SECURITIES PURCHASE AGREEMENT
Exhibit
10.38
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of May ___, 2008 by and among QPC Lasers, Inc., a Nevada corporation
(the “Company”),
and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser”
and
collectively, 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 set forth in this Section 1.1:
“Acquiring
Person”
shall
have the meaning ascribed to such term in Section 4.7.
“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 405 under the Securities
Act.
“Board
of Directors”
means
the board of directors of the Company.
“Business
Day”
means
any day except Saturday, Sunday, any day which is a federal legal holiday in
the
United States or any day on which banking institutions in the State of New
York
are authorized or required by law or other governmental action to
close.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to
(i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“Closing
Statement”
means
the Closing Statement in the form Annex
A
attached
hereto.
“Commission”
means
the United States 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 be 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
Xxxxxxxx & Xxxxxxxx LLP, with offices located at 000 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000.
“Conversion
Price”
shall
have the meaning ascribed to such term in the Debentures.
“Debentures”
means
the 10% Original Issue Discount Secured Convertible Debentures due, subject
to
the terms therein, three years from their date of issuance, issued by the
Company to the Purchasers hereunder, in the form of Exhibit
A
attached
hereto.
“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).
“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.
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“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees, officers
,
directors or consultants (provided that no such Common Stock or options shall
be
issued to consultants unless such Common Stock is unregistered and subject
to
volume limitations under Rule 144, provided that such issuances to consultants
shall not exceed 1,000,000 shares issued at a purchase price equal to or greater
than the then market price, subject to adjustment for reverse and forward stock
splits and the like, and provided that the price of such issuances of Common
Stock, and the conversion or exercise price of such issuance of options, to
consultants shall not be subject to any adjustments or resets after issuance)
of
the Company pursuant to any stock or option plan duly adopted for such purpose
by a majority of the non-employee members of the Board of Directors 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 or conversion
of
any Securities issued hereunder and/or other 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 such
securities (provided, however, this subsection (b) shall not include any
downward adjustment of (i) the conversion price of the Existing Debentures,
(ii)
the exercise price of the Existing Warrants or (iii) the number of shares
issuable upon exercise of the Existing Warrants), (c) securities issued pursuant
to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that 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, 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, and (d) any securities the issuance of which the
Purchasers holding at least 67% of the Principal Amount of the Debentures then
outstanding have agreed in writing to be deemed as an Exempt Issuance under
this
Agreement.
“Existing
Debentures”
means,
collectively, the Company’s 10% Secured Convertible Debentures due May 22, 2009
and 10% Secured Convertible Debentures due April 16, 2009.
“Existing
Debenture Holders”
means
the holders of the Existing Debentures.
“Existing
Liens”
means
all Liens granted in favor of the Existing Debenture Holders, and all other
Liens existing as of the date hereof as disclosed in writing to the Purchasers
or as disclosed in any periodic reports or other securities filings made prior
to the date hereof by the Company with the Commission.
“Existing
Warrants”
means,
collectively, the Company’s Common Stock Purchase Warrants issued on May 29,
2007 and April 16, 2007.
“FWS”
means
Xxxxxxx Xxxxxxxxx & Xxxxx 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).
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“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 restriction.
“Lock-Up
Agreement”
means
the Lock-Up Agreement, dated as of the date hereof, by and among the Company
and
the directors and officers of the Company, in the form of Exhibit
B
attached
hereto.
“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.
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.12(a).
“Permitted
Indebtedness”
means
(a) the indebtedness evidenced by the Debentures and the Existing Debentures,
and (b) the Indebtedness existing on the Original Issue Date and set forth
on
Schedule
3.1(aa)
attached
hereto.
“Permitted
Liens”
means,
collectively, (i) Liens that do not materially affect the value of the
collateral and do not materially interfere with the use made and proposed to
be
made of such collateral by the Company and its subsidiaries; (ii) Liens for
the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties; and (iii) Existing Liens.
“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 4.12(b).
“Principal
Amount”
means,
as to each Purchaser, the amounts set forth below such Purchaser’s signature
block on the signature pages hereto next to the heading “Principal Amount,” in
United States Dollars, which shall equal such Purchaser’s Subscription Amount
multiplied by 1.111.
“Pro
Rata Portion”
shall
have the meaning ascribed to such term in Section 4.12(e).
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“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
“Public
Information Failure”
shall
have the meaning ascribed to such term in Section 4.3(b).
“Public
Information Failure Payments”
shall
have the meaning ascribed to such term in Section 4.3(b).
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.10.
“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 Underlying Shares issuable upon exercise in full of
all
Warrants or conversion in full of all Debentures (including Underlying Shares
issuable as payment of interest on the Debentures), ignoring any conversion
or
exercise limits set forth therein, and assuming that the Conversion Price is
at
all times on and after the date of determination 75% of the then Conversion
Price on the Trading Day immediately prior to the date of
determination.
“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, the Warrant Shares and the Underlying
Shares.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Security
Agreement”
means
the Security Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit
E
attached
hereto.
“Security
Documents”
shall
mean the Security Agreement, the Subsidiary Guarantees and any other documents
and filing required thereunder in order to grant the Purchasers a subordinated
security interest in the assets of the Company and the Subsidiaries as provided
in the Security Agreement, including all UCC-1 filing receipts.
“Short
Sales”
means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
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“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,” in United States dollars and in immediately available
funds.
“Subsequent
Financing”
shall
have the meaning ascribed to such term in Section 4.12(a).
“Subsequent
Financing Notice”
shall
have the meaning ascribed to such term in Section 4.12(b).
“Subsidiary”
means
any subsidiary of the Company as set forth on Schedule
3.1(a)
and
shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
“Subsidiary
Guarantee”
means
the Subsidiary Guarantee by each Subsidiary (as required pursuant to the
Security Agreement) in favor of the Purchasers, in the form of Exhibit
F
attached
hereto.
“Subordination
Agreement”
means
the Subordination Agreement, dated as of the date hereof, among the Company,
each of the Subsidiaries and the Purchasers, in the form of Exhibit
G
attached
hereto
“Trading
Day”
means
a
day on which the principal Trading Market is open for trading.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction
Documents”
means
this Agreement, the Debentures, the Warrants, the Security Agreement, the
Subsidiary Guarantee, the Subordination Agreement, the Lock-Up Agreement, the
Voting Agreement, all exhibits and schedules thereto and hereto and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.
“Transfer
Agent”
means
_____________________, the current transfer agent of the Company with a mailing
address of ___________________ and a facsimile number of _______________, and
any successor transfer agent of the Company.
“Underlying
Shares”
means
the shares of Common Stock issued and issuable upon conversion or redemption
of
the Debentures and upon exercise of the Warrants and issued and issuable in
lieu
of the cash payment of interest on the Debentures in accordance with the terms
of the Debentures.
6
“Variable
Rate Transaction”
shall
have the meaning ascribed to such term in Section 4.13(b).
“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 L.P. (based on a Trading Day
from
9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b) if
the OTC Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on
the
OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted for
trading on the OTC Bulletin Board and if prices for the Common Stock are then
reported in the “Pink Sheets” published by Pink Sheets, LLC (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 (d) 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 Purchasers of a
majority in interest of the Securities then outstanding and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by
the
Company.
“Warrants”
means,
collectively, the Common Stock purchase warrants delivered to the Purchasers
at
the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be
exercisable immediately and have a term of exercise equal to five years, in
the
form of Exhibit C
attached
hereto.
“Warrant
Shares”
means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing.
On the
Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement
by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase, up to an aggregate of $3,888,500 in
Principal Amount ($3,500,000 in Subscription Amounts) of the Debentures. Each
Purchaser shall deliver to the Company via wire transfer or a certified check,
immediately available funds equal to its Subscription Amount and the Company
shall deliver to each Purchaser its respective Debenture and a Warrant, as
determined pursuant to Section 2.2(a), and the Company and each Purchaser shall
deliver the other items set forth in Section 2.2 deliverable at the Closing.
Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the
Closing shall occur at the offices of FWS or such other location as the parties
shall mutually agree.
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;
7
(ii) a
legal
opinion of Company Counsel, in substantially the form of Exhibit
D
attached
hereto;
(iii) a
Debenture with a principal amount equal to such Purchaser’s Principal 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 200% of such Purchaser’s Principal Amount divided by
$1.05, with an exercise price equal to $1.05, subject to adjustment
therein;
(v) the
Security Agreement, duly executed by the Company, along with all of the Security
Documents, duly executed by the parties thereto;
(vi) the
Subordination Agreement, duly executed by the Company and each Subsidiary;
and
(vii) the
Lock-Up Agreements.
(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 by wire transfer to the account as specified in
writing by the Company;
(iii) the
Subordination Agreement duly executed by such Purchaser; and
(iv) the
Security Agreement duly executed by such Purchaser.
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the Closing Date shall have been performed;
8
(iii) the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement; and
(iv) the
execution and delivery by the Existing Debenture Holders holding at least 67%
of
the outstanding Existing Debentures of the Amendment and Waiver Agreement to
the
Company under which, among other things, the Existing Debenture Holders agree
to
consent to the transactions contemplated hereby and waive certain covenants
under the Existing Debentures and other related transaction documents in
connection therewith.
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i)the
accuracy in all material respects when made and 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;
(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; and
(v)from
the
date hereof to the Closing Date, trading in the Common Stock shall not have
been
suspended by the Commission or the Company’s principal Trading Market (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 L.P. 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 each Purchaser, makes it impracticable or inadvisable
to
purchase the Securities at the Closing.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company.
Except
as
set forth in the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall qualify any representation or otherwise made
herein to the extent of the disclosure contained in the corresponding section
of
the Disclosure Schedules, the Company hereby makes the following representations
and warranties to each Purchaser:
9
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a).
Except
as 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 of 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. If the Company has no subsidiaries, all
other references to the Subsidiaries or any of them in the Transaction Documents
shall be disregarded.
(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, 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
nor 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, prospects 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 hereby and thereby
have
been duly authorized by all necessary action on the part of the Company and
no
further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection therewith other than in connection with the
Required Approvals. Each Transaction Document to which it is a party 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 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.
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(d) No
Conflicts.
Except
as set forth on Schedule
3.1(d),
the
execution, delivery and performance by the Company of the Transaction Documents
and the consummation by it to which it is a party of the other transactions
contemplated hereby and thereby do not and will not: (i) 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, (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
not
otherwise obtained prior to the date hereof in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Section 4.6, (ii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale
of
the Securities and the listing of the Underlying Shares for trading thereon
in
the time and manner required thereby and (iii) 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 Securities.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the Company
other
than restrictions on transfer provided for in the Transaction Documents. The
Underlying Shares, when issued 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 other than restrictions on transfer provided
for in the Transaction Documents. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of
the
Underlying Shares at least equal to the Required Minimum on the date hereof.
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(g) Capitalization.
The
capitalization of the Company is as set forth on Schedule
3.1(g),
which
Schedule
3.1(g)
shall
also include the number of shares of Common Stock owned beneficially, and of
record, by Affiliates of the Company as of the date hereof. The Company has
not
issued any capital stock since its most
recently filed periodic report under the Exchange Act,
other
than pursuant to the exercise of employee stock options under the Company’s
stock option plans, the issuance of shares of Common Stock to employees pursuant
to the Company’s employee stock purchase plans and pursuant to the conversion
and/or exercise of Common Stock Equivalents outstanding as of the date of the
most recently filed periodic report under the Exchange Act. Except 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 as a result of the purchase and sale of the
Securities, and as disclosed in Schedule
3.1(g),
there
are no outstanding options, warrants, scrip 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 any of 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 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.
(h) SEC
Reports; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company 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 or regulation 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, except as disclosed in Schedule
3.1(h),
the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, 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. Except as set forth on Schedule
3.1(h),
the
Company has never been an issuer subject to Rule 144(i) under the Securities
Act. Except as disclosed in Schedule
3.1(h),
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.
12
(i) Material
Changes.
Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in a subsequent SEC Report filed
prior
to the date hereof: (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 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. Except for the issuance
of
the Securities contemplated by this Agreement or as set forth on Schedule
3.1(i),
no
event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or
deemed made that has not been publicly disclosed at least 1 Trading Day prior
to
the date that this representation is made.
(j) Litigation.
Except
as disclosed in Schedule
3.1(j),
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 in the past five years. 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 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.
13
(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. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company or such Subsidiary, and neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and
the
Company and its Subsidiaries believe that their relationships with their
employees are good. No executive officer, to the knowledge of the Company,
is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement
or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each
such
executive officer does not subject the Company or any of its Subsidiaries to
any
liability with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms
and
conditions of employment and wages and hours, except where the failure to be
in
compliance could not, individually or in the aggregate, reasonably be expected
to have 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 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
and all such laws that affect the environment, except in each case as could
not
have or reasonably be expected to result in 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 could not
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.
14
(n) Title
to Assets.
The
Company and the Subsidiaries have good and marketable title in fee simple to
all
real property owned by them 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 Permitted
Liens. Any real property and facilities held under lease by the Company and
the
Subsidiaries are held by them under valid, subsisting and enforceable leases
with 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,
trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights as described in the SEC Reports as necessary or
material for use in connection with their respective businesses and which the
failure to so have could have a Material Adverse Effect (collectively, the
“Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of 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. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties, except where failure to do so could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(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. 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 $120,000
other than for: (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
other employee benefits, including stock option agreements under any stock
option plan of the Company.
15
(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
that, in the judgment of the Board of Directors or the Company’s audit
committee, are 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 information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s 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 changes in the
Company’s internal control over financial reporting (as such term is defined in
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
(s) Certain
Fees.
Except
as set forth on Schedule
3.1(s),
no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisors or consultants, finders, placement agents,
investment bankers, banks or other Persons 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 any such 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.
16
(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 be 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 of 1940, as amended.
(v) Registration
Rights.
Except
as set forth in Schedule
3.1(v),
no
Person has any right to cause the Company to effect the registration under
the
Securities Act of any securities of the Company.
(w) Listing
and Maintenance Requirements.
The
Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge
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 applicable listing and maintenance requirements.
(x) Application
of Takeover Protections.
The
Company and the 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 certificate 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.
Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, 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 it believes constitutes or
might constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representation in
effecting transactions in securities of the Company. All disclosure furnished
by
or on behalf of the Company to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, is true and correct and does 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 light of the circumstances under
which they were made, not misleading. The press releases disseminated by the
Company during the twelve months preceding the date of this Agreement taken
as a
whole do not contain any untrue statement of a material fact or omit to state
a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made
and
when 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.
17
(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 (i) the Securities Act
which
would require the registration of any such securities under the Securities
Act,
or (ii) any applicable shareholder approval provisions of any Trading Market
on
which any of the securities of the Company are listed or designated.
(aa) Bankruptcy
Filing; Existing Indebtedness.
The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
Schedule
3.1(aa)
sets
forth as of the date hereof 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”
means
(x) 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),
(y) 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 (z) 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.
(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 the Company has no knowledge of a tax deficiency 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.
18
(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 accounting firm is set forth on Schedule
3.1(ee)
of the
Disclosure Schedules. To the knowledge and belief of the Company, such
accounting firm: (i) is a registered public accounting firm as required by
the
Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Company’s Annual Report for the year ended
December 31, 2007.
(ff) Seniority.
As of
the Closing Date, no Indebtedness or other claim against the Company is senior
to the Debentures in right of payment, whether with respect to interest or
upon
liquidation or dissolution, or otherwise, other than (i) 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); and (ii) the Permitted Indebtedness.
(gg) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and 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 which could affect
the
Company’s ability to perform any of its obligations under any of the Transaction
Documents.
(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 thereby. 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 the Transaction
Documents and the transactions contemplated thereby and any advice given by
any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby 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 and the other Transaction Documents has been based solely on
the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
19
(ii) Acknowledgment
Regarding Purchasers’ Trading Activity.
Notwithstanding anything in this Agreement or elsewhere herein to the contrary
(except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged
by the Company that: (i) none of the Purchasers has been asked to agree by
the
Company, 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) past or future open market or other transactions by any Purchaser,
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) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, may presently have a “short” position in the Common Stock and (iv)
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 (y) one or more 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 Underlying Shares deliverable with respect to Securities
are being determined, and (z) 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) Regulation
M Compliance.
The Company has not, and to its knowledge 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 of the Company, or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation paid
to
the Company’s placement agent in connection with the placement of the
Securities.
(kk) Intentionally
Omitted.
(ll) Stock
Option Plans.
Each
stock option granted by the Company under the Company’s stock option plan was
granted (i) in accordance with the terms of the Company’s stock option plan and
(ii) with an exercise price at least equal to the fair market value of the
Common Stock on the date such stock option would be considered granted under
GAAP and applicable law. No stock option granted under the Company’s stock
option plan has been backdated. The Company has not knowingly granted, and
there
is no and has been no Company policy or practice to knowingly grant, stock
options prior to, or otherwise knowingly coordinate the grant of stock options
with, the release or other public announcement of material information regarding
the Company or its Subsidiaries or their financial results or
prospects.
20
3.2 Representations
and Warranties of the Purchasers.
Each
Purchaser, for itself and for no other Purchaser, hereby 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 and delivery of
the
Transaction Documents and performance by such Purchaser of the transactions
contemplated by the Transaction Documents 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 such
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 direct or indirect arrangement or understandings with any other persons
to
distribute or regarding the distribution of such Securities (this representation
and warranty not limiting such Purchaser’s right to sell the Securities 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.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and as of the date
hereof it is, and on each date on which it exercises any Warrants or converts
any Debentures 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.
21
(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.
(f) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than consummating the transactions 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 purchases or sales,
including Short Sales, of the securities of the Company during the period
commencing from
the time
that such Purchaser first received a term sheet (written or oral) from the
Company or any other Person representing the Company setting forth the material
terms of the transactions contemplated hereunder until the date hereof
(“Discussion
Time”).
Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such
Purchaser’s assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions
of
such Purchaser’s assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager that
made
the investment decision to purchase the Securities covered by this Agreement.
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).
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.
22
(b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1,
of a legend on any of the Securities in the following form:
[NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS [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. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON
[EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH
A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that a 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 the 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.
23
(c) Certificates
evidencing the Underlying 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,
(ii)
following any sale of such Underlying Shares pursuant to Rule 144, (iii) if
such
Underlying Shares are eligible for sale under Rule 144, without the requirement
for the Company to be in compliance with the current public information required
under Rule 144 as to such Underlying Shares and without volume or manner-of-sale
restrictions 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). The Company shall cause
its counsel to issue a legal opinion to the Transfer Agent if required by the
Transfer Agent to effect the removal of the legend hereunder. If all or any
portion of a Debenture is converted or Warrant is exercised at a time when
there
is an effective registration statement to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144, without the
requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Underlying Shares and without
volume or manner-of-sale restrictions or if such legend is not otherwise
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) then
such Underlying Shares shall be issued free of all legends. The Company agrees
that at such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the delivery by
a
Purchaser to the Company or the Transfer Agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend (such third
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 the Transfer Agent
that enlarge the restrictions on transfer set forth in this Section 4.
Certificates for Underlying Shares subject to legend removal hereunder shall
be
transmitted by the Transfer Agent to the Purchaser by crediting the account
of
the Purchaser’s prime broker with the Depository Trust Company System as
directed by such Purchaser.
(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 $1,000 of Underlying Shares (based on the VWAP of the Common Stock on
the
date such Securities are submitted to the Transfer Agent) delivered for removal
of the restrictive legend and subject to 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 Purchasers, agrees that
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, and that if Securities are sold
pursuant to an effective registration statement, they will be sold in compliance
with the plan of distribution set forth therein, and acknowledges 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 upon
this understanding.
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 Underlying 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.
24
4.3 Furnishing
of Information; Public Information.
(a) If
the
Common Stock is not registered under Section 12(b) or 12(g) of the Exchange
Act
on the date hereof, the Company agrees to cause the Common Stock to be
registered under Section 12(g) of the Exchange Act on or before the
60th
calendar
day following the date hereof. Until the time that no Purchaser owns Securities,
the Company covenants to maintain the registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act and 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, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144.
(b)
At
any
time during the period commencing from the six (6) month anniversary of the
date
hereof and ending at such time that all of the Securities may be sold without
the requirement for the Company to be in compliance with Rule 144(c)(1) and
otherwise without restriction or limitation pursuant to Rule 144, if the Company
shall fail for any reason to satisfy the current public information requirement
under Rule 144(c) (a “Public
Information Failure”)
then,
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,
by
reason of any such delay in or reduction of its ability to sell the Securities,
an amount in cash equal to two percent (2.0%) of the aggregate Subscription
Amount of such Purchaser’s Securities on the day of a Public Information Failure
and on every thirtieth (30th)
day
(pro rated for periods totaling less than thirty days) thereafter until the
earlier of (a) the date such Public Information Failure is cured and (b) such
time that such public information is no longer required for the Purchasers
to transfer the Underlying Shares pursuant to Rule 144. The payments to
which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred
to herein as “Public
Information Failure Payments.”
Public Information Failure Payments
shall be paid on the earlier of (i) the last day of the calendar month during
which such Public Information Failure Payments
are incurred and (ii) the third (3rd)
Business Day after the event or failure giving rise to the Public Information
Failure Payments
is cured. In the event the Company fails to make Public Information
Failure Payments
in a timely manner, such Public Information Failure Payments
shall bear interest at the rate of 1.5% per month (prorated for partial months)
until paid in full. Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Public Information Failure, 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.
25
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 to the
Purchasers 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 Conversion
and Exercise Procedures.
Each of
the form of Notice of Exercise included in the Warrants and the form of Notice
of Conversion included in the Debentures set
forth
the totality of the procedures required of the Purchasers in order to exercise
the Warrants or convert the Debentures. No additional legal opinion, other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Debentures. The Company shall honor exercises
of
the Warrants and conversions of the Debentures and shall deliver Underlying
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 8:30 a.m. (New York City time) on the Trading Day immediately
following the date hereof, issue a Current Report on Form 8-K, disclosing the
material terms of the transactions contemplated hereby and including the
Transaction Documents as exhibits thereto. The Company and each Purchaser 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 nor 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 Purchaser, with respect
to
any press release of the Company, which consent shall not unreasonably be
withheld or delayed, 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 such Purchaser, except:
(a) as required by federal securities law in connection with the filing of
final
Transaction Documents (including signature pages thereto) with the Commission
and (b) 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 this clause (b).
4.7 Shareholder
Rights Plan.
No
claim will be made or enforced by the Company or, with the consent of the
Company, any other Person, that any Purchaser is an “Acquiring Person” under any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or similar anti-takeover 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.
26
4.8 Non-Public
Information.
Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, 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 covenant in effecting transactions
in securities of the Company.
4.9 Use
of
Proceeds.
Except
as set forth on Schedule
4.9
attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and shall not use such proceeds for:
(a)
the satisfaction of any portion of the Company’s debt (other than payment of
trade payables in the ordinary course of the Company’s business and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents
or (c) the settlement of any outstanding litigation.
4.10 Indemnification
of Purchasers.
Subject
to the provisions of this Section 4.10, the Company will indemnify and hold
each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent
role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, shareholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling person (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 in any
capacity, 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 the
Purchaser of state or federal securities laws or any conduct by such 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 reasonably
acceptable to the Purchaser Party. 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, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (y) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (z) 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 such
Purchaser Party in this Agreement or in the other Transaction Documents, or
any
violations by any Purchaser Party of state or federal securities laws or any
conduct by any Purchaser Party which constitutes fraud, gross negligence,
willful misconduct or malfeasance.
27
4.11 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 then
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 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
principal 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 such 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.
4.12 Participation
in Future Financing.
(a) From
the
date hereof until the date that is the Debentures are no longer outstanding,
upon any issuance by the Company or any of its Subsidiaries of Common Stock,
Common Stock Equivalents, Indebtedness (or a combination of units hereof) (a
“Subsequent
Financing”),
each
Purchaser shall have the right to participate in up to an amount of the
Subsequent Financing, subject to the rights of the holders of the Existing
Debentures, equal to 100% of the Subsequent Financing (the “Participation
Maximum”)
on the
same terms, conditions and price provided for in the Subsequent Financing.
28
(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 (such additional notice, a “Subsequent
Financing Notice”).
Upon
the request of a Purchaser, and only upon a request by such Purchaser, for
a
Subsequent Financing Notice, the Company shall promptly, but no later than
1
Trading Day after such request, deliver 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 and the Person or Persons through or with whom such
Subsequent Financing is proposed to be effected and shall include a term sheet
or similar document relating thereto as an attachment.
(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 all of the Purchasers have received the Pre-Notice that the Purchaser
is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the 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 a Purchaser as of such
5th
Trading
Day, 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 received the Pre-Notice, notifications
by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their 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 and with the Persons
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 received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking
to
purchase more than the aggregate amount of the Participation Maximum, each
such
Purchaser shall have the right to purchase its Pro Rata Portion (as defined
below) of the Participation Maximum. “Pro
Rata Portion”
means
the ratio of (x) the Subscription Amount of Securities purchased on the Closing
Date by a Purchaser participating under this Section 4.12 and (y) the sum of
the
aggregate Subscription Amounts of Securities purchased on the Closing Date
by
all Purchasers participating under this Section 4.12.
(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 4.12, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 30 Trading Days after the date of the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt
Issuance, or (ii) an underwritten public offering of Common Stock.
29
4.13 Subsequent
Equity Sales.
(a) From
the
date hereof until 90 days after the date hereof, without the written consent
of
the Purchasers holding at least 67% of the Principal Amount outstanding of
the
Debentures, neither the Company nor any Subsidiary shall issue shares of Common
Stock or Common Stock Equivalents; provided,
however,
the 90
day period set forth in this Section 4.13 shall be extended for the number
of
Trading Days during such period in which trading in the Common Stock is
suspended by any Trading Market.
(b) From
the
date hereof until such time as no Purchaser holds any of the Securities, without
the written consent of the Purchasers holding at least 67% of the Principal
Amount outstanding of the Debentures, the Company shall be prohibited from
effecting or entering into an agreement to effect any Subsequent Financing
involving a Variable Rate Transaction. “Variable
Rate Transaction”
means
a
transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a
conversion price, exercise price or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the shares
of
Common Stock at any time after the initial issuance of such debt or equity
securities or (B) with a conversion, exercise or exchange price that is subject
to being reset at some future date after the initial issuance of such debt
or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market
for
the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a
future determined price.
(c) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.14 Equal
Treatment of Purchasers.
No
consideration (including any modification of any Transaction Document) 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 acting in concert or as a group with respect to
the
purchase, disposition or voting of Securities or otherwise.
30
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 Affiliate acting on its behalf or pursuant to any
understanding with it, will execute any Short Sales below the price of $1.50
per
share during the period commencing with the Discussion Time and ending at such
time the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.6.
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 the existence and terms of this transaction
and
the information included in the Transaction Documents and the Disclosure
Schedules. 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 time that the transactions contemplated
by
this Agreement are first publicly announced as described in Section 4.6;
provided,
however,
each
Purchaser agrees, severally and not jointly with any other Purchasers, that
they
will not enter into any Net Short Sales (as hereinafter defined) from the period
commencing on the Closing Date and ending on the date that such Purchaser no
longer holds any Debentures. For purposes of this Section 4.15, a “Net
Short Sale”
by
any
Purchaser shall mean a sale of Common Stock by such Purchaser that is marked
as
a short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by such Purchaser. For purposes of
determining whether there is an equivalent offsetting long position in Common
Stock held by the Purchaser, Underlying Shares that have not yet been converted
pursuant to the Debentures and Warrant Shares that have not yet been exercised
pursuant to the Warrants shall be deemed to be held long by the Purchaser,
and
the amount of shares of Common Stock held in a long position shall be all
unconverted Underlying Shares and unexercised Warrant Shares (ignoring any
exercise limitations included therein) issuable to such Purchaser on such date,
plus any shares of Common Stock or Common Stock Equivalents otherwise then
held
by such Purchaser. Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser’s assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the covenant set
forth above shall only apply with respect to the portion of assets managed
by
the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement.
4.16 Form
D; Blue Sky Filings.
The
Company agrees to timely file a Form D with respect to the Securities as
required under Regulation D and to provide a copy thereof, promptly upon request
of any Purchaser. The Company shall take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to
qualify the Securities for, sale to the Purchasers at the Closing under
applicable securities or “Blue Sky” laws of the states of the United States, and
shall provide evidence of such actions promptly upon request of any
Purchaser.
4.17 Capital
Changes.
Until
the 16 month anniversary of the date hereof, the Company shall not undertake
a
reverse or forward stock split or reclassification of the Common Stock without
the prior written consent of the Purchasers holding a majority in Principal
Amount outstanding of the Debentures; provided,
however,
the
prohibition in this Section 4.17 shall not apply unless such reverse split
is
(a) effected in connection with a listing application for inclusion of the
Common Stock on the American Stock Exchange, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock
Exchange and (b) approved by the written consent of the Purchasers holding
at
least 67% of the Principal Amount outstanding of the Debentures.
31
4.18 Most
Favored Nation Provision.
From the date hereof until such time that the Debentures are no longer
outstanding, if the Company effects any Subsequent Financing, each Purchaser
may
elect, in its sole discretion, to (a) exchange all or some of the Debentures
(but not the Warrants) then held by such Purchaser for any securities or units
issued in a Subsequent Financing on a $1.00 for $1.00 basis (that is, for each
$1.00 Principal Amount of Debentures surrendered by the Purchaser, the Purchaser
shall receive $1.00 of units in such Subsequent Financing) based on the
outstanding Principal Amount of such Debentures, along with any liquidated
damages and other amounts owing thereon, and the effective price at which such
securities are to be sold in such Subsequent Financing, or (b) to have any
particular provisions of the Subsequent Financing legal documents apply to
the
Transaction Documents ex post facto; provided,
however,
that
this Section 4.18 shall not apply with respect to (i) an Exempt Issuance, or
(ii) an underwritten public offering of Common Stock. The Company shall provide
each Purchaser with notice of any such Subsequent Financing in the manner set
forth in Section 4.12.
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 May ___, 2008;
provided,
however,
that
such termination will not affect the right of any party to xxx for any breach
by
the other party (or parties).
5.2 Fees
and Expenses.
At the
Closing, the Company has agreed to reimburse X.X. Xxxxxxx & Company
(“X.X.
Xxxxxxx”)
the
non-accountable sum of $15,000 for its legal fees and expenses, none of which
has been paid prior to the Closing. The Company shall deliver to each Purchaser,
prior to the Closing, a completed and executed copy of the Closing Statement
attached hereto as Annex
A.
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 to the
Purchasers.
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 second
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.
32
5.5 Amendments;
Waivers.
No
provision of this Agreement may be waived, modified, supplemented or amended
except in a written instrument signed by the Company and the Purchasers holding
at least 67% in interest of the Securities then outstanding at the time of
such
waiver, modification, supplement or amendment or such lesser percentage as
expressly provided herein. Any waiver, modification, supplement or amendment
effected in accordance with this Section 5.5 shall be binding upon the Company
and each Purchaser and its transferees, successors and assigns. 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 any 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.
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 Purchaser (other than by merger). 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 that such transferee agrees in
writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents 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 4.10.
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 is an 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 other
manner permitted by law. If either 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.
33
5.10 Survival.
The
representations and warranties shall survive the Closing and the delivery of
the
Securities for the applicable statute 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 and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf” signature page were an original thereof.
5.12 Severability.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) any of the other 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,
that in
the case of a rescission of a conversion of a Debenture or exercise of a
Warrant, the Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded conversion or exercise notice.
34
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 (in the case of mutilation),
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. The applicant for a new certificate or instrument under
such circumstances shall also pay any reasonable third-party costs (including
customary indemnity) 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 contained in the Transaction
Documents and hereby agrees to waive and not to assert in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.16 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to any 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.
35
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, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers 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, 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 by its own
separate legal counsel in their 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 FWS.
FWS
does not represent all of the Purchasers but only X.X. Xxxxxxx. 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.
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 Saturdays,
Sundays, Holidays, etc. If
the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall not be a Business Day, then such action
may be taken or such right may be exercised on the next succeeding Business
Day.
5.21 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.
5.22 WAIVER
OF JURY TRIAL.
IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE
GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature
Pages Follow)
36
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.
|
QPC
LASERS, INC.
|
Address
for Notice:
|
||
|
By:
|
Fax:
|
||
|
|
Name:
|
||
|
|
Title:
|
||
|
With
a copy to (which shall not constitute notice):
|
|||
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
37
[PURCHASER
SIGNATURE PAGES TO QPCI 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 Authorized Signatory:
_____________________________________________
Facsimile
Number of Authorized Signatory:
__________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription
Amount: _____________
Principal
Amount (1.111
x Subscription Amount):
_____________
Warrant
Shares: _________________
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
38
Annex
A
CLOSING
STATEMENT
Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto,
the
purchasers shall purchase up to $3,888,500 of Principal Amount of Debentures
and
Warrants from QPC Lasers, Inc., a Nevada corporation (the “Company”).
All
funds will be wired into an account maintained by the Company. All funds will
be
disbursed in accordance with this Closing Statement.
Disbursement
Date: May
___,
2008
|
I.
PURCHASE
PRICE
|
|
|
Gross
Proceeds to be Received
|
$
|
|
II. DISBURSEMENTS
|
|
|
|
$
|
|
|
$
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Total
Amount Disbursed:
|
$
|
|
WIRE
INSTRUCTIONS:
|
|
|
To:
_____________________________________
|
|
|
To:
_____________________________________
|
39
