















 


 


	
   

  	
   

  	
   

  
	
   

  	
  NET ONE SYSTEMS CO., LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kazuo Sato

  
	
   

  	
  Name:

  	
  Kazuo Sato

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
  Initial Purchase Price: 
  $1,200,000.24

  	
   

  	
   

  
	
  Number of Shares:  1,666,667

  	
   

  	
   

  
	
  Number of Warrants:  833,334

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address for Notice:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sphere Tower Tennoz

  
	
   

  	
   

  	
  2-8, Higashi Shinagawa 2-chome

  
	
   

  	
   

  	
  Shinagawa-ku

  
	
   

  	
   

  	
  Tokyo 140-8621 Japan

  
	
   

  	
   

  	
  Telephone:  81.3.5462.0801

  
	
   

  	
   

  	
  Facsimile:  81.3.5462.0890

  



 


 


30

















 


 


	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Ralph Ungermann

  
	
   

  	
   

  	
  Ralph
  Ungerman

  
	
  Initial Purchase Price: 
  $113,895.36

  	
   

  	
   

  
	
  Number of Shares:  158,188

  	
   

  	
   

  
	
  Number
  of Warrants:  79,094

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address
  for Notice:

  	
   

  	
   

  



 


 


31

















 


 


	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Norman Gaut

  
	
   

  	
   

  	
  Norman
  Gaut

  
	
  Initial Purchase Price: 
  $150,000.48

  	
   

  	
   

  
	
  Number of Shares:  208,334

  	
   

  	
   

  
	
  Number
  of Warrants:  104,167

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address
  for Notice:

  	
   

  	
   

  



 


 


32

















 


 


	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Shigeru Ota

  
	
   

  	
   

  	
  Shigeru Ota

  
	
  Initial Purchase Price: 
  $49,999.68

  	
   

  	
   

  
	
  Number of Shares:  69,444

  	
   

  	
   

  
	
  Number
  of Warrants:  34,722

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address
  for Notice:

  	
   

  	
   

  



 


 


 


33