EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
April 26, 2006 among Armor Electric Inc., a Florida corporation (the "COMPANY"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "PURCHASER" and collectively the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "SECURITIES ACT") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Debentures (as defined herein), and (b) the following
terms have the meanings indicated in this Section 1.1:
"ACTION" shall have the meaning ascribed to such term in
Section 3.1(j).
"AFFILIATE" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"BIMO ORDER" means at least 200 irrevocable orders of Electric
Propulsion System units from Bimoelectric, SA de CV, which orders shall
be reasonably satisfactory in form and substance to the Purchasers.
"BUSINESS DAY" means any day except Saturday, Sunday, any day
which shall be a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized
or required by law or other governmental action to close.
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"CLOSING DATES" means, collectively, the dates of the First
Closing, Second Closing and Third Closing.
"CLOSING(S)" means the closing(s) of the purchase and sale of
the Securities pursuant to Section 2.1.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par
value $.001 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed into.
"COMMON STOCK EQUIVALENTS" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"COMPANY COUNSEL" means Xxxxx & Company residing at #000-000
Xxxxxx Xxxxxx, Xxxxxxxxx, XX X0X 0X0.
"CONVERSION PRICE" shall have the meaning ascribed to such
term in the Debentures.
"DEBENTURES" means, the Secured Convertible Debentures due,
subject to the terms therein, one year from their date of issuance,
issued by the Company to the Purchasers hereunder, in the form of
EXHIBIT A hereto.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
term in Section 3.1.
"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.
"EVALUATION DATE" shall have the meaning ascribed to such term
in Section 3.1(r).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"EXEMPT ISSUANCE" means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted by a majority of the
members of the Board of Directors of the Company or a majority of the
members of a committee of directors established for such purpose,
provided that such issuance shall in no event exceed 100,000 shares of
Common Stock or options (subject to adjustment for forward and reverse
stock splits, recapitalizations and the like) in any 12 month period,
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(b) securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise,
exchange or conversion price of any such securities, and (c) securities
issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors, provided any such issuance
shall only be to a Person which is, itself or through its subsidiaries,
an operating company in a business synergistic with the business of the
Company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in
securities.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed
to such term in Section 3.1(o).
"LEGEND REMOVAL DATE" shall have the meaning ascribed to such
term in Section 4.1(c).
"LIENS" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"LIQUIDATED DAMAGES" means all current and future partial
liquidated damages owed by the Company to the purchasers signatory to
the Securities Purchase Agreement, dated as of February 17, 2005,
between the Company and the purchasers, arising from the Company's
failure to fulfill its obligations under the Registration Rights
Agreement, dated as of February 17, 2005, between the Company and the
purchasers, to file a registration statement pursuant to the terms
therein. The aggregate sum of such current and future partial
liquidated damages is set forth on ANNEX B hereto and is payable at
Closing in the form of an additional principal amount of Debenture.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to
such term in Section 3.1(b).
"MATERIAL PERMITS" shall have the meaning ascribed to such
term in Section 3.1(m).
"MAXIMUM RATE" shall have the meaning ascribed to such term in
Section 5.17.
"PARTICIPATION MAXIMUM" shall have the meaning ascribed to
such term in Section 4.13.
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"PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"PRE-NOTICE" shall have the meaning ascribed to such term in
Section 4.13.
"PRINCIPAL AMOUNT" shall mean, as to each Purchaser, the
amounts set forth below such Purchaser's signature block on the
signature pages hereto and next to the heading "Principal Amount", in
United States Dollars, which shall equal such Purchaser's Subscription
Amount multiplied by 1.33.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PURCHASER PARTY" shall have the meaning ascribed to such term
in Section 4.11.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of EXHIBIT B attached hereto.
"REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering 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).
"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 Debentures, ignoring any conversion or exercise limits
set forth therein, and assuming that the Conversion Price is at all
times on and after the date of determination 75% of the then Conversion
Price on the Trading Day immediately prior to the date of
determination.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h).
"SECOND CLOSING CONDITIONS" shall have the meaning ascribed to
such term in Section 2.1(b).
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"SECURITIES" means the Debentures, the Warrants, the Warrant
Shares and the Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated hereunder.
"SECURITY AGREEMENT" means the Security Agreement, dated the
date hereof, among the Company and the Purchasers, in the form of
EXHIBIT E attached hereto.
"SECURITY DOCUMENTS" shall mean the Security Agreement, the
Subsidiary Guarantees and any other documents and filing required
thereunder in order to grant the Purchasers a first priority security
interest in the assets of the Company as provided in the Security
Agreement, including all UCC-1 filing receipts.
"SHORT SALES" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act (but shall not be
deemed to include the location and/or reservation of borrowable shares
of Common Stock).
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the
aggregate amount to be paid for Debentures and Warrants purchased
hereunder as specified below such Purchaser's name on the signature
page of this Agreement and next to the heading "Subscription Amount",
in United States Dollars and in immediately available funds.
"SUBSEQUENT FINANCING" shall have the meaning ascribed to such
term in Section 4.13.
"SUBSEQUENT FINANCING NOTICE" shall have the meaning ascribed
to such term in Section 4.13.
"SUBSIDIARY" means any subsidiary of the Company as set forth
on SCHEDULE 3.1(A).
"SUBSIDIARY GUARANTEE" means the Subsidiary Guarantee, dated
the date hereof, among each of its Subsidiaries and the Purchasers, in
the form of EXHIBIT F attached hereto.
"TRADING DAY" means a day on which the Common Stock is traded
on a Trading Market.
"TRADING MARKET" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq Capital Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"TRANSACTION DOCUMENTS" means this Agreement, the Debentures,
the Warrants, the Registration Rights Agreement, the Security
Agreement, the Subsidiary Guarantees, all of the Security Documents and
any other documents or agreements executed in connection with the
transactions contemplated hereunder.
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"UNDERLYING SHARES" means the shares of Common Stock issued
and issuable upon conversion of the Debentures and upon exercise of the
Warrants.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. New York City time to 4:02 p.m. New York City time); (b) if the
OTC Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the OTC Bulletin Board; (c) if the Common Stock is not then listed
or quoted on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by Pink Sheets, LLC
(or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common
Stock so reported; or (d) in all other cases, the fair market value of
a share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to the
Company.
"WARRANTS" means collectively the Common Stock purchase
warrants, in the form of EXHIBIT C delivered to the Purchasers at each
Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be exercisable immediately and have a term of exercise equal to 7
years.
"WARRANT SHARES" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. The Company agrees to sell, and each Purchaser agrees,
severally and not jointly, to purchase the respective principal amounts of the
Debentures set forth below its name on the signature pages hereto. The Closings
shall take place in three stages as set forth below (respectively, the "FIRST
CLOSING", the "SECOND CLOSING" and the "THIRD CLOSING"). Upon satisfaction of
the conditions set forth in Section 2.2, each Closing shall occur at the offices
of FW, or such other location as the parties shall mutually agree.
(a) FIRST CLOSING. The First Closing shall be for up to $215,000
aggregate cash Subscription Amounts (excluding Liquidated Damages), and
shall occur within 5 Trading Days of the date hereof.
(b) SECOND CLOSING. The Second Closing shall be for up to
$150,000 aggregate cash Subscription Amounts, and shall occur on or
before the 5th Trading Day following the later of (i) the date the
Registration Statement required to be filed pursuant to the
Registration Statement is filed with the Commission in form and
substance reasonably satisfactory to the Purchasers and (ii) the date
that the Company presents the Purchasers with reasonable proof that the
BIMO Order has been achieved (collectively, the "SECOND CLOSING
CONDITIONS").
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(c) THIRD CLOSING. The Third Closing shall be for up to $235,000
aggregate cash Subscription Amounts, and shall occur on or before the
5th Trading Day following the Effective Date.
2.2 DELIVERIES.
(a) On each Closing Date (except as noted), the Company shall
deliver or cause to be delivered to each Purchaser the following:
(i) as to the First Closing only, this Agreement duly
executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
EXHIBIT D attached hereto;
(iii) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount during the first year and
increasing to equal the Principal Amount thereafter, registered
in the name of such Purchaser;
(iv) the Security Agreement, duly executed by the Company,
along with all the Security Documents, including the Subsidiary
Guarantees;
(v) as to the First Closing, a Warrant registered in the
name of such Purchaser to purchase up to a number of shares of
Common Stock equal to 100% of such Purchaser's Principal Amount
applicable to the First Closing divided by $0.12, with an
exercise price equal to $0.16, subject to adjustment therein;
(vi) as to the Second Closing, a Warrant registered in the
name of such Purchaser to purchase up to a number of shares of
Common Stock equal to 100% of such Purchaser's Principal Amount
applicable to the Second and Third Closing divided by $0.12, with
an exercise price equal to $0.16, subject to adjustment therein;
and
(vii) as to the First Closing only, the Registration Rights
Agreement duly executed by the Company.
(b) On each Closing Date, each Purchaser shall deliver or cause
to be delivered to the Company the following:
(i) as to the First Closing only, this Agreement duly
executed by such Purchaser;
(ii) such Purchaser's Subscription Amount as to the
applicable Closing by wire transfer to the account as specified
in writing by the Company; and
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(iii) as to the First Closing only, the Registration Rights
Agreement duly executed by such Purchaser.
2.3 CLOSING CONDITIONS.
(a) The obligations of the Company hereunder in connection with
each Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on
each Closing Date of the representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the applicable
Closing Date shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth
in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on each Closing
Date of the representations and warranties of the Company
contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the applicable
Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) as to the Second Closing only, (1) each of the Second
Closing Conditions shall have been met by the Company and (2)
such Closing shall have occurred prior to the 4-month anniversary
of the date hereof;
(vi) as to the Third Closing only, (1) the Company shall
have filed with the Commission the Registration Statement
registering all of the Underlying Shares and such Registration
Statement shall have been declared effective by the Commission as
to all such securities and been maintained effective since such
date and (2) such Closing shall have occurred prior to the
6-month anniversary of the date hereof; and
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(vii) from the date hereof to each Closing Date, trading in
the Common Stock shall not have been suspended by the Commission
or the Company's principal Trading Market (except for any
suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the
Closing), and, at any time prior to the applicable Closing Date,
trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading
Market, nor shall a banking moratorium have been declared either
by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable
to purchase the Debentures at the applicable Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "DISCLOSURE SCHEDULES") which Disclosure
Schedules shall be deemed a part hereof and to qualify any representation or
warranty otherwise made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth below to each
Purchaser.
(a) SUBSIDIARIES. All of the direct and indirect subsidiaries of
the Company are set forth on SCHEDULE 3.1(A). The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities.
If the Company has no subsidiaries, then all other references in the
Transaction Documents to the Subsidiaries or any of them will be
disregarded.
(b) ORGANIZATION AND QUALIFICATION. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or
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otherwise) of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company's ability to perform in
any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "MATERIAL ADVERSE
EFFECT") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company,
its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof and
thereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms
except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and thereby do
not and will not: (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) subject to the Required Approvals, conflict with
or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
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(e) FILINGS, CONSENTS AND APPROVALS. The Company is not required
to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i) filings required
pursuant to Section 4.6, (ii) the filing with the Commission of the
Registration Statement, (iii) the notice and/or application(s) to each
applicable Trading Market for the issuance and sale of the Securities
and the listing of the Underlying Shares for trading thereon in the
time and manner required thereby and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable
state securities laws (collectively, the "REQUIRED APPROVALS").
(f) ISSUANCE OF THE SECURITIES. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying
Shares at least equal to the Required Minimum on the date hereof.
(g) CAPITALIZATION. The capitalization of the Company is as set
forth on SCHEDULE 3.1(G). The Company has not issued any capital stock
since its most recently filed periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and
pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report
under the Exchange Act. 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
exercisable or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock or Common Stock Equivalents. The issuance and sale of the
Securities will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of
such securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the
issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect
to the Company's capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company's
stockholders.
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(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports, schedules, forms, statements and other documents required to
be filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding
the date hereof (or such shorter period as the Company was required by
law or regulation to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the "SEC REPORTS") on
a timely basis or has received a valid extension of such time of filing
and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, 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, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at
the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may
not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) MATERIAL CHANGES. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in a subsequent SEC Report, (i) there has been
no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting,
(iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or
made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company
stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of information.
Except for the issuance of the Securities contemplated by this
Agreement or as set forth on SCHEDULE 3.1(I), no event, liability or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or
financial condition, that would be required to be disclosed by the
Company under applicable securities laws at the time this
representation is made that has not been publicly disclosed at least
one Trading Day prior to the date that this representation is made.
12
(j) LITIGATION. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"ACTION") which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect. None of the Company's or its
Subsidiaries' employees is a member of a union that relates to such
employee's relationship with the Company, and neither the Company or
any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to
the knowledge of the Company, is, or is now expected to be, in
violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such
executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all
U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment
and wages and hours, except where the failure to be in compliance could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
13
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business and all such
laws that affect the environment, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not 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 and Liens for the payment of federal,
state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease
by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade
secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights 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 notice (written or otherwise)
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually or in
the aggregate, reasonably be expect to have a Material Adverse Effect.
14
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. Neither
the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business without a significant
increase in cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000 other
than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(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 each 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 information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. The Company's certifying
officers have evaluated the effectiveness of the Company's disclosure
controls and procedures as of the end of the period covered by the
Company's most recently filed periodic report under the Exchange Act
(such date, the "EVALUATION DATE"). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation
Date. Since the Evaluation Date, there have been no changes in the
Company's internal control over financial reporting (as such term is
defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting.
15
(s) CERTAIN FEES. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the
Transaction Documents. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf
of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the
Transaction Documents.
(t) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
(u) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or 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.
(v) REGISTRATION RIGHTS. Other than each of the Purchasers and as
set forth on SCHEDULE 3.1(V), no Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its
knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received
any notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
16
(y) DISCLOSURE. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction
Documents, the Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that it believes constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representation
in effecting transactions in securities of the Company. All disclosure
furnished by or on behalf of the Company to the Purchasers regarding
the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, 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.
(z) NO INTEGRATED OFFERING. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its affiliates, nor any Person acting
on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provision of any
Trading Market on which any of the securities of the Company are listed
or designated.
(aa) SOLVENCY. Based on the financial condition of the Company as
of each Closing Date after giving effect to the receipt by the Company
of the proceeds from the sale of the Securities hereunder, (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 as now conducted and as 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
liabilities 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
17
for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Third
Closing Date. SCHEDULE 3.1(AA) sets forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the purposes of this Agreement, "INDEBTEDNESS" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the
notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(bb) TAX STATUS. Except for matters that would not, individually
or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all
necessary federal, state and foreign income and franchise tax returns
and has paid or accrued all taxes shown as due thereon, and the Company
has no knowledge of a tax deficiency which has been asserted or
threatened against the Company or any Subsidiary.
(cc) NO GENERAL SOLICITATION. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(dd) FOREIGN CORRUPT PRACTICES. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(ee) ACCOUNTANTS. The Company's accountants are set forth on
SCHEDULE 3.1(EE) of the Disclosure Schedule. To the knowledge of the
Company, such accountants, who 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 June 30,
2006 are a registered public accounting firm as required by the
Securities Act.
18
(ff) SENIORITY. As of each Closing Date, no Indebtedness or other
claim against the Company is senior to the Debentures in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as
to the property covered thereby).
(gg) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no
disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
(hh) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm's length purchaser with respect
to the Transaction Documents and the transactions contemplated thereby.
The Company further acknowledges that no Purchaser is acting as a
financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser
or any of their respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's
decision to enter into this Agreement and the other Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its
representatives.
(ii) ACKNOWLEDGEMENT REGARDING PURCHASERS' TRADING ACTIVITY.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Sections 3.2(f) and 4.16 hereof which put
restrictions on such activity), it is understood and acknowledged 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.
19
(jj) 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 or (iii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company, other than, in the case of clauses
(ii) and (iii), compensation paid to the Company's placement agent in
connection with the placement of the Securities.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of each Closing Date to the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser, if not an
individual, is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to enter into
and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and
thereunder. If such Purchaser is an individual, the execution, delivery
and performance by such Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or
similar action on the part of such Purchaser. Each Transaction Document
to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof,
will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) OWN ACCOUNT. Such Purchaser understands that the Securities
are "restricted securities" and have not been registered under the
Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to
or for distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities law,
has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law
and has no direct or indirect arrangement or understandings with any
other persons to distribute or regarding the distribution of such
Securities (this representation and warranty not limiting such
Purchaser's right to sell the Securities pursuant to the Registration
20
Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.
(c) PURCHASER STATUS. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants or converts any Debentures it will be
either: (i) an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such
investment. Such Purchaser is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) SHORT SALES AND CONFIDENTIALITY PRIOR TO THE DATE HEREOF.
Other than 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, in the securities of the Company
during the period commencing from the time that such Purchaser first
received a term sheet (written or oral) from the Company or any other
Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof ("DISCUSSION TIME").
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that
made the investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to
it in connection with this transaction (including the existence and
terms of this transaction).
21
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
[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 TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THESE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
22
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, if the Securities are
subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(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). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective
Date if required by the Company's transfer agent to effect the removal
of the legend hereunder. If all or any portion of a Debenture or
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
and pronouncements issued by the staff of the Commission) 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
three Trading Days following the delivery by a Purchaser to the Company
or the Company's transfer agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the "LEGEND REMOVAL DATE"), deliver or cause
to be delivered to such Purchaser a certificate representing such
shares that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer
set forth in this Section. Certificates for Underlying Shares subject
to legend removal hereunder shall be transmitted by the transfer agent
of the Company to the Purchasers by crediting the account of the
Purchaser's prime broker with the Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 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 Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after the Legend Removal
Date until such certificate is delivered without a legend. Nothing
herein shall limit such Purchaser's right to pursue actual damages for
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the Company's failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Company's reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are
sold pursuant to a Registration Statement, they will be sold in
compliance with the plan of distribution set forth therein.
4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144.
4.4 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to
24
exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue a Current
Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby, and shall attach the Transaction Documents thereto. The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release 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, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except (i) as required by federal securities law in
connection with (A) any registration statement contemplated by the Registration
Rights Agreement and (B) the filing of final Transaction Documents (including
signature pages thereto) with the Commission and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure
permitted under this subclause (ii).
4.7 SHAREHOLDER RIGHTS PLAN. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.8 NON-PUBLIC INFORMATION. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it nor any other Person acting on
its behalf will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
4.9 USE OF PROCEEDS. Except as set forth on SCHEDULE 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for (i) the payment in full of Liquidated Damages and (ii) if any net
proceeds remain, working capital purposes, and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
25
4.10 REIMBURSEMENT. If any Purchaser becomes involved in any capacityin
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions
bysuch Purchaser to or with any other stockholder), solely as a result of
suchPurchaser's acquisition of the Securities under this Agreement, the Company
will reimburse such Purchaser for its reasonable legal and other expenses
(includingthe cost of any investigation preparation and travel in connection
therewith)incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.11 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
"PURCHASER PARTY") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
26
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents.
4.12 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations
in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors of the Company shall
use commercially reasonable efforts to amend the Company's certificate
or articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum at
such time, as soon as possible and in any event not later than the 75th
day after such date.
(c) The Company shall, if applicable: (i) in the time and manner
required by the principal Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause
such shares of Common Stock to be approved for listing on such Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on any date at least equal to the Required Minimum on such date
on such Trading Market or another Trading Market.
4.13 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date that the Debentures are
no longer outstanding, upon any issuance by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents (a "SUBSEQUENT
FINANCING"), each Purchaser shall have the right to participate in up
to an amount of the Subsequent Financing equal to 100% of the
Subsequent Financing (the "PARTICIPATION MAXIMUM") on the same terms,
conditions and price provided for in the Subsequent Financing.
27
(b) At least 5 Trading Days prior to the closing of the
Subsequent Financing, the Company shall deliver to each Purchaser a
written notice of its intention to effect a Subsequent Financing
("PRE-NOTICE"), which Pre-Notice shall ask such Purchaser if it wants
to review the details of such financing (such additional notice, a
"SUBSEQUENT FINANCING NOTICE"). Upon the request of a Purchaser, and
only upon a request by such Purchaser, for a Subsequent Financing
Notice, the Company shall promptly, but no later than 1 Trading Day
after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the Person or Persons
through or with whom such Subsequent Financing is proposed to be
effected, and attached to which shall be a term sheet or similar
document relating thereto.
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than
5:30 p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing
to participate in the Subsequent Financing, the amount of the
Purchaser's participation, and that the Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Company receives no notice from a
Purchaser as of such 5th Trading Day, such Purchaser shall be deemed to
have notified the Company that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have received the Pre-Notice, notifications
by the Purchasers of their willingness to participate in the Subsequent
Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Subsequent Financing, then
the Company may effect the remaining portion of such Subsequent
Financing on the terms and with the Persons set forth in the Subsequent
Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers
seeking to purchase more than the aggregate amount of the Participation
Maximum, each such Purchaser shall have the right to purchase the
greater of (a) their Pro Rata Portion (as defined below) of the
Participation Maximum and (b) the difference between the Participation
Maximum and the aggregate amount of participation by all other
Purchasers. "PRO RATA PORTION" is the ratio of (x) the Subscription
Amount of Securities purchased at the First, Second and Third Closing
by a Purchaser participating under this Section 4.13 and (y) the sum of
the aggregate Subscription Amounts of Securities purchased at the
First, Second and Third Closing by all Purchasers participating under
this Section 4.13.
(f) The Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have the
right of participation set forth above in this Section 4.13, if the
Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such
Subsequent Financing Notice within 60 Trading Days after the date of
the initial Subsequent Financing Notice.
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(g) Notwithstanding the foregoing, this Section 4.13 shall not
apply in respect of an Exempt Issuance.
4.14 SUBSEQUENT EQUITY SALES.
(a) From the date hereof until 90 days after the Effective Date,
neither the Company nor any Subsidiary shall issue shares of Common
Stock or Common Stock Equivalents; PROVIDED, HOWEVER, the 90 day period
set forth in this Section 4.14 shall be extended for the number of
Trading Days during such period in which (i) trading in the Common
Stock is suspended by any Trading Market, or (ii) 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.
(b) From the date hereof until such time as no Purchaser holds
any of the Securities, the Company shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Financing
involving a "Variable Rate Transaction". 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 or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price.
(c) Notwithstanding the foregoing, this Section 4.14 shall not
apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an 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. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.
29
4.16 SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time and ending at the time that the transactions contemplated
by this Agreement are first publicly announced as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain the confidentiality of 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 A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6 except that, so long as
a Purchaser continues to hold any Debentures or Warrants, such Purchaser
severally and not jointly with the other Purchasers, covenants that neither it
nor any Affiliate acting on its behalf or pursuant to any understanding with it,
shall knowingly engage in any Short Sales, except on those days (each a
"PERMITTED DAY") on which the aggregate short position with respect to the
Common Stock of such Purchaser prior to giving effect to any Short Sales by such
Purchaser on such Permitted Day does not exceed such Purchaser's Permitted Share
Position (as defined below) on such Permitted Day; PROVIDED, HOWEVER, that a
Purchaser will only be entitled to engage in transactions that constitute Short
Sales on a Permitted Day to the extent that following such transaction, the
aggregate short position with respect to the Common Stock of such Purchaser does
not exceed such Purchaser's Permitted Share Position. For purposes of this
Section 4.16, a Purchaser's "PERMITTED SHARE POSITION" means, with respect to
any date of determination, the number of shares of Common Stock owned by such
Purchaser (including Conversion Shares, Warrant Shares and shares purchased in
the open market or otherwise) plus the sum of (i) the maximum number of
Conversion Shares then issuable (including as to portions of the Debentures not
yet converted and without regard to any exercise caps or other exercise
restrictions applicable to the Debentures and based on the then Set Price) to
such Purchaser and (ii) the maximum number of Warrants Shares then issuable
(including as to portions of the Warrants not yet exercised and without regard
to any exercise caps or other exercise restrictions applicable to the Warrants)
to such Purchaser. Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser's assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser's assets, the covenant set
forth above shall only apply with respect to the portion of assets managed by
the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement.
30
4.17 FORM D; BLUE SKY FILINGS. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at each Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.18 CAPITAL CHANGES. Until the one year anniversary of the Effective
Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in principal amount outstanding of the Debentures.
4.19 APPOINTMENT OF AN ADDITIONAL DIRECTOR. The Company shall appoint
(or cause its board of directors or shareholders to appoint) two additional
Persons as members of the Company's Board of Directors, including Xxxxxx Xxxx
and one other individual reasonably satisfactory to the majority in interest of
the Purchasers, which appointment shall be effective within 90 calendar days
following the Closing. The Company shall use best efforts to nominate, solicit
proxies and recommend that shareholders vote in favor of such Persons, or
replacement directors, for re-election as directors of the Company at each
annual meeting or special meeting of the shareholders of the Company at which
the election of directors is a matter to be acted upon. The Company shall take
all further actions reasonably necessary to satisfy the covenants herein. The
Company shall not increase the number of directors beyond 5 members without the
consent of a majority in interest of the Purchasers.
ARTICLE V.
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the First Closing has not been consummated on or
before April 28, 2006; PROVIDED, HOWEVER, that no such termination will affect
the right of any party to xxx for any breach by the other party (or parties).
5.2 FEES AND EXPENSES. At the First Closing, the Company has agreed to
reimburse Xxxxxxxxx Living Trust ("XXXXXXXXX") $18,000, for its legal fees and
expenses, none of which has been paid prior to the First Closing and pay $50,000
in satisfaction of Liquidated Damages. Accordingly, in lieu of the foregoing
payments, the aggregate amount that Xxxxxxxxx is to pay for the Securities at
the First Closing shall be reduced by $50,000 in lieu thereof. The Company shall
deliver, prior to each Closing, a completed and executed copy of the Closing
Statement, attached hereto as ANNEX A. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchasers.
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5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and each Purchaser or, in the case of a
waiver, by the party against whom enforcement of any such waived provision 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 any party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.6 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers".
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
32
5.9 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California, 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 San Diego, California. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
San Diego, California for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 SURVIVAL. The representations, warranties, covenants and other
agreements contained herein shall survive the Closings and the delivery,
exercise and/or conversion of the Securities, as applicable for the applicable
statue of limitations.
5.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or ".pdf" signature page were an original
thereof.
5.12 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
33
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; PROVIDED,
HOWEVER, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.
5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
34
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FW. FW
does not represent all of the Purchasers but only Xxxxxxxxx. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 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.
35
(SIGNATURE PAGES FOLLOW)
36
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
ARMOR ELECTRIC INC. ADDRESS FOR NOTICE:
-------------------
By:__________________________________________
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
37
[PURCHASER SIGNATURE PAGES TO ARME SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: _____________________________________________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ________________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Purchaser: ____________________________________________________
Facsimile Number of Purchaser: _________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
First Closing Subscription Amount: (1)
First Closing Warrant Shares:
Second Closing Subscription Amount:
Second Closing Warrant Shares: [YOU MUST ISSUE THE THIRD CLOSING WARRANTS HERE
IN ORDER TO REGISTER THEM AT ALL - WARRANTS MUST ALL BE ISSUED PRIOR TO THE
FILING DATE]
Third Closing Subscription Amount:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
____________________________
1 Include new cash consideration as well as Liquidated Damages owed to
applicable fund.
38
ANNEX A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $400,000 of Debentures and Warrants
from Armor Electic Inc. (the "COMPANY"). All funds will be wired into a trust
account maintained by ____________, counsel to the Company. All funds will be
disbursed in accordance with this Closing Statement.
DISBURSEMENT DATE: April ___, 2006
________________________________________________________________________________
I. PURCHASE PRICE
--------------
GROSS PROCEEDS TO BE RECEIVED IN TRUST $
II. DISBURSEMENTS
-------------
$
$
$
$
$
TOTAL AMOUNT DISBURSED: $
WIRE INSTRUCTIONS:
-----------------
To: _____________________________________
To: _____________________________________
39
(1) Include new cash consideration as well as Liquidated Damages owed to
applicable fund.
