AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
This Amended and Restated Securities Purchase Agreement, dated as of
January 23, 2006 (this "Agreement"), among World Waste Technologies, Inc., a
California corporation (the "Company"), and each purchaser identified on the
signature pages hereto, including holders of Existing Securities that execute
this Agreement after the date hereof in accordance with Section 2.1(b) hereof
(each, including its successors and assigns, a "Purchaser" and collectively the
"Purchasers"), amends and restates in its entirety the Securities Purchase
Agreement dated as of December 27, 2005, by and among the Company and the
Purchasers.
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.
"Closing" means the closing of the purchase and sale of the Securities
pursuant to Section 2.1.
"Closing Date" means the second Trading Day following the Trading Day when
all conditions precedent to (i) the Purchasers' obligations to pay their
respective Subscription Amounts and (ii) the Company's obligations to deliver
the Debentures and Warrants have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter have been reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"Company Counsel" means Xxxx & Xxxxx, 0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx,
Xxx Xxxxxxx, Xxxxxxxxxx 00000.
"Debentures" means the 10% Senior Secured Debentures to be issued by the
Company to the Purchasers at the Closing, in the form of Exhibit A.
"Disclosure Schedules" shall have the meaning ascribed to such term in
Section 3.1.
"Discussion Time" shall have the meaning ascribed to such term in Section
3.2(f).
"Effective Date" means the date that the initial registration statement
filed by the Company registering the Warrant Shares for resale is first declared
effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term in Section
3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated thereunder.
"Exchange Offer" shall have the meaning ascribed to such term in Section
2.1(b).
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers, consultants or directors of the Company pursuant
to any stock or option plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the members of
a committee of non-employee directors established for such purpose, (b)
securities upon the exercise or exchange of any Securities issued hereunder
and/or securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange or
conversion price of any such securities, (c) the exchange of securities pursuant
to the Exchange Offer, (d) securities issued pursuant to acquisitions or
strategic transactions, provided any such issuance shall only be to a Person
which is, itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds in the good faith determination
of the Board of Directors of the Company, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities, (d)
shares of Common Stock issued upon conversions, redemptions and additional
shares issued on account of adjustments of the Company's Series A Preferred
Stock or any accrued dividends thereon and securities issued as consideration to
the Series A Preferred Stock holders to obtain consent or waivers, (e) shares of
Common Stock issued in a public offering, (f) securities issued to financial
institutions, equipment leasing companies or lessors in connection with any
commercial credit arrangements, equipment financings or other similar
transactions, or other vendors, (g) securities issued in connection with the
acquisition of intellectual property or other intangible rights in licensing
transactions or otherwise to existing or potential trade partners; securities
issued in connection with any stock split, recapitalization or similar
transaction, (h) securities issued as dividend or other distribution on the
Company's Series A Preferred Stock, or (i) usual and customary securities issued
to finders or brokers in fund raising transactions.
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"Existing Notes" shall have the meaning ascribed to such term in Section
2.1(b).
"Existing Securities" shall have the meaning ascribed to such term in
Section 2.1(b).
"Existing Securityholder" shall have the meaning ascribed to such term in
Section 2.1(b).
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"Indebtedness" shall have the meaning ascribed to such term in Section
3.1(aa).
"Intellectual Property Rights" shall have the meaning ascribed to such
term in Section 3.1(o).
"Knowledge of the Company" shall mean actual awareness of a fact, or
awareness of a fact if a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation concerning the existence of such fact
or other matter, by the Company's management installed since August 25, 2004.
"Legend Removal Date" shall have the meaning ascribed to such term in
Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other similar restriction.
"Material Adverse Effect" shall have the meaning assigned to such term in
Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in Section
3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in Section
5.17.
"Necessary Existing Securityholder Approval" shall have the meaning
ascribed to such term in Section 2.1(b).
"Participation Maximum" shall have the meaning ascribed to such term in
Section 4.13.
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"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in Section 4.13.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term in Section
4.11.
"Qualified Purchaser" shall mean any Purchaser that purchases at the
Closing at least $1,000,000 principal amount of Debentures until such Purchaser
no longer holds any Debentures or Warrants.
"Registration Rights Agreement" means a registration rights agreement
among the Company, the Purchasers and the Existing Securityholders, in the form
of Exhibit F attached hereto.
"Restriction Date" shall have the meaning ascribed to such term in Section
4.15.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Required Minimum" means, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Warrant Shares issuable
upon exercise in full of all Warrants, ignoring any exercise limits set forth
therein.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" means the Debentures, the Warrants and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means a Security Agreement among the Company, the
Purchasers and the Existing Securityholders, in the form of Exhibit D attached
hereto.
"Security Documents" shall mean the Security Agreement, the Subsidiary
Guarantee and any other documents and filing required thereunder in order to
grant the Purchasers a first priority security interest in the assets of the
Company as provided, and subject to the exceptions set forth in the Security
Agreement, including all UCC-1 filing receipts.
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"Short Sales" shall include all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act.
"Subscription Amount" means, as to each Purchaser, the aggregate amount to
be paid for Debentures and Warrants purchased hereunder as specified below such
Purchaser's name on the signature page of this Agreement and next to the heading
"Subscription Amount", (a) in United States Dollars and in immediately available
funds by wire transfer to such accounts as specified in writing by the Company
or (b) in exchange for Existing Securities on a $1 for $1 basis with respect to
the Debentures (including accrued but unpaid interest thereon).
"Subsequent Financing" shall have the meaning ascribed to such term in
Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed to such term
in Section 4.13.
"Subsidiary" means any subsidiary of the Company as set forth on Schedule
3.1(a).
"Subsidiary Guarantee" means a Subsidiary Guarantee, among each of the
Subsidiaries (other than subsidiaries that have no material assets) and the
Purchasers, in the form of Exhibit E attached hereto.
"Trading Day" means a day on which the Common Stock is traded on a Trading
Market.
"Trading Market" means any of the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question: the
Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" means this Agreement, the Debentures, the Security
Agreement, the Subsidiary Guarantee, the Warrants and any other documents or
agreements executed in connection with the transactions contemplated hereunder.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg Financial L.P.
(based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets" published by
the National Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Qualified Purchasers and reasonably
acceptable to the Company.
5
"Warrants" means collectively the Common Stock purchase warrants, in the
form of Exhibit C, to be delivered to the Purchasers at the Closing in
accordance with Section 2.2 hereof, which Warrants shall be exercisable
immediately as of the Closing Date and have a term of exercise equal to 4 years
from the Closing Date. The term "Warrants" also includes the Common Stock
purchase warrants issued to Existing Securityholders.
"Warrant Shares" means the shares of Common Stock issuable upon exercise
of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing.
(a) On the Closing Date, upon the terms and subject to the
conditions set forth herein, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, up to $6,265,000
principal amount of Debentures (plus such additional principal amount of
Debentures to take into account any accrued but unpaid interest through the
Closing Date with respect to any Existing Notes) and Warrants to purchase up to
a total of 297,000 shares of Common Stock. At the Closing, and except as set
forth in Section 2.1(b), each Purchaser shall deliver to the Company via wire
transfer or a certified check immediately available funds equal to their
respective Subscription Amount (or, with respect to Purchasers who are Existing
Securityholders, the Existing Notes being exchanged) and the Company shall
deliver to each Purchaser their respective Debenture and Warrants and the
parties shall deliver to each other the other items set forth in Section 2.2
issuable at the Closing. Notwithstanding anything herein to the contrary,
because the Existing Securityholders received Warrants in connection with the
issuance of the Existing Notes, no Existing Shareholders shall receive any
Warrants hereunder. Upon satisfaction of the conditions set forth in Section
2.2, the Closing shall occur on the Closing Date at the offices of FW, or such
other location as the parties shall mutually agree.
(b) In November 2005, the Company issued and sold $4,015,000
aggregate principal amount of senior secured notes (the "Existing Notes" or the
"Existing Securities") together with Warrants to purchase up to a total of
529,980 shares of Common Stock to a number of accredited investors (the
"Existing Securityholders"). The approval of the holders of at least 75%
principal amount of Existing Notes (the "Necessary Existing Securityholder
Approval") is necessary in order for the Company to issue the Debentures
hereunder. Following the date hereof, the Company shall use commercially
reasonable efforts to obtain the Necessary Existing Securityholder Approval.
Additionally, following the date hereof, the Company shall offer each Existing
Securityholder (the "Exchange Offer") the right to surrender its Existing Notes
(together with any accrued but unpaid interest thereon through the Closing Date)
to the Company for cancellation in exchange for the issuance to such Existing
Securityholder of Debentures in the same aggregate principal amount of the
Existing Notes (together with accrued but unpaid interest thereon) being
exchanged. Each Existing Securityholder that accepts the Exchange Offer shall be
required to execute this Agreement, whereupon such Existing Securityholder shall
be deemed a "Purchaser" hereunder. The Company agrees to keep the Exchange Offer
open until January 27, 2006. Any Existing Securityholder that accepts the
Exchange Offer after the Closing Date shall be required to execute this
Agreement and deliver to the Company the documents and instruments set forth in
Section 2.2, and the Company shall be required to deliver to such Existing
Securityholder the documents set forth in Section 2.3, whereupon such Existing
Securityholder shall also be deemed to be a "Purchaser" hereunder. The Exchange
Offer will not be consummated unless the holders of at least 75% aggregate
principal amount of outstanding Existing Notes accept the offer. Upon
consummation of the Exchange Offer, the registration rights agreement and the
security agreement entered into by the Company and the Existing Securityholders
shall be amended and restated as set forth on Exhibits F and D hereto,
respectively, and the Existing Notes of each Existing Securityholder (whether or
not such Existing Securityholder has accepted the Exchange Offer) will be
exchanged for New Debentures.
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2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, reasonably acceptable
to the Qualified Purchasers;
(iii) a Debenture in the principal amount equal to such
Purchaser's Subscription Amount, registered in the name of such Purchaser;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 33% of such
Purchaser's Subscription Amount divided by $2.50, with an exercise price equal
to $0.01 per share, subject to adjustment therein (except that Existing
Securityholders shall not receive any Warrants);
(v) the Registration Rights Agreement, duly executed by the
Company; and
(vi) the Security Agreement, duly executed by the Company,
along with all the Security Documents, including the Subsidiary Guarantee.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount (other than Existing
Securityholders, who will in lieu of cash deliver their Existing Notes as
described in (v) below);
(iii) the Registration Rights Agreement, duly executed by such
Purchaser;
(iv) the Security Agreement, duly executed by such Purchaser;
and
(v) with respect to each Purchaser that is an Existing
Securityholder, such Purchaser's Existing Securities for cancellation.
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2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met or waived by the
Company:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Purchasers contained
herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing Date shall have
been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being met or
waived by each Qualified Purchaser:
(i) the accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have been
performed in all material respects;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) the Exchange Offer has been consummated, and the accepting
holders shall have executed this Agreement and delivered to the Company (to be
held by the Company in escrow pending the Closing) all of the documents and
instruments required to be delivered by such Purchaser under Section 2.2 (b);
and
(vi) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of the Qualified Purchasers, makes it impracticable or
inadvisable to purchase the Debentures at the Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company's ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a "Material Adverse Effect") and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
other transactions contemplated hereby and thereby do not and will not: (i)
subject to the Required Approvals, conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) filings required pursuant to Section 4.6 and (ii) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the "Required Approvals").
(f) Issuance of the Warrant Shares. The Warrant Shares, when issued
and upon payment of the exercise price in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company. The Company has reserved
from its duly authorized capital stock a number of shares of Common Stock for
issuance of the Warrant Shares at least equal to the Required Minimum on the
date hereof.
(g) Capitalization. The capitalization of the Company is as set
forth on Schedule 3.1(g). No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents, except to the extent any
such rights have been waived. Except as a result of the purchase and sale of the
Securities and as set forth on Schedule 3.1(g), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. All of the outstanding shares of capital stock of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company's capital stock to which the Company is a party or, to
the Knowledge of the Company, between or among any of the Company's
stockholders.
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(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law to file such material)
(the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
"SEC Reports") on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in
all material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of information.
11
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the Knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the Knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or, to the Company's Knowledge, former director or officer of the
Company. The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
Knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or, to the Knowledge of the Company, has been in violation of any statute,
rule or regulation of any governmental authority, including without limitation
all foreign, federal, state and local laws applicable to its business, except in
the case of each of (i), (ii) and (iii) as would not reasonably be expected to
have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits would not have or reasonably be expected to result in a
Material Adverse Effect ("Material Permits"), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
12
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
would have a Material Adverse Effect, except for such items as have yet to be
conceived or developed or that are expected to be available for licensing on
reasonable terms from third parties (collectively, the "Intellectual Property
Rights"). Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the Knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged, including, but not limited to,
directors and officers insurance coverage at least equal to the aggregate
Subscription Amount. To the best Knowledge of the Company, such insurance
contracts and policies are accurate and complete in all material respects.
Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers or directors of the Company and, to the
Knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company.
13
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002 which
are applicable to it as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's disclosure controls
and procedures as of the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the "Evaluation Date").
The Company presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the effectiveness
of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Knowledge of the
Company, in other factors that could significantly affect the Company's internal
controls.
(s) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by the Transaction Documents.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not be or
become an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(v) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company.
14
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to the Knowledge of the Company is likely
to have the effect of, terminating the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration. The Company has not,
in the 12 months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Articles of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that constitutes or might reasonably be deemed
to constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All disclosure
provided to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct in all material
respects with respect to such representations and warranties and do 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. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable shareholder approval
provisions, including, without limitation, under the rules and regulations of
any Trading Market on which any of the securities of the Company are listed or
designated, except to the extent that any such integration would not have a
Material Adverse Effect.
(aa) Solvency. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
or for which the Company or any Subsidiary has commitments. For the purposes of
this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money
or amounts owed in excess of $50,000 (other than trade accounts payable incurred
in the ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.
15
(bb) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and to the Knowledge of the Company, no tax deficiency
exists which has been asserted or threatened against the Company or any
Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities by any
form of general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other "accredited
investors" within the meaning of Rule 501 under the Securities Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to the
Knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended
(ee) Accountants. The Company's accountants are set forth on
Schedule 3.1(ee) of the Disclosure Schedule. To the Knowledge of the Company,
such accountants, who expressed their opinion with respect to the financial
statements included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2004, are a registered public accounting firm as required by
the Securities Act.
(ff) Seniority. As of the Closing Date, no Indebtedness or other
equity of the Company will be senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than Indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and capital lease
obligations (which is senior only as to the property covered thereby).
(gg) No Disagreements with Accountants and Lawyers. There are no
material disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with respect to any
fees owed to its accountants and lawyers.
16
(hh) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting solely
in the capacity of an arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any advice given by any Purchaser or any of
their respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is merely incidental to the Purchasers'
purchase of the Securities. The Company further represents to each Purchaser
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
(ii) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 4.15 hereof), it is understood and agreed by the Company (i)
that none of the Purchasers have been asked to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities of
the Company, or "derivative" securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) that past or
future open market or other transactions by any Purchaser, including Short
Sales, and specifically including, without limitation, Short Sales or
"derivative" transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company's
publicly-traded securities; (iii) that each Purchaser, and counter parties in
"derivative" transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a "short" position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with or control
over any arm's length counter-party in any "derivative" transaction. The Company
further understands and acknowledges that (a) one or more of the Purchasers may
engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Warrant Shares deliverable with respect to Warrants are
being determined and (b) such hedging activities (if any) could reduce the value
of the existing stockholders' equity interests in the Company at and after the
time that the hedging activities are being conducted. The Company acknowledges
that such aforementioned hedging activities do not constitute a breach of any of
the Transaction Documents.
(jj) Manipulation of Price. The Company has not, and to the
Knowledge of the Company, no one acting on its behalf has, (i) taken, directly
or indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any
compensation for soliciting purchases of, any of the Securities (other than for
the placement agent's placement of the Securities), or (iii) paid or agreed to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company.
17
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power
and authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution, delivery and performance by such Purchaser of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action on the part of such Purchaser. Each
Transaction Document to which it is a party has been duly executed by Purchaser,
and when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Own Account. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and warranty
not limiting such Purchaser's right to sell the Securities pursuant to a
registration statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities hereunder in
the ordinary course of its business. Such Purchaser does not have any agreement
or understanding, directly or indirectly, with any Person to distribute any of
the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on the Closing Date and on
each date on which it exercises any Warrants it will be either: (i) an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a "qualified institutional buyer" as
defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required
to be registered as a broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.
18
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement or as a result of any
registration statement of the Company on Form SB-2 that may be on file with the
Commission.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other
than the transaction contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including Short
Sales (but not including the location and/or reservation of borrowable shares of
Common Stock), in the securities of the Company during the period commencing
from the time that such Purchaser first received a term sheet from the Company
or any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof ("Discussion Time"). Other than to
other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
(g) Existing Securities. Each Purchaser that is an Existing
Securityholder further represents and warrants that such Purchaser (i) has good
and marketable title to its Existing Securities, (ii) has the right to exchange
such securities without the consent of any other Person whatsoever and (iii)
upon surrender of its Existing Securities to the Company for cancellation
pursuant to the Exchange Offer such securities shall be owned by the Company
free and clear of any liens, charges, encumbrances, rights of first refusal or
other adverse claims whatsoever.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement.
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(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any of the Securities in the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE
OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that any Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of its Securities to a
financial institution that is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities, including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
20
(c) Certificates evidencing Warrant Shares shall not contain any
legend (including the legend set forth in Section 4.1(b) hereof): (i) while a
registration statement covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Securities pursuant to
Rule 144, or (iii) if such Securities are eligible for sale under Rule 144(k),
or (iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission), provided that with respect to (ii) and (iii) the
Purchaser holding the Warrant Shares provides the Company with the customary
representations and forms required for a Rule 144 transfer opinion. The Company
shall cause its counsel to issue a legal opinion to the Company's transfer agent
promptly after the Effective Date if required by the Company's transfer agent to
effect the removal of the legend hereunder. If all or any portion of a Warrant
is exercised at a time when there is an effective registration statement to
cover the resale of the Warrant Shares, or if such Warrant Shares may be sold
under Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations thereof)
then such Warrant Shares shall be issued free of all legends. The Company agrees
that following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than five Trading Days
following the delivery by a Purchaser to the Company or the Company's transfer
agent of a certificate representing Warrant Shares, as applicable, issued with a
restrictive legend, together with a copy of the Form 144 filed with the
Commission and a seller's and broker's representation letter (with respect to
Rule 144 sales other than pursuant to Rule 144(k)) (such fifth Trading Day, the
"Legend Removal Date"), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. Certificates for Securities subject to
legend removal hereunder shall be transmitted by the transfer agent of the
Company to the Purchasers by crediting the account of the Purchaser's prime
broker with the Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages and not
as a penalty, for each $2,000 of Warrant Shares (based on the VWAP of the Common
Stock on the date such Securities are submitted to the Company's transfer agent)
delivered for removal of the restrictive legend and subject to this Section
4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days
after such damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered without a legend. Nothing
herein shall limit such Purchaser's right to pursue actual damages for the
Company's failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser severally and not jointly with the other
Purchaser agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the
Company's reliance that each such Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom.
4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Warrant
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
21
4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Exercise Procedures. The form of Notice of Exercise included in the
Warrants set forth the totality of the procedures required of the Purchasers in
order to exercise the Warrants. No additional legal opinion or other information
or instructions shall be required of the Purchasers to exercise their Warrants.
The Company shall honor exercises of the Warrants and shall deliver Warrant
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 5:30 p.m.
Eastern time on the fourth Trading Day following the date hereof, issue a
Current Report on Form 8-K, reasonably acceptable to each Qualified Purchaser
disclosing the material terms of the transactions contemplated hereby, and shall
attach the Transaction Documents thereto. The Company and the Qualified
Purchasers shall consult with each other in issuing any other press releases
with respect to the transactions contemplated hereby, and neither the Company
nor any Purchaser shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any
press release of any Purchaser, or without the prior consent of each Qualified
Purchaser, with respect to any press release of the Company, which consent shall
not unreasonably be withheld (the failure of any such party to object within 24
hours to any such press release or public statement shall be deemed acceptance
of such press release or public statement), except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior written
consent of each Qualified Purchaser, except (i) as required by federal
securities law in connection with the registration statement registering the
resale of the Warrant Shares and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
22
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the Knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.9 Use of Proceeds. The Company shall be required to use the net proceeds
from the sale of the Securities hereunder specifically as set forth on Schedule
4.9 hereto.
4.10 Reimbursement. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder and except for a Proceeding
which is based upon a breach of such Purchaser's representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by such
Purchaser of state or federal securities laws or any conduct by Purchaser which
constitutes fraud, gross negligence, willful misconduct or malfeasance), solely
as a result of such Purchaser's acquisition of the Securities under this
Agreement, the Company will reimburse such Purchaser for its reasonable legal
and other expenses (including the cost of any investigation preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. Other than with respect to willful misconduct by a Purchaser in
connection with the acquisition of the Securities, the Company also agrees that
neither the Purchasers nor any such Affiliates, partners, directors, agents,
employees or controlling persons shall have any liability to the Company or any
Person asserting claims on behalf of or in right of the Company solely as a
result of acquiring the Securities under this Agreement.
23
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, members, partners, employees and agents
(each, a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by such Purchaser of state or federal securities laws or any conduct
by Purchaser which constitutes fraud, gross negligence, willful misconduct or
malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material
conflict on any material issue between the position of the Company and the
position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
4.12 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents in
such amount as may be required to fulfill its obligations in full under the
Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required Minimum
on such date, then the Board of Directors of the Company shall use commercially
reasonable efforts to amend the Company's certificate or articles of
incorporation to increase the number of authorized but unissued shares of Common
Stock to at least the Required Minimum at such time, as soon as possible and in
any event not later than the 75th day after such date.
(c) The Company shall, if applicable: (i) in the time and manner
required by the Trading Market prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on the Trading Market as soon as possible thereafter, (iii)
provide to the Purchasers evidence of such listing, and (iv) maintain the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market.
24
4.13 Participation in Future Financing.
(a) From the date hereof until the earlier of (i) the later of (A)
18 months from the date hereof and (B) the date that the Debentures are no
longer outstanding and (ii) the date that the Company has consummated, in the
aggregate since the date hereof, the sale of at least $12,030,000 of the
Company's securities in one or more Subsequent Financings following the Closing
that are subject to the rights of participation under this Section 4.13, upon
any financing by the Company or any of its Subsidiaries of Common Stock or
Common Stock Equivalents after the date hereof (a "Subsequent Financing"), each
Purchaser shall have the right to participate in up to an amount of the
Subsequent Financing equal to the lesser of (i) 100% of the Subsequent Financing
and (ii) the principal amount of such Purchaser's Debentures issued and sold by
the Company pursuant to this Agreement (whether such Debentures were purchased
for cash or upon exchange of Existing Notes) (the "Participation Maximum").
(b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of its
intention to effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice
shall ask such Purchaser if it wants to review the details of such financing.
Upon the written request of a Purchaser for the details of such financing (but
subject to the provisions of (c) below), and only upon such a request by such
Purchaser, the Company shall promptly, but no later than 1 Trading Day after
such request, deliver a notice that describes such details (a "Subsequent
Financing Notice") to such Purchaser. The Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto.
(c) Any Purchaser desiring to participate in such Subsequent
Financing, must provide written notice to the Company by not later than 5:30
p.m. (New York City time) on the 5th Trading Day after such Purchaser has been
sent the Pre-Notice that such Purchaser is willing to participate in the
Subsequent Financing, the amount of such Purchaser's participation, and that
such Purchaser has such funds ready, willing, and available for investment on
the terms set forth in the Subsequent Financing Notice. If the Company receives
no notice from such Purchaser as of 5th Trading Day after such Purchaser
receives the Pre-Notice, such Purchaser shall be deemed to have notified the
Company that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have been sent the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing (or
to cause its designees to participate) is, in the aggregate, less than the total
amount of the Subsequent Financing, then the Company may effect the remaining
portion of such Subsequent Financing on the terms set forth in the Subsequent
Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have been sent the Pre-Notice with respect to a
Subsequent Financing, the Company receives responses to a Subsequent Financing
Notice from Purchasers seeking to purchase, in the aggregate, more than the
aggregate amount of the Subsequent Financing, each such Purchaser shall have the
right to purchase the greater of (a) their Pro Rata Portion (as defined below)
of the Participation Maximum and (b) the difference between the Participation
Maximum and the aggregate amount of participation by all other Purchasers. "Pro
Rata Portion" is the ratio of (x) the Subscription Amount of Securities
purchased on the Closing Date by a Purchaser participating under this Section
4.13 and (y) the sum of the aggregate Subscription Amounts of Securities
purchased on the Closing Date by all Purchasers participating under this Section
4.13 (whether such Securities were purchased for cash or upon exchange of
Existing Notes).
25
(f) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation
set forth above in this Section 4.13, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on
substantially the terms set forth in such Subsequent Financing Notice within 60
Trading Days after the date of the initial Subsequent Financing Notice.
(g) Notwithstanding anything herein to the contrary, if the Company
effects a Subsequent Financing at any time while the Debentures are outstanding,
each Purchaser may elect, in its sole discretion, to exchange all or some of the
Debentures then held by such Purchaser for any securities or combination of
securities issued in such Subsequent Financing based on the effective price at
which such securities were sold in such Subsequent Financing. For each $1
principal amount of Debenture exchanged, such Purchaser shall receive $1 of
securities issued in such Subsequent Financing as if such Purchaser had paid for
such securities in cash. This right to exchange Debentures into new securities
shall be in addition to the Purchasers' rights to participate in the transaction
for cash consideration pursuant to Section 4.13(a) but shall otherwise be
subject to the procedures set forth in this Section 4.13 regarding notice and
closing.
(h) Upon exercise of any of the rights granted to the Purchasers
hereunder, such Purchaser's right shall be conditioned upon the participating
Purchasers entering into the same documents agreed to by the third party
investors in the Subsequent Financing.
(i) Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect to an Exempt Issuance.
(j) Notwithstanding any provision in this Agreement or in any other
Transaction Document to the contrary, provided that the Company complies with
any obligations it has expressly agreed to and rights it has expressly granted
to the Purchasers under the Transaction Documents, nothing else in any such
agreement shall be interpreted to give any of the Purchasers (acting
collectively or individually), the right to take any action that would block,
delay or otherwise hinder the Company's ability to raise capital through the
sale of Common Stock or Common Stock Equivalents that are not Indebtedness
(unless such Indebtedness is used to prepay the Debentures). Without limiting
the generality of the foregoing, the parties agree and acknowledge that any
amendment to the Company's articles of incorporation, bylaws or other charter
documents effectuated in order to enable the Company to issue Common Stock or
Common Stock Equivalents in a bona fide round of financing (such as the creation
of a new series of preferred stock, an increase in the Company's authorized
shares of any class of capital stock, or any change requested by the holders of
the Company's Series A Preferred Stock to the terms thereof in order to obtain
such holders' consent to such financing) shall in no event be deemed to be an
amendment that materially and adversely affects the rights of any Purchaser.
26
(k) The Company shall have 20 Trading Days from delivery of the
Pre-Notice to publicly announce the Subsequent Financing. If by the end of such
20 Trading Day period, the Company has not made a public announcement with
respect to the Subsequent Financing, such Subsequent Financing shall be deemed
terminated and knowledge of such transaction shall no longer be deemed material,
non-public information.
4.14 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers, if more than one, acting in concert or as a group
with respect to the purchase, disposition or voting of Securities or otherwise.
4.15 Short Sales and Confidentiality After The Date Hereof. Each Purchaser
severally and not jointly with the other Purchasers covenants that neither it
nor any Affiliates acting on its behalf or pursuant to any understanding with it
will execute any disposition, including Short Sales (but not including the
location and/or reservation of borrowable shares of Common Stock), in the
securities of the Company during the period after the Discussion Time (as
defined in Section 3.2(f)) and ending on March 23, 2006 (the "Restriction
Date"). Each Purchaser severally and not jointly with the other Purchasers
covenants that until such time as the transactions contemplated by this
Agreement are publicly disclosed by the Company as described in Section 4.6,
such Purchaser will maintain, the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction). Each Purchaser understands and acknowledges, severally and not
jointly with any other Purchaser, that the Commission currently takes the
position that coverage of short sales of shares of the Common Stock "against the
box" prior to the Effective Date of the registration statement registering such
Common Stock with the Commission is a violation of Section 5 of the Securities
Act, as set forth in Item 65, Section 5 under Section A, of the Manual of
Publicly Available Telephone Interpretations, dated July 1997, compiled by the
Office of Chief Counsel, Division of Corporation Finance. Notwithstanding the
foregoing, no Purchaser makes any representation, warranty or covenant hereby
that it will not engage in Short Sales in the securities of the Company after
the Restriction Date.
4.16 Piggy-Back Registrations. If at any time prior to the 24-month
anniversary of the Closing Date there is not an effective registration statement
covering all of the Warrant Shares and the Company shall determine to prepare
and file with the Commission a registration statement relating to an offering
for its own account or the account of others under the Securities Act of any of
its equity securities, then the Company shall send to each Purchaser a written
notice of such determination and, if within fifteen days after the date of such
notice, any such Holder shall so request in writing, the Company shall include
in such registration statement all or any part of such Warrant Shares as such
Holder requests to be registered (if and to the extent such inclusion is
permitted by the rules and regulations of the Commission). The registration
rights of the Purchasers are set forth more fully in the Registration Rights
Agreement.
27
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before
January 27, 2006; provided, however, that no such termination will affect the
right of any party to xxx for any breach by the other party (or parties). This
Agreement may be terminated by the Company at any time after January 27, 2006 if
the Company has not obtained the Necessary Existing Securityholder Approval by
such date; provided that the Company has complied with its obligations in
Section 2.1(b) to use commercially reasonable efforts to obtain such approval
and it provides to the Qualified Purchasers, upon their request, documentation
evidencing the same (or if such documentation is not available they represent in
writing that such approval was not obtained despite the Company's compliance
with Section 2.1 (b)).
5.2 Fees and Expenses. At the Closing, the Company has agreed to reimburse
Midsummer Capital, LLC ("Midsummer") up to $10,000, for its actual, reasonable,
out-of-pocket legal fees and expenses. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
28
5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Qualified Purchasers or, in the case of a waiver, by
the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Qualified Purchaser. Any Purchaser may
assign any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If any party shall commence an action or proceeding
to enforce any provisions of the Transaction Documents, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its reasonable attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
29
5.10 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery and exercise of the Securities for the
applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party, it being understood that all parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of an exercise of a Warrant, the Purchaser
shall be required to return any shares of Common Stock subject to any such
rescinded exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
30
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to a Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the "Maximum Rate"),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to
Indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
Indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, if any, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under any Transaction Document. Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers, if more than one, as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents (provided that the
action of the holders of at least 30% of the aggregate principal amount of
Debentures is required to call an Event of Default (as defined in the
Debentures) under the Debentures), and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented, or been given the opportunity to
be represented by its own separate legal counsel in its review and negotiation
of the Transaction Documents. For reasons of administrative convenience only,
Purchasers and their respective counsel have chosen to communicate with the
Company through FW. FW does not represent all of the Purchasers but only
Midsummer. The Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.
31
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
5.21 Limitation of Liability. Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of any
Purchaser arising directly or indirectly under any Transaction Document of any
and every nature whatsoever shall be satisfied solely out of the assets of such
Purchaser, and that no trustee, officer, other investment vehicle or any other
Affiliate of such Purchaser or any investor, shareholder or holder of shares of
beneficial interest of such Purchaser shall be personally liable for any
liabilities of such Purchaser.
(Signature Pages Follow)
32
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
WORLD WASTE TECHNOLOGIES, INC. Address for Notice:
------------------
By: /s/ XXXX XXXXXXXX
---------------
Name: Xxxx Xxxxxxxx
Title: CEO
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
33
[PURCHASER SIGNATURE PAGES TO WDWT SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser:
--------------------------------------------------------------
Signature of Authorized Signatory of Purchaser:
---------------------------------
Name of Authorized Signatory:
---------------------------------------------------
Title of Authorized Signatory:
--------------------------------------------------
Email Address of Purchaser:
-----------------------------------------------------
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Warrant Shares:
34
Annex A
CASH CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the
date hereto, the purchasers shall purchase for new cash consideration up to
$2,250,000 of Debentures and Warrants from World Waste Technologies, Inc. (the
"Company"). All funds will be wired into a trust account maintained by Xxxxxxx
Xxxxxxxxx, LLP, counsel to Midsummer. All funds will be disbursed in accordance
with this Closing Statement.
Disbursement Date: January ___, 2006
I. PURCHASE PRICE
Gross Proceeds to be Received in Trust $
II. DISBURSEMENTS
Midsummer Capital $
$
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
To:
_________________________________
