Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
August 3, 2005, among Interactive Systems Worldwide Inc., a Delaware corporation
(the "Company"), and the purchasers 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 agrees
as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
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 Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act.
"Capital Shares" means the Common Stock and any shares of any
other class of common stock or preferred stock, whether now or
hereafter authorized, having the right to participate in the
distribution of earnings and assets of the Company.
"Capital Shares Equivalents" means any securities, rights or
obligations that are convertible into or exchangeable for or give any
right to subscribe for or purchase, directly or indirectly, any Capital
Shares or any warrants, options or other rights to subscribe for or
purchase, directly or indirectly, Capital Shares or any such
convertible or exchangeable securities.
"Certificate of Designation" means the Certificate of
Designation to be filed prior to the Closing by the Company with the
Secretary of State of Delaware, in the form of Exhibit A attached
hereto.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.001 per share, and any securities into which such common stock
shall hereinafter have been reclassified into.
"Company Counsel" means Xxxxxxxx Xxxxxx Xxxxxx & Xxxxxxx LLP
with offices at 0000 Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx
00000-0000.
"Conversion Price" shall have the meaning ascribed to such
term in the Certificate of Designation.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1 hereof.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" shall have the meaning ascribed to such term
in Section 4.13 hereof.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices 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) hereof.
"Indebtedness" shall have the meaning ascribed to such term in
Section 3.1(s) hereof.
"Liens" shall have the meaning ascribed to such term in
Section 3.1(a) hereof.
"Losses" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including costs of
preparation and reasonable attorneys' fees.
"Market Price" equals $3.59, subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of
this Agreement.
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"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b) hereof.
"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.
"Preferred Stock" means the up to 4,000 shares of the
Company's Series C 6% Convertible Preferred Stock issued hereunder
having the rights, preferences and privileges set forth in the
Certificate of Designation.
"Principal Market" means initially the NASDAQ Small-Cap Market
and shall also include the American Stock Exchange, the New York Stock
Exchange, or the NASDAQ National Market, whichever is at the time the
principal trading exchange or market for the Common Stock, based upon
share volume.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Closing Date, among the Company and the
Purchasers, in the form of Exhibit B.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering, among other things, the resale of the Underlying Shares
by each Purchaser as provided for in the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e) hereof.
"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 or conversion in full of
all Warrants and shares of Preferred Stock, ignoring any conversion or
exercise limits set forth therein, and assuming that any previously
unconverted shares of Preferred Stock are held until the third
anniversary of the Closing Date and all dividends are paid in shares of
Common Stock until such third anniversary, subject to the limitation on
the number of shares of Common Stock issuable hereunder set forth in
Section 6(d) of the Certificate of Designation.
"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.
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"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h) hereof.
"Securities" means the Preferred Stock, the Warrants and the
Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder Approval" means such approval as may be required
by the applicable rules and regulations of the NASDAQ Small-Cap Market
(or any successor entity) from the shareholders of the Company with
respect to the transactions contemplated by the Transaction Documents,
including the issuance of all of the Underlying Shares in excess of
19.9% of the Company's issued and outstanding Common Stock on the
Closing Date.
"Short Sales" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act.
"Stated Value" means $1,000 per share of Preferred Stock.
"Subscription Amount" means, as to each Purchaser, the
aggregate amount to be paid for the Preferred Stock and Warrants
purchased hereunder at the Closing 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; but excluding the exercise price of the Warrants.
"Subsidiary" means the subsidiaries of the Company as set
forth on Schedule 3.1(a) attached hereto, excluding the subsidiaries on
such Schedule which have been designated as "inactive"; provided that,
in the event they become active in the business or finances of the
Company, they shall thereafter be included as a Subsidiary with respect
to any provision where applicable.
"Trading Day" means any day during which the Principal Market
shall be open for business.
"Transaction Documents" means this Agreement, the Certificate
of Designation, the Warrants, the Registration Rights Agreement and any
other documents or agreements executed in connection with the
transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Preferred Stock and upon exercise of the
Warrants and issued and issuable in lieu of cash payment of dividends
on the Preferred Stock.
"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 Principal Market, the daily volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on the Principal Market on which the Common Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based on
a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Trading
Market and if prices for the Common Stock are then quoted on the OTC
Bulletin Board, 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 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 prior to the day in question; 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 and
reasonably acceptable to the Company.
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"Warrants" means collectively the Common Stock purchase
warrants, in the form of Exhibit C delivered to the Purchasers at the
Closing in accordance with Section 2.2 hereof.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
1.2 Interpretation. Unless the context otherwise requires, the terms
defined in this Article 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms defined herein. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The use of any gender herein shall be deemed to include the neuter,
masculine and feminine genders wherever necessary or appropriate. When any
matter is disclosed (a) in any Transaction Document (including any exhibit or
schedule thereto), (b) any place in the Disclosure Schedule, or (c) except with
respect to Sections 3.1(g), 3.1(s), 3.1(u), 3.1(w), 3.1(dd), 3.1(ee), 3.1(gg),
3.1(hh), 3.1(ii), 3.1(jj) and 3.1(kk) of this Agreement and with respect to
Section 6(b) and Section 6(c) of the Registration Rights Agreement, in the
Company's most recent Form 10-KSB, the Proxy Statement for the 2005 Annual
Meeting of Shareholders, the forms 10-QSB for the quarters ended December 31,
2004 and March 31, 2005, and all press releases issued after the filing of the
Form 10-QSB for the quarter ended March 31, 2005 and prior to the Closing Date,
such matter shall be deemed to have been disclosed to all of the Purchasers for
all purposes pursuant to all of the Transaction Documents. If any period of time
for the performance under the Transaction Documents ends on a day that is not a
Trading Day, such period of time shall be automatically extended to end at the
end of the next succeeding Trading Day.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, and upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company hereby sells, and the Purchasers
hereby purchase in the aggregate and in proportionate amounts, severally and not
jointly, 4,000 shares of Preferred Stock with an aggregated Stated Value equal
to such Purchaser's Subscription Amount and Warrants as determined by pursuant
to Section 2.2(a)(ii). The aggregate number of shares of Preferred Stock sold
hereunder shall be 4,000. At the Closing, each Purchaser shall deliver to the
Company via wire transfer to an account designated by the Company as provided in
Annex A immediately available funds equal to such Purchaser's Subscription
Amount and the Company shall deliver to each Purchaser, except as provided in
Section 2.2(a), (i) a certificate representing the shares of Preferred Stock
equal to such Purchaser's Subscription Amount divided by the Stated Value, (ii)
a Warrant exercisable for that number of Underlying Shares in respect of such
Purchaser's Warrant, as determined pursuant to Section 2.2(a)(ii) and (iii) the
other items set forth in Section 2.2 issuable by the Company at the Closing. The
Closing shall occur at the offices of FW, or such other location as the parties
shall mutually agree.
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2.2 Conditions to Closing.
(a) At or prior to the Closing Date, unless otherwise
indicated below, the Company shall deliver or cause to be delivered to
each Purchaser the following:
(i) within 3 Trading Days after the Closing Date, a
certificate evidencing a number of shares of Preferred Stock
equal to such Purchaser's Subscription Amount divided by the
Stated Value, registered in the name of such Purchaser;
(ii) within 3 Trading Days after the Closing Date, a
Warrant registered in the name of such Purchaser to purchase
up to a number of shares of Common Stock equal to 50% of such
Purchaser's Subscription Amount divided by the Market Price,
with a term of 5 years from the Closing Date and an exercise
price equal to 110% of the Market Price immediately prior to
the date hereof;
(iii) the legal opinion of Company Counsel,
substantially in the form of Exhibit D attached hereto,
addressed to the Purchasers;
(iv) the Registration Rights Agreement duly executed
by the Company;
(v) the written voting agreements, in the form of
Exhibit E attached hereto, of all of the officers, directors
and shareholders holding more than 10% of the issued and
outstanding shares of Common Stock on the Closing Date to vote
all Common Stock owned by each of such officers, directors and
shareholders as of the record date for the annual meeting of
shareholders of the Company in favor of the Shareholder
Approval; and
(vi) this Agreement, duly executed by the Company.
(b) At or prior to the Closing, each Purchaser shall deliver
or cause to be delivered to the Company the following:
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(i) such Purchaser's Subscription Amount (via wire
transfer to an account designated by the Company in
immediately available funds equal to such Purchaser's
Subscription Amount);
(ii) this Agreement, duly executed by such Purchaser;
(iii) a waiver of such Purchaser, in the form
attached hereto as Exhibit F, waiving all anti-dilution
protection on any securities of the Company which may be
triggered by the payment of dividends on the Preferred Stock
or as payment of interest on the Company's 7.5% Convertible
Debentures due April 24, 2006; and
(iv) the Registration Rights Agreement duly executed
by such Purchaser.
(c) All representations and warranties of the other parties
contained herein shall be true and correct as of the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
in the disclosure schedules delivered to the Purchasers concurrently herewith
(the "Disclosure Schedules") which Disclosure Schedules shall be deemed a part
hereof, and other than with respect to Sections 3.1(g), 3.1(s), 3.1(u), 3.1(w),
3.1(dd), 3.1(ee), 3.1(gg), 3.1(hh), 3.1(ii), 3.1(jj) and 3.1(kk), except as set
forth in the Company's most recent Form 10-KSB, the Proxy Statement for the 2005
Annual Meeting of Shareholders, the forms 10-QSB for the quarters ended December
31, 2004 and March 31, 2005, and all press releases issued after the filing of
the Form 10-QSB for the quarter ended March 31, 2005 and prior to the Closing
Date, the Company hereby makes the representations and warranties set forth
below to each Purchaser.
(a) Subsidiaries. All of the subsidiaries of the Company are
set forth on Schedule 3.1(a). The Company owns, directly or indirectly,
all of the capital stock or other equity interests of each Subsidiary
free and clear of any lien, charge, security interest, encumbrance,
right of first refusal or other restriction (collectively, "Liens"),
and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and
free of preemptive and similar rights.
(b) Organization and Qualification. Each of the Company and
the Subsidiaries is an entity, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use
its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation 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 do
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, is not likely to, individually or in the aggregate: (i)
adversely affect the legality, validity or enforceability of any
Transaction Document, (ii) have or result in or be reasonably likely to
have or result in a material adverse effect on the results of
operations, assets, business or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) adversely
impair the Company's ability to perform on a timely basis its material
obligations under any of the Transaction Documents (any of (i), (ii) or
(iii), a "Material Adverse Effect").
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(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and, subject to the
Required Approvals, to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
in all material respects hereunder or thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby or thereby
have been duly authorized by all necessary action on the part of the
Company and no further consent or action is required by the Company
other than Required Approvals. Each of the Transaction Documents has
been (or upon delivery will be) duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and
general principles of equity. Neither the Company nor any Subsidiary is
in violation of any of the provisions of its respective certificate or
articles of incorporation, by-laws or other organizational or charter
documents.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated 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) subject to obtaining the
Required Approvals, conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) assuming that the representations made by each of
the Purchasers in Section 3.2 are true and correct, 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,
individually or in the aggregate, have or result in a Material Adverse
Effect.
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(e) Filings, Consents and Approvals. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization
or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery
and performance by the Company of the Transaction Documents, other than
(i) the press release or filings required under Section 4.7, (ii) the
filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to the Principal Market for the sale of
the Preferred Stock and Warrants and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby,
(iv) the filing of Form D with the Commission and applicable Blue Sky
filings and (v) Shareholder Approval (collectively, the "Required
Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and the Underlying Shares, when issued and paid for in
accordance with the applicable Transaction Documents, will be duly and
validly issued, fully paid and non-assessable, free and clear of all
Liens. 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 Closing Date. The
Company has not, and to the knowledge of the Company, no Affiliate of
the Company has, sold, offered for sale or solicited offers to buy or
otherwise negotiated in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or
sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the
Purchasers, or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of the Principal
Market.
(g) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set
forth in the Disclosure Schedules attached hereto. No securities of the
Company are entitled to preemptive or similar rights, and 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, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations
convertible into or 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 securities or rights convertible or exchangeable into shares
of Common Stock. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
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(h) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the Closing Date (or such shorter period as the Company was
required by law to file such material) (the foregoing materials 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. The
Company has identified and made available to the Purchasers a copy of
all SEC Reports filed within the 10 days preceding the Closing Date. As
of their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included
in the SEC Reports, as at their respective dates and for the periods
shown therein, 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 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 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, year-end audit
adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports or pursuant to the terms of
the Series B Preferred Stock of the Company or the Company's 7.5%
Convertible Debentures due April 24, 2006: (i) there has been no event,
occurrence or development that has had or that is likely to result in a
Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in
the Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has
not altered its accounting principles or the identity of its auditors,
(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 or similar plans.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which: (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) is likely, if there were an unfavorable decision,
individually or in the aggregate, to 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. The Company does not have pending before the Commission
any request for confidential treatment of information. 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.
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(k) 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, except in each case as could not, individually
or in the aggregate, have or result in a Material Adverse Effect.
(l) 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.
(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, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect ("Material Permits"), and
neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are
held under valid, subsisting and enforceable leases of which the
Company and the Subsidiaries are in compliance in all material
respects.
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(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the
SEC Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the "Intellectual Property Rights").
Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. The
Company does not have any knowledge that any such Intellectual Property
Rights that are material to the business of the Company are
unenforceable.
(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. To
the best of Company's knowledge, such insurance contracts and policies
are accurate and complete. Neither the Company nor any Subsidiary has
any reason to believe 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 (other than such
increases in cost that are customary or generally applicable to the
Company or any Subsidiary and other similarly situated companies
(including public companies)).
(q) Transactions With Affiliates and Employees. Except as
required to be 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.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act
of 2002 which are applicable to it as of the Closing Date. The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its consolidated Subsidiaries, is made known to the
certifying officers by others within those entities, particularly
during the period in which the Company's most recently filed periodic
report under the Exchange Act is being prepared. 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 its most recently filed periodic report under the Exchange Act (such
date, the "Evaluation Date"). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation
Date. Since the Evaluation Date, there have been no significant changes
in the Company's internal control over financial reporting during the
period covered by the Company's most recently filed periodic report
that has materially affected, or is reasonably likely to materially
affect the Company's internal control over financial reporting.
-12-
(s) Solvency/Indebtedness. To the knowledge of the Company,
based on the financial condition of the Company as of the Closing Date
and assuming that the transactions contemplated by the Transaction
Documents occur as of the Closing Date: (i) the fair saleable value of
the Company's assets exceeds the amount that will be required to be
paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature;
(ii) the Company's assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now conducted
and as publicly proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it
to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on
or in respect of its debt when such amounts are required to be paid.
The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts
of cash to be payable on or in respect of its debt). 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. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness (as defined below) of
the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations, except guaranties by
endorsement of negotiable instruments for deposit or collection in the
ordinary course of business, and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
-13-
(t) Certain Fees. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial adviser
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement, and the Company has not taken any action that would cause
any Purchaser to be liable for any such fees or commissions. The
Company agrees that the Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf
of any Person for fees of the type contemplated by this Section with
the transactions contemplated by this Agreement.
(u) Private Placement. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
3.2(b)-(f), the offer, issuance and sale of the Securities to the
Purchasers as contemplated hereby are exempt from the registration
requirements of the Securities Act. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of
the Principal Market, except that shareholder approval is required for
the Company to issue in excess of 2,154,277 shares of Common Stock
under the Transaction Documents.
(v) Listing and Maintenance Requirements. The Company has not,
in the 12 months preceding the Closing Date, received notice from any
Principal 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 Principal Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing
and maintenance requirements.
(w) Registration Rights. Other than as set forth in the
Registration Rights Agreement, the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been
satisfied.
(x) Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
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 as a result of the Company's issuance of the
Securities and the Purchasers' ownership of the Securities.
-14-
(y) 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.
(z) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, nonpublic information, other than the fact that
the existence of this financing was confidential. The Company
understands and confirms that the Purchasers will rely on the foregoing
representations in effecting transactions in securities of the Company.
All disclosure provided to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on behalf of the Company
with respect to the representations and warranties made herein are true
and correct with respect to such representations and warranties and do
not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company acknowledges and agrees that no Purchaser makes
or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set
forth in Section 3.2 hereof.
(aa) Tax Status. The Company and each of its Subsidiaries has
made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which
it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has
paid or accrued for all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on
such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are
no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of
no basis for any such claim. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, statue or local tax. None of the
Company's tax returns is presently being audited by any taxing
authority.
(bb) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that the Purchasers are
acting solely in the capacity of arm's length purchasers with respect
to this Agreement and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial adviser
or fiduciary of the Company (or in any similar capacity) with respect
to this Agreement and the transactions contemplated hereby and any
statement made to the Company by any Purchaser or any of their
respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Purchasers' purchase of
the Securities. The Company further represents to each Purchaser that
the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its
representatives.
-15-
(cc) No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor, to the knowledge of the Company,
any of its directors or officers (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation
D) or general advertising with respect to the sale of the Preferred
Stock or the Warrants, or (ii) made any offers or sales of any security
or solicited any offers to buy any security under any circumstances
that would require registration of the Preferred Stock, the Underlying
Shares or the Warrants under the Securities Act or made any "directed
selling efforts" as defined in Rule 902 of Regulation S.
(dd) No Disagreements with Accountants. There are no
disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants formerly or presently
employed by the Company and the Company is current with respect to any
fees owed to its accountants.
(ee) Form S-3 Eligibility. The Company is eligible to register
the resale of the Underlying Shares for resale by the Purchaser on Form
S-3 promulgated under the Securities Act.
(ff) No Integrated Offering. Neither the Company, nor any of
its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or which
could violate any applicable shareholder approval provisions, including
under the rules and regulations of the Principal Market.
(gg) 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.
(hh) Accountants. The Company's accountants are set forth on
Schedule 3.1(hh) of the Disclosure Schedule. To the knowledge of the
Company, such accountants, who the Company expects will express their
opinion with respect to the financial statements to be included in the
Company's Annual Report on Form 10-KSB for the year ending September
30, 2005 are a registered public accounting firm as required by the
Securities Act.
-16-
(ii) Seniority. As of the Closing Date, no indebtedness or
other equity of the Company is senior to the Preferred Stock in right
of payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as
to the property covered thereby).
(jj) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 4.17 and 3.2(g) hereof), it is
understood and agreed by the Company (i) that none of the Purchasers
have been asked to agree, nor has any Purchaser agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or to
hold the Securities for any specified term; (ii) that past or future
open market or other transactions by any Purchaser, including Short
Sales, and specifically including, without limitation, Short Sales or
"derivative" transactions, before or after the closing of this or
future private placement transactions, may negatively impact the market
price of the Company's publicly-traded securities; (iii) that any
Purchaser, and counter parties in "derivative" transactions to which
any such Purchaser is a party, directly or indirectly, presently may
have a "short" position in the Common Stock, and (iv) that each
Purchaser shall not be deemed to have any affiliation with or control
over any arm's length counter-party in any "derivative" transaction.
The Company further understands and acknowledges that (a) one or more
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 (b)
such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents. The Company
shall not be deemed to have made this representation with respect to
any transaction that is willfully and knowingly affected, directly or
indirectly, in violation of federal or state securities laws.
(kk) Manipulation of Price. 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 (other than for the placement
agent's placement of the Securities), or (iii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company; provided, however, that the Company
shall not be deemed to have made this representation with respect to
actions taken directly or indirectly by any of the Purchasers with
respect to the purchase and sale of the Securities.
-17-
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants 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 the requisite 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 thereunder. The purchase by such Purchaser of
the Securities hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement 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 applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(b) Investment Intent. Such Purchaser understands and
acknowledges that none of the Securities have been registered under the
Securities Act. Such Purchaser 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, without prejudice,
however, to such Purchaser's right, subject to the provisions of this
Agreement, at all times to sell or otherwise dispose of all or any part
of such Securities pursuant to an effective registration statement
under the Securities Act or under an exemption from such registration
and in compliance with applicable federal and state securities laws.
Nothing contained herein shall be deemed a representation or warranty
by such Purchaser to hold Securities for any period of time. Such
Purchaser is acquiring the Securities hereunder in the ordinary course
of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute
any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the Closing Date it is, and on each date
on which it exercises any Warrants or converts any shares of Preferred
Stock, or receives payment of dividends on such shares of Preferred
Stock, it will be, an "accredited investor" as defined in Rule 501(a)
under the Securities Act. Such Purchaser has not been formed solely for
the purpose of acquiring the Securities. Such Purchaser is not a
registered broker-dealer under Section 15 of the Exchange Act. Such
Purchaser represents and warrants that the Company is not acting as a
fiduciary or financial or investment adviser for the Purchaser.
(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. Such Purchaser is not
relying (for purposes of making any investment decision or otherwise)
upon any advice, counsel or, other than as set forth in the Transaction
Documents, representations (written or oral) of the Company.
-18-
(e) General Solicitation; Investigation. 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. Such Purchaser (i) has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting
advisers in connection herewith to the extent it has deemed necessary,
(ii) has had a reasonable opportunity to ask questions of, and receive
answers from, officers and representatives of the Company concerning
its financial condition and results of operations and the purchase of
the Securities, and any such questions have been answered to its
satisfaction, (iii) has had the opportunity to review all publicly
available records and filings concerning the Company (including the SEC
Reports) and has carefully reviewed such records and filings that it
considers relevant to making an investment decision, and (iv) has made
its own investment decisions based upon its own judgment, due diligence
and advice from such advisers as it has deemed necessary and not upon
any view expressed by the Company. Each Purchaser acknowledges that it
has reviewed all of the SEC Reports that it has deemed necessary and
appropriate to review for purposes of making any investment decision or
otherwise.
(f) Reliance by the Company. Such Purchaser understands and
acknowledges that the Company will rely upon the truth and accuracy of
the foregoing acknowledgments, representations, warranties and
agreements, and agrees that if any of the foregoing acknowledgments,
representations, warranties or agreements cease to be accurate, it
shall promptly notify the Company.
(g) Short Sales and Confidentiality Prior To The Date Hereof.
Other than the transaction contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any
disposition, including Short Sales or any "derivative" transaction with
the economic effect of a disposition (but not including the location
and/or reservation of borrowable shares of Common Stock), in the
securities of the Company during the period commencing from the time
that such Purchaser first received a term sheet from the Company or any
other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof ("Discussion Time").
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 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).
-19-
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 (i) pursuant to an effective registration
statement or Rule 144, (ii) to the Company or to an Affiliate of a
Purchaser or (iii) 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 and the Registration Rights Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is
required by this Section 4.1(b), of the following legend on any
certificate evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE 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 REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
-20-
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement 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, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) of
the Securities Act or other applicable provision of the Securities Act
to appropriately amend the list of Selling Stockholders thereunder. Any
such pledgee shall otherwise be bound by the provisions of this
Agreement.
(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 (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission); provided, however, in connection with the issuance of the
Underlying Shares, each Purchaser, severally and not jointly with the
other Purchasers, hereby agrees to adhere to and abide by all
prospectus delivery requirements under the Securities Act and rules and
regulations of the Commission. The Company shall cause its counsel to
issue direction to the Company's transfer agent promptly after the
Effective Date if required by the Company's transfer agent to effect
the removal of the legend hereunder. If all or any shares of Preferred
Stock or any portion of a Warrant is converted or exercised (as
applicable) 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(k), or if such legend is not
otherwise required under applicable requirements of the Securities Act
(including judicial interpretations thereof) then such Underlying
Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no
longer required under this Section 4.1(c), it will, no later than seven
Trading Days following the delivery by a Purchaser to the Company or
the Company's transfer agent of a certificate representing Underlying
Shares issued with a restrictive legend (such seventh Trading Day, the
"Legend Removal Date"), deliver or cause to be delivered to such
Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company
that enlarge the restrictions on transfer set forth in this Section.
-21-
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as liquidated damages
and not as a penalty, for each $5,000 of Underlying Shares (based on
the VWAP of the Common Stock on the date such Securities are submitted
to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to this Section 4.1(c), $25 per Trading
Day (increasing to $50 per Trading Day 3 Trading Days after such
damages have begun to accrue) for each Trading Day after the fourth
Trading Day following 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.
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 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.
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to use commercially reasonable efforts 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 Closing Date pursuant to the Exchange Act; provided, however, that such
obligation shall cease at such time as Purchaser is eligible to sell such
Securities pursuant to Rule 144(k). As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to such laws, 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; provided, however, that such obligation shall cease
at such time as Purchaser is eligible to sell such Securities pursuant to Rule
144(k). The Company further covenants that it will take such further action as
any holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.
4.4 Integration. The Company shall not, and shall use commercially
reasonable efforts to ensure that no Affiliate of the Company shall, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Purchasers, or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Principal Market.
-22-
4.5 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Company shall use commercially
reasonable efforts to amend the Company's certificate or articles of
incorporation to increase the number of authorized but unissued shares
of Common Stock to at least the Required Minimum at such time, as soon
as possible and in any event not later than the 75th day after such
date.
(c) The Company shall, if applicable: (i) in the time and
manner required by the Principal Market, prepare and file with the
Principal 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 reasonably
necessary to cause such shares of Common Stock to be approved for
listing on the Principal 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 the Principal Market or another
Principal Market. In addition, the Company shall seek Shareholder
Approval at the earliest practical date, but in no event later than
their next annual meeting of shareholders which shall be prior to April
1, 2006, with the recommendation of the Company's Board of Directors
that such proposal be approved, and the Company shall solicit proxies
from its shareholders in connection therewith in the same manner as all
other management proposals in such proxy statement and all management
appointed proxyholders shall vote their proxies in favor of such
proposal.
4.6 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Certificate of Designation set forth the totality of the procedures required of
the Purchasers in order to exercise the Warrants or convert the Preferred Stock.
No additional legal opinion or other information or instructions shall be
required of the Purchasers to exercise their Warrants or convert their Preferred
Stock. The Company shall honor exercises of the Warrants and conversions of the
Preferred Stock and shall deliver Underlying Shares in accordance with the
terms, conditions and time periods set forth in the Transaction Documents.
4.7 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date of this Agreement, issue
a press release disclosing all material terms of the transactions contemplated
hereby and, by 8:30 a.m. Eastern time on the second Trading Day following the
date of this Agreement, file a Current Report on Form 8-K reasonably acceptable
to each Purchaser disclosing all material terms of the transactions contemplated
hereby and attaching all Transaction Documents thereto. The Company and the
Purchasers shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each 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 or regulation of the Principal Market, in which case the disclosing party
shall promptly provide the other party with prior notice of such public
statement or communication. Notwithstanding the foregoing, except as required by
law, other than in any registration statement filed pursuant to the Registration
Rights Agreement and filings related thereto, 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 Principal Market, without
the prior written consent of such Purchaser. In the event that such disclosure
is required by law or Principal Market regulations, the Company shall provide
each Purchaser with prior notice of such disclosure. Any consent requested
pursuant to this Section 4.7 by the Company or any Purchaser shall be deemed to
have been given unless objection is provided within one day of the date
requested.
-23-
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.9 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables, capital lease obligations, accrued expenses in the ordinary course of
the Company's business and prior practices and the payment of principal and
interest on the Company 7.5% Convertible Debentures due April 24, 2006 and
dividends on the Preferred Stock and Series B Preferred Stock, provided when
such payments become due and payable, the Company is contractually restricted by
such debentures or the Certificate of Designation from making such payments, as
applicable, in shares of Common Stock), to redeem any Company equity or
equity-equivalent securities or to settle any outstanding litigation, or to be
used for operating purposes in the State of Nevada.
4.10 Anti-Takeover. Provided that no Triggering Event (as defined in
the Certificate of Designation) is then in existence, each of the Purchasers
agrees that, other than pursuant to the Transaction Documents, it will not
propose to the Company, its security holders or any other Person, any
transaction between such Purchaser or any other Person and the Company or
involving any of the Company's securities, unless the Company shall have
requested in writing that such Purchaser make such a proposal. Provided that no
Event of Default is then in existence and other than pursuant to the
transactions contemplated by the Transaction Documents or Series B Preferred
Stock or any warrant issued to any Purchaser, such Purchaser will not acquire,
or assist (by means of providing financing therefor or otherwise), advise or
encourage any other persons in acquiring, directly or indirectly, an interest
in, or control of, more than 9.9% of the Company or any of the Company's
securities, businesses or assets for a period of three years from the Closing
Date unless the Company shall have consented in advance in writing to such
acquisition. Such Purchaser also agrees that the Company shall be entitled to
equitable relief, including an injunction, in the event of any breach of the
provisions of this Section 4.10 and that such Purchaser shall not oppose the
granting of such relief.
-24-
4.11 Indemnification.
(a) The Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners,
employees and agents (each, a "Purchaser Party") harmless from any and
all losses, liabilities, obligations, claims, contingencies, damages,
costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Purchaser Party may suffer or incur as a
result of or relating to: (a) any misrepresentation, breach or
inaccuracy, or any allegation by a third party that, if true, would
constitute a breach or inaccuracy, 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 cause of
action, suit or claim brought or made against such Purchaser Party and
arising solely out of or solely resulting from the execution, delivery,
performance or enforcement of this Agreement or any of the other
Transaction Documents and without causation by any other activity,
obligation, condition or liability pertaining to such Purchaser Party
and not to the transactions contemplated by this Agreement. The Company
will reimburse such Purchaser Party for its reasonable legal and other
expenses (including the cost of any investigation, preparation and
travel) incurred in connection therewith promptly after it is finally
judicially determined that such Purchaser Party is entitled to
indemnification hereunder.
(b) Each Purchaser, severally and not jointly with
the other Purchasers, will indemnify and hold the Company, its
directors, officers, shareholders, employees and agents (each a
"Company 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
Company Party may suffer or incur as a result of or relating to any
misrepresentation, breach or inaccuracy would constitute a breach or
inaccuracy, of any of the representations, warranties, covenants or
agreements made by such Purchaser in this Agreement or in the other
Transaction Documents. Such Purchaser will reimburse the Company Party
for its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel) incurred in connection therewith
promptly after it is finally judicially determined that the Company
Party is entitled to indemnification hereunder. Notwithstanding
anything herein to the contrary, no Purchaser shall be liable hereunder
for an amount in excess of such Purchaser's Subscription Amount at the
Closing.
(c) If any Proceeding shall be brought or asserted
against any Person entitled to indemnity hereunder (an "Indemnified
Party"), such Indemnified Party shall promptly notify the Person from
whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party
and the payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to
give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that such failure shall have prejudiced the
Indemnifying Party.
-25-
(d) An Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party or Parties unless: (1) the
Indemnifying Party has agreed in writing to pay such fees and expenses;
(2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel
that a material conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying
Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel
at the expense of the Indemnifying Party, the Indemnifying Party shall
not have the right to assume the defense thereof and the expense of one
such counsel for each Indemnified Party shall be at the expense of the
Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld or delayed. No
Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in
respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such
Proceeding.
4.12 Shareholders Rights Plan. In the event that a shareholders rights
plan is adopted by the Company, no claim will be made or enforced by the Company
or any other Person that any Purchaser is an "Acquiring Person" under the plan
or in any way could be deemed to trigger the provisions of such plan by virtue
of receiving Securities under the Transaction Documents.
4.13 Future Financings. From the Closing Date until 90 days after the
Effective Date, other than as contemplated by this Agreement, neither the
Company nor any Subsidiary shall issue or sell any Capital Shares or Capital
Shares Equivalents. Notwithstanding anything herein to the contrary, 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 (y) trading in the Common Stock is
suspended by any Principal Market, or (z) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of the
Underlying Shares. Notwithstanding anything to the contrary herein, this Section
4.13 shall not apply to the following (a) the granting or issuance of shares of
Common Stock or options (or exercise thereof) to or by employees, officers,
directors, and consultants (provided that in the case of consultants, such
issuance of Capital Shares and grants of Capital Share Equivalents does not
exceed, in the aggregate, 200,000 Capital Shares or Capital Shares Equivalents
convertible into or exchangeable for 200,000 Capital Shares per any 12 month
period) of the Company pursuant to any stock option plan or employee incentive
plan or agreement duly adopted or approved by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the members of
a committee of non-employee directors established for such purpose, or (b) the
exercise of the Preferred Stock or any other security issued by the Company in
connection with the offer and sale of this Company's securities pursuant to the
Transaction Documents, or (c) the exercise of or conversion of any Capital
Shares Equivalents issued and outstanding on the Closing Date, provided that
such securities have not been amended since the Closing Date in order to reduce
the effective exercise price, increase the number of shares issuable or
accelerate the date on which such Capital Share Equivalents may be exercised, or
(d) the issuance of Capital Shares or Capital Shares Equivalents in connection
with acquisitions, strategic investments or strategic partnering arrangements,
the primary purpose of which is not to raise capital, or subsequent exercise of
any such Capital Share Equivalents ((a)-(d), each, an "Exempt Issuance"). In
addition to the limitations set forth herein, from the Closing Date until such
time as the Purchasers no longer hold any of the Securities, the Company shall
be prohibited from effecting or entering into an agreement to effect any
Subsequent Financing (as defined in Section 4.14) involving a "Variable Rate
Transaction" or an "MFN Transaction" (each as defined below). The term "Variable
Rate Transaction" shall mean 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, exercise 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. The term "MFN Transaction" shall mean a transaction in which
the Company issues or sells any securities in a capital raising transaction or
series of related transactions which grants to an investor the right to exchange
their securities for securities issued in future transactions of the Company on
terms more favorable than those granted to such investor in their original
offering. In addition, unless Shareholder Approval has been obtained and deemed
effective in accordance with Section 4.5(c), the Company shall not make any
issuance whatsoever of Capital Shares or Capital Shares Equivalents which would
cause any adjustment of the Conversion Price (other than pursuant to Section
7(a) of the Certificate of Designation) to the extent the holders of the
Preferred Stock would not be permitted, pursuant to Section 6(d) of the
Certificate of Designation, to convert their respective outstanding Preferred
Stock and exercise their respective Warrants in full, ignoring for such purposes
any conversion or exercise limitations therein. Additionally, unless Shareholder
Approval has been obtained and deemed effective, the Company shall not make any
issuance whatsoever of Common Stock or Common Stock Equivalents which would
cause any adjustment of the Conversion Price to the extent the holders of
Preferred Stock would not be permitted, pursuant to Section 6(d) of the
Certificate of Designation, to convert their respective outstanding Debentures
and exercise their respective Warrants in full, ignoring for such purposes the
conversion or exercise limitations therein. Any Purchaser shall be entitled to
obtain injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
-26-
4.14 Participation in Future Financing. From the date hereof until a
Purchaser no longer holds any shares of Preferred Stock, upon any financing by
the Company or any of its Subsidiaries of Capital Shares or Capital Shares
Equivalents (a "Subsequent Financing"), such Purchaser shall have the right to
participate in up to 25% of the Subsequent Financing (the "Participation
Maximum"). At least 3 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 attached to which shall be a term sheet or similar document relating thereto
(which may be redacted to protect any confidential information). If by 5:30 p.m.
(New York City time) on the 3rd 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 set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such 3rd Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not elect to
participate. 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 4.14, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on
substantially the terms set forth in such Subsequent Financing Notice within 60
Trading Days after the date of the initial Subsequent Financing Notice. In the
event the Company receives responses to Subsequent Financing Notices from
Purchasers seeking to purchase more than the aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to purchase
their Pro Rata Portion (as defined below) of the Participation Maximum. "Pro
Rata Portion" is the ratio of (x) the Subscription Amount of Securities
purchased by a participating Purchaser and (y) the sum of the aggregate
Subscription Amount of all participating Purchasers. Notwithstanding anything to
the contrary herein, this Section 4.14 shall not apply to any Exempt Issuance.
4.15 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. 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 to treat for the Company the Preferred Stock holders 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.
4.16 Voting Agreement. Each of the Purchasers agrees to vote all Common
Stock owned by such Purchaser as of the record date for the annual meeting of
shareholders of the Company in favor of the Shareholder Approval. For
clarification purposes, this provision constitutes a separate obligation of each
Purchaser and is intended to treat such holders as a class and shall not in any
way be construed as such holders acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.
-27-
4.17 Short Sales and Confidentiality After The Date Hereof. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any Affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales or any "derivative"
transaction with the economic effect of a disposition during the period after
the Discussion Time and ending at the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.7. 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 4.7, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Accordingly, each Purchaser, severally and not jointly with the other
Purchasers, hereby agrees not to use any of the Underlying Shares to cover any
Short Sales made after the date hereof and prior to the Effective Date. In
addition, each Purchaser, severally and not jointly with the other Purchasers,
hereby agrees that it will comply with all rules and regulations contained in
Regulation M promulgated under the Exchange Act with respect to the purchase and
resale of the Underlying Shares. 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 4.7. 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 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.
4.18 Conversion of Series B Preferred Stock. On or prior to the 45th
calendar day after the date hereof, each Purchaser convert all of its Series B
Preferred Stock of the Company into Common Stock pursuant to the terms of the
certificate of designation of the Series B Preferred Stock of the Company. If
any Series B Preferred Stock is not converted by such date, it shall be deemed
to have been converted and the Company shall issue the Common Stock in
conversion thereof and the Series B Preferred Stock shall be cancelled.
-28-
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. At the Closing, the Company has agreed to
reimburse Omicron Master Trust ("Omicron") up to $40,000 ($20,000 of which has
been advanced to Omicron prior to the Closing Date and is non-refundable) for
its actual, reasonable, out-of-pocket legal fees and expenses. Accordingly, in
lieu of the foregoing payments, the Company, on the Closing Date, will direct
that the aggregate amount that Omicron is to pay for the Preferred Stock and
Warrants at the Closing, be reduced by $20,000. The Company shall deliver, 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 issuance of
any Securities.
5.2 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.
5.3 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
specified on the signature page attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day and an electronic confirmation of delivery is
received by the sender, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number specified in this Section 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) three Trading Days
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 addresses for such notices and communications are
those set forth on the signature pages hereof, or such other address as may be
designated in writing hereafter, in the same manner, by such Person.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and Purchasers holding Preferred Stock or Warrants issuable into
at least 66.66% of the Underlying Shares issuable in full, in the aggregate,
pursuant to all shares of Preferred Stock and Warrants then outstanding
(ignoring for such calculation any limitations on conversion or exercise
therein) or in the case of a waiver, by the party against whom enforcement of
any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
-29-
5.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.6 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 the Purchasers. Any Purchaser may assign
its rights under this Agreement and the Registration Rights Agreement to any
Person to whom such Purchaser assigns or transfers any Securities; provided,
however, that no Purchaser may assign its rights to a competitor or potential
competitor of the Company.
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.8 Governing Law; Venue; Waiver of Jury Trial. 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, borough of
Manhattan (the "New York Courts"). Each party hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts 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, or that the New York Courts are
an improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. The parties
hereto hereby irrevocably waive, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to the Transaction Documents or the transactions contemplated
thereby. If either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
-30-
5.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.10 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, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, within 7 Trading Days from when any Purchaser exercises a
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion
from time to time upon written notice to the Company, any relevant notice,
demand or election in whole or in part without prejudice to its future actions
and rights; provided, however, in the case of a rescission of a conversion of
the shares of Preferred Stock 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.
5.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested.
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.15 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.
-31-
5.16 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.17 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 of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers 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 Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including 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 FW. FW does not represent all of the
Purchasers but only Omicron. 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.
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5.18 Liquidated Damages. The Company's obligations to pay any
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such liquidated damages or
other amounts are due and payable shall have been canceled.
5.19 Consent. Where in the Transaction Documents the consent of a
Purchaser is required within a specific period of time, consent shall be deemed
to have been given if no objection is given by notice to the Company within the
applicable period of time.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(Signature Pages Follow)
-33-
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.
INTERACTIVE SYSTEMS WORLDWIDE INC.
By: /s/ Xxxxxxx Xxxxxxxx
Name: Xxxxxxx Xxxxxxxx
Title: President
Address for Notice:
0 Xxxxxxx Xxxx (0xx Xxxxx)
Xxxx Xxxxxxxx, XX 00000
Attn: Xxxxx XxXxxx
Tel: 000.000.0000 Ext. 24
Fax: 000.000.0000
With a copy (which is required
for notice to be valid) to each of: Xxxxxxxx Xxxxxx Xxxxxx & Xxxxxxx LLP
0000 Xxxxxxxx (00xx Xxxxx)
Xxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
Tel: 000.000.0000
Fax: 000.000.0000
and to:
Global Interactive Gaming Ltd.
Xxxxxx Xxxxx Xxxxx
000 Xxx Xxxxxx Xxxxxx
Xxxxxx XX0X 100
Attn: Xxxxx Xxxxxx
Tel: x00-000-000-0000 Ext. 8973
Fax: x00-000-000-0000
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER'S SIGNATURE PAGE - ISWI]
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 Investing Entity: Iroquois Master Fund Ltd.
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxxxx Xxxx
Name of Authorized Signatory: Xxxxxxx Xxxx
Title of Authorized Signatory: Director
Email Address of Authorized Signatory: xxxxx@xxxxxx.xxx
Address for Notice of Investing Entity: 000 Xxxxxxxxx Xxx.; Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $250,000
Shares of Preferred Stock: 250
Warrant Shares: 34,819
[SIGNATURE PAGES CONTINUE]
-35-
[PURCHASER'S SIGNATURE PAGE - ISWI]
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 Investing Entity: Midsummer Investment, Ltd.
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxx X. Xxxxxxx
Name of Authorized Signatory: Xxxxx X. Xxxxxxx
Title of Authorized Signatory: Managing Director, Midsummer Capital, LLC
(acting as investment manager of Midsummer Investment Ltd.)
Email Address of Authorized Signatory: xx@xxxxxxxxxxxxxxxx.xxx
Address for Notice of Investing Entity:
000 Xxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $1,500,000
Shares of Preferred Stock: 1,500
Warrant Shares: 208,914
[SIGNATURE PAGES CONTINUE]
-36-
[PURCHASER'S SIGNATURE PAGE - ISWI]
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 Investing Entity: Omicron Master Trust
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxx Xxxxxxxxx
Name of Authorized Signatory: Xxxxx Xxxxxxxxx
Title of Authorized Signatory: Managing Partner
Email Address of Authorized Signatory: xx@xxxxxxxxxxxxxx.xxx
Address for Notice of Investing Entity:
000 0xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $2,250,000
Shares of Preferred Stock: 2,250
Warrant Shares: 313,370
-37-
ANNEX A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase $4,000,000 of Preferred Stock and Warrants
from Interactive Systems Worldwide Inc., a Delaware corporation (the "Company").
All funds will be wired into a trust account maintained by Xxxxxxxx Xxxxxx
Xxxxxx & Xxxxxxx LLP, counsel to the Company. All funds will be disbursed in
accordance with this Closing Statement.
DISBURSEMENT DATE: August ___, 2005
--------------------------------------------------------------------------------
I. PURCHASE PRICE
GROSS PROCEEDS TO BE RECEIVED IN TRUST $
II. DISBURSEMENTS
$
$
$
$
$
TOTAL AMOUNT DISBURSED: $
WIRE INSTRUCTIONS:
First Republic Bank - Branch 79
1230 Avenue of the Americas
Xxx Xxxx, XX 00000
ABA No. (Bank Wiring Number): 000000000
For the benefit of (Account Name): Xxxxxxxx Xxxxxx Xxxxxx & Xxxxxxx LLP
XXXX Attorney Trust Account
Account Number: 97900019856
-38-
