PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 11th day of
January, 2005 by and among IQ Biometrix, Inc., a Delaware corporation (the
"Company"), and the Investors set forth on the signature pages affixed hereto
(each an "Investor" and collectively the "Investors").
Recitals
A. The Company and the Investors are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by the provisions of Regulation D ("Regulation D"), as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the 1933 Act; and
B. The Investors wish to purchase from the Company, and the
Company wishes to sell and issue to the Investors, upon the terms and conditions
stated in this Agreement, (i) an aggregate of $[3,300,000] of the Company's 5%
Convertible Debentures in the form attached hereto as Exhibit A (the
"Debentures"), which are convertible into shares of the Company's Common Stock,
par value $0.01 per share ("Common Stock"), and (ii) warrants to purchase an
aggregate of [825,000] shares of Common Stock (subject to adjustment) at an
exercise price of $2.70 per share (subject to adjustment) in the form attached
hereto as Exhibit B (the "Warrants"); and
C. Contemporaneous with the sale of the Debentures and
Warrants, the parties hereto will execute and deliver a Registration Rights
Agreement, in the form attached hereto as Exhibit C (the "Registration Rights
Agreement"), pursuant to which the Company will agree to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
In consideration of the mutual promises made herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere
in this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other
Person which directly or indirectly through one or more intermediaries Controls,
is controlled by, or is under common control with, such Person.
"Business Day" means a day, other than a Saturday or Sunday,
on which banks in New York City are open for the general transaction of
business.
"Company's Knowledge" means the actual knowledge of the
executive officers (as defined in Rule 405 under the 0000 Xxx) of the Company,
after due inquiry.
"Confidential Information" means trade secrets, confidential
information and know-how (including but not limited to ideas, formulae,
compositions, processes, procedures and techniques, research and development
information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans,
and customer and supplier lists and related information).
"Control" (including the terms "controlling", "controlled by"
or "under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Shares" means the shares of Common Stock issuable
upon the conversion of the Debentures.
"Effective Date" means the date on which the initial
Registration Statement is declared effective by the SEC.
"Effectiveness Deadline" means the date on which the initial
Registration Statement is required to be declared effective by the SEC under the
terms of the Registration Rights Agreement.
"GAAP" has the meaning set forth in Section 4.18.
"Intellectual Property" means all of the following: (i)
patents, patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice); (ii) trademarks, service
marks, trade dress, trade names, corporate names, logos, slogans and Internet
domain names, together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).
"Interest Shares" means the shares of Common Stock issuable in
lieu of cash interest on the Debentures.
"Material Adverse Effect" means a material adverse effect on
(i) the assets, liabilities, results of operations, condition (financial or
otherwise), business, or prospects of the Company and its Subsidiaries taken as
a whole, or (ii) the ability of the Company to perform its obligations under the
Transaction Documents.
"Person" means an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically listed
herein.
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"Purchase Price" means [Three Million three Hundred Thousand
Dollars ($3,300,000)].
"Required Investors" means collectively, (i) any Investor who,
together with its Affiliates, is acquiring at least 20% of the aggregate
principal amount of the Debentures, and (ii) the Investors acquiring at least a
majority of the aggregate amount of the Debentures.
"Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"SEC Filings" has the meaning set forth in Section 4.6.
"Securities" means the Debentures, the Warrants, the
Conversion Shares, the Interest Shares and the Warrant Shares.
"Subsidiary" of any Person means another Person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants and the Registration Rights Agreement.
"Warrant Shares" means the shares of Common Stock issuable
upon the exercise of the Warrants.
"1933 Act" means the Securities Act of 1933, as amended, or
any successor statute, and the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute, and the rules and regulations promulgated
thereunder.
2. Purchase and Sale of the Debentures and Warrants. Subject to the
terms and conditions of this Agreement, on the Closing Date, each of the
Investors shall severally, and not jointly, purchase, and the Company shall sell
and issue to the Investors, the Debentures and Warrants in the respective
amounts set forth opposite the Investors' names on the signature pages attached
hereto in exchange for the Purchase Price as specified in Section 3 below.
3. Closing. Upon confirmation that the other conditions to closing
specified herein have been satisfied or duly waived by the Investors, the
Company shall deliver to Xxxxxxxxxx Xxxxxxx PC, in trust, the Debentures and the
Warrants, registered in such name or names as the Investors may designate, with
instructions that such securities are to be held for release to the Investors
only upon payment in full of the Purchase Price to the Company by all the
Investors. Upon such receipt by Xxxxxxxxxx Xxxxxxx PC of the securities, each
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Investor shall promptly, but no more than one Business Day thereafter, cause a
wire transfer in same day funds to be sent to the account of the Company as
instructed in writing by the Company, in an amount representing such Investor's
pro rata portion of the Purchase Price as set forth on the signature pages to
this Agreement. On the date (the "Closing Date") the Company receives the
Purchase Price, the Debentures and the Warrants shall be released to the
Investors (the "Closing"). The Closing of the purchase and sale of the
Debentures and Warrants shall take place at the offices of Xxxxxxxxxx Xxxxxxx
PC, 1251 Avenue of the Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at
such other location and on such other date as the Company and the Investors
shall mutually agree.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investors that, except as set forth in the
disclosure letter previously delivered to the Investors (the "Disclosure
Letter"):
4.1 Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not and could not reasonably be expected to have a
Material Adverse Effect. The Company's Subsidiaries are listed on the Disclosure
Letter.
4.2 Authorization. The Company has full power and authority
and has taken all requisite action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization, execution and
delivery of the Transaction Documents, (ii) the authorization of the performance
of all obligations of the Company hereunder or thereunder, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the
Securities. The Transaction Documents constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors' rights generally and to the effects of general
principles of equity.
4.3 Capitalization. The Disclosure Letter sets forth as of
[recent date] (a) the authorized capital stock of the Company on the date
hereof; (b) the number of shares of capital stock issued and outstanding; (c)
the number of shares of capital stock issuable pursuant to the Company's stock
award and/or option plans; and (d) the number of shares of capital stock
issuable and reserved for issuance pursuant to securities (other than the
Debentures and the Warrants) exercisable for, or convertible into or
exchangeable for any shares of capital stock of the Company. All of the issued
and outstanding shares of the Company's capital stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive
rights and were issued in compliance with applicable state and federal
securities law and any rights of third parties. Except as described in the
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Disclosure Letter, all of the issued and outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued and are fully paid,
nonassessable and free of pre-emptive rights, were issued in compliance with
applicable state and federal securities law and any rights of third parties and
are owned by the Company, beneficially and of record, subject to no lien,
encumbrance or other adverse claim except for restrictions on transfer set forth
in the Transaction Documents or imposed by applicable securities laws. Except as
described in the Disclosure Letter, no Person is entitled to pre-emptive or
similar statutory or contractual rights with respect to any securities of the
Company. Except as described in the Disclosure Letter, there are no outstanding
warrants, options, convertible securities or other rights, agreements or
arrangements of any character under which the Company or any of its Subsidiaries
is or may be obligated to issue any equity securities of any kind and except as
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
is currently in negotiations for the issuance of any equity securities of any
kind. Except as described in the Disclosure Letter and except for the
Registration Rights Agreement, there are no voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among the Company and any of the securityholders of the Company
relating to the securities of the Company held by them. Except as described in
the Disclosure Letter and except as provided in the Registration Rights
Agreement, no Person has the right to require the Company to register any
securities of the Company under the 1933 Act, whether on a demand basis or in
connection with the registration of securities of the Company for its own
account or for the account of any other Person.
Except as described in the Disclosure Letter, the issuance and
sale of the Securities hereunder will not obligate the Company to issue shares
of Common Stock or other securities to any other Person (other than the
Investors) and will not result in the adjustment of the exercise, conversion,
exchange or reset price of any outstanding security.
Except as described in the Disclosure Letter, the Company does
not have outstanding stockholder purchase rights or "poison pill" or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.
4.4 Valid Issuance. The Interest Shares have been duly and
validly authorized. Upon the due issuance in accordance with the terms of the
Debentures, the Interest Shares will be validly issued, fully paid and
nonassessable, and shall be free and clear of all encumbrances and restrictions
(other than those created by the Investors), except for restrictions on transfer
set forth in the Transaction Documents or imposed by applicable securities laws.
The Conversion Shares have been duly and validly authorized. Upon the due
conversion of the Debentures, the Conversion Shares will be validly issued,
fully paid and nonassessable, and shall be free and clear of all encumbrances
and restrictions (other than those created by the Investors), except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws. The Warrants have been duly and validly authorized.
Upon the due exercise of the Warrants, the Warrant Shares will be validly
issued, fully paid and non-assessable free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws and except for those created
by the Investors. The Company has reserved a sufficient number of shares of
Common Stock for the issuance of the Interest Shares, the Conversion Shares and
the Warrant Shares, free and clear of all encumbrances and restrictions, except
for restrictions on transfer set forth in the Transaction Documents or imposed
by applicable securities laws and except for those created by the Investors.
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4.5 Consents. The execution, delivery and performance by the
Company of the Transaction Documents and the offer, issuance and sale of the
Securities require no consent of, action by or in respect of, or filing with,
any Person, governmental body, agency, or official other than filings that have
been made pursuant to applicable state securities laws and post-sale filings
pursuant to applicable state and federal securities laws which the Company
undertakes to file within the applicable time periods. Subject to the accuracy
of the representations and warranties of each Investor set forth in Section 5
hereof, the Company has taken all action necessary to exempt (i) the issuance
and sale of the Securities, (ii) the issuance of the Interest Shares in
accordance with the terms of the Debentures, (iii) the issuance of the
Conversion Shares upon due conversion of the Debentures, (iv) the issuance of
the Warrant Shares upon due exercise of the Warrants, and (v) the other
transactions contemplated by the Transaction Documents from the provisions of
any stockholder rights plan or other "poison pill" arrangement, any
anti-takeover, business combination or control share law or statute currently
binding on the Company or to which the Company or any of its assets and
properties is currently subject and any provision of the Company's Certificate
of Incorporation or By-laws that is or could reasonably be expected to become
applicable to the Investors as a result of the transactions contemplated hereby,
including without limitation, the issuance of the Securities and the ownership,
disposition or voting of the Securities by the Investors or the exercise of any
right granted to the Investors pursuant to this Agreement or the other
Transaction Documents.
4.6 Delivery of SEC Filings; Business. The Company has made
available to the Investors through the XXXXX system, true and complete copies of
the Company's most recent Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2004 (the "10-KSB"), and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the 10-KSB and prior to the date
hereof (collectively, the "SEC Filings"). The SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period. The Company
and its Subsidiaries are engaged in all material respects only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.
4.7 Use of Proceeds. The net proceeds of the sale of the
Debentures and the Warrants hereunder shall be used by the Company for working
capital and general corporate purposes.
4.8 No Material Adverse Change. Since June 30, 2004, except as
identified and described in the SEC Filings or as described in the Disclosure
Letter, there has not been:
(i) any change in the consolidated assets,
liabilities, financial condition or operating results of the Company from that
reflected in the financial statements included in the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2004, except for changes in
the ordinary course of business which have not and could not reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate;
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(ii) any declaration or payment of any dividend, or
any authorization or payment of any distribution, on any of the capital stock of
the Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss,
whether or not covered by insurance to any assets or properties of the Company
or its Subsidiaries;
(iv) any waiver, not in the ordinary course of
business, by the Company or any Subsidiary of a material right or of a material
debt owed to it;
(v) any satisfaction or discharge of any lien, claim
or encumbrance or payment of any obligation by the Company or a Subsidiary,
except in the ordinary course of business and which is not material to the
assets, properties, financial condition, operating results or business of the
Company and its Subsidiaries taken as a whole (as such business is presently
conducted);
(vi) any change or amendment to the Company's
Certificate of Incorporation or by-laws, or material change to any material
contract or arrangement by which the Company or any Subsidiary is bound or to
which any of their respective assets or properties is subject;
(vii) any material labor difficulties or labor union
organizing activities with respect to employees of the Company or any
Subsidiary;
(viii) any material transaction entered into by the
Company or a Subsidiary other
than in the ordinary course of business;
(ix) the loss of the services of any key employee, or
material change in the composition or duties of the senior management of the
Company or any Subsidiary;
(x) the loss or threatened loss of any customer which
has had or could reasonably be expected to have a Material Adverse Effect; or
(xi) any other event or condition of any character
relating to the Company (and excluding macroeconomic events and conditions which
have not had a disproportionate effect on the Company) that has had or could
reasonably be expected to have a Material Adverse Effect.
4.9 SEC Filings.
(a) At the time of filing thereof, the SEC Filings
complied as to form in all material respects with the requirements of the 1934
Act and did not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
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(b) Each registration statement and any amendment
thereto filed by the Company since January 1, 2001 pursuant to the 1933 Act, as
of the date such statement or amendment became effective, complied as to form in
all material respects with the 1933 Act and did not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements made therein not
misleading; and each prospectus filed pursuant to Rule 424(b) under the 1933
Act, as of its issue date and as of the closing of any sale of securities
pursuant thereto did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading.
4.10 No Conflict, Breach, Violation or Default. The execution,
delivery and performance of the Transaction Documents by the Company and the
issuance and sale of the Securities will not conflict with or result in a breach
or violation of any of the terms and provisions of, or constitute a default
under (i) the Company's Certificate of Incorporation or the Company's Bylaws,
both as in effect on the date hereof (true and complete copies of which have
been made available to the Investors through the XXXXX system), or (ii)(a) any
statute, rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
or any of their respective assets or properties, or (b) any agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or a Subsidiary is bound or to which any of their respective assets or
properties is subject.
4.11 Tax Matters. The Company and each Subsidiary has timely
prepared and filed all tax returns required to have been filed by the Company or
such Subsidiary with all appropriate governmental agencies and timely paid all
taxes shown thereon or otherwise owed by it, except for such taxes that are
being contested in good faith and for which adequate reserves are maintained in
accordance with GAAP. The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company or
any Subsidiary (other than those being contested in accordance with the
immediately preceding sentence) nor, to the Company's Knowledge, any basis for
the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole. All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or, to the Company's
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property. Except as described in the Disclosure Letter,
there are no outstanding tax sharing agreements or other such arrangements
between the Company and any Subsidiary or other corporation or entity.
4.12 Title to Properties. Except as disclosed in the SEC
Filings, the Company and each Subsidiary has good and marketable title to all
real properties and all other properties and assets owned by it, in each case
free from liens, encumbrances and defects that would materially affect the value
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thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
and each Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
4.13 Certificates, Authorities and Permits. The Company and
each Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
4.14 Labor Matters.
(a) Except as set forth in the Disclosure Letter, the Company
is not a party to or bound by any collective bargaining agreements or other
agreements with labor organizations. The Company has not violated in any
material respect any laws, regulations, orders or contract terms, affecting the
collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees' health, safety, welfare, wages and hours.
(b) (i) There are no labor disputes existing, or to the
Company's Knowledge, threatened, involving strikes, slow-downs, work stoppages,
job actions, disputes, lockouts or any other disruptions of or by the Company's
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other federal, state or local labor commission relating
to the Company's employees, (iii) no demand for recognition or certification
heretofore made by any labor organization or group of employees is pending with
respect to the Company and (iv) to the Company's Knowledge, the Company enjoys
good labor and employee relations with its employees and labor organizations.
(c) The Company is, and at all times has been, in full
compliance in all material respects with all applicable laws respecting
employment (including laws relating to classification of employees and
independent contractors) and employment practices, terms and conditions of
employment, wages and hours, and immigration and naturalization. No claims are
pending against the Company before the Equal Employment Opportunity Commission
or any other administrative body or in any court asserting any violation of
Title VII of the Civil Rights Act of 1964, the Age Discrimination Act of 1967,
42 U.S.C. xx.xx. 1981 or 1983 or any other federal, state or local Law, statute
or ordinance barring discrimination in employment.
(d) Except as disclosed in the Company's public filings with
the SEC, the Company is not a party to, or bound by, any employment or other
contract or agreement that contains any severance, termination pay or change of
control liability or obligation, including, without limitation, any "excess
parachute payment," as defined in Section 2806(b) of the Internal Revenue Code.
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(e) Except as specified in the Disclosure Letter, each of the
Company's employees is a Person who is either a United States citizen or a
permanent resident entitled to work in the United States. To the Company's
Knowledge, the Company has no liability for the improper classification by the
Company of such employees as independent contractors or leased employees prior
to the Closing.
4.15 Intellectual Property.
(a) All Intellectual Property of the Company and its
Subsidiaries is currently in material compliance with all legal requirements
(including timely filings, proofs and payments of fees) and to the Company's
Knowledge is valid and enforceable. Except as disclosed in the Disclosure
Letter, no Intellectual Property of the Company or its Subsidiaries which is
necessary for the conduct of Company's and each of its Subsidiaries' respective
businesses as currently conducted or as currently proposed to be conducted has
been or is now involved in any cancellation, dispute or litigation, and, to the
Company's Knowledge, no such action is threatened. No patent of the Company or
its Subsidiaries has been or is now involved in any interference, reissue,
re-examination or opposition proceeding.
(b) All of the licenses and sublicenses and consent,
royalty or other agreements concerning Intellectual Property which are necessary
for the conduct of the Company's and each of its Subsidiaries' respective
businesses as currently conducted or as currently proposed to be conducted to
which the Company or any Subsidiary is a party or by which any of their assets
are bound (other than generally commercially available, non-custom,
off-the-shelf software application programs having a retail acquisition price of
less than $10,000 per license) (collectively, "License Agreements") are valid
and binding obligations of the Company or its Subsidiaries that are parties
thereto and, to the Company's Knowledge, the other parties thereto, enforceable
in accordance with their terms, except to the extent that enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity, and there exists no event or
condition which will result in a material violation or breach of or constitute
(with or without due notice or lapse of time or both) a default by the Company
or any of its Subsidiaries under any such License Agreement.
(c) To the Company's Knowledge, the Company and its
Subsidiaries own or to the Company's Knowledge have the valid right to use all
of the Intellectual Property that is necessary for the conduct of the Company's
and each of its Subsidiaries' respective businesses as currently conducted or as
currently proposed to be conducted and for the ownership, maintenance and
operation of the Company's and its Subsidiaries' properties and assets, free and
clear of all liens, encumbrances, adverse claims or obligations to license all
such owned Intellectual Property and Confidential Information, other than
licenses entered into in the ordinary course of the Company's and its
Subsidiaries' businesses. To the Company's Knowledge, the Company and its
Subsidiaries have a valid and enforceable right to use all third party
Intellectual Property and Confidential Information used or held for use in the
respective businesses of the Company and its Subsidiaries.
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(d) To the Company's Knowledge, the conduct of the
Company's and its Subsidiaries' businesses as currently conducted does not
infringe or otherwise impair or conflict with (collectively, "Infringe") any
Intellectual Property rights of any third party or any confidentiality
obligation owed to a third party, and, except as disclosed in the Disclosure
Letter, to the Company's Knowledge, the Intellectual Property and Confidential
Information of the Company and its Subsidiaries which are necessary for the
conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted are not being
Infringed by any third party. Except as disclosed in the Disclosure Letter,
there is no litigation or order pending or outstanding or, to the Company's
Knowledge, threatened or imminent, that seeks to limit or challenge or that
concerns the ownership, use, validity or enforceability of any Intellectual
Property or Confidential Information of the Company and its Subsidiaries and the
Company's and its Subsidiaries' use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company's Knowledge, there is no
valid basis for the same.
(e) The consummation of the transactions contemplated
hereby and by the other Transaction Documents will not result in the alteration,
loss, impairment of or restriction on the Company's or any of its Subsidiaries'
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted.
(f) The Company and its Subsidiaries have taken
reasonable steps to protect the Company's and its Subsidiaries' rights in their
Intellectual Property and Confidential Information. Each employee, consultant
and contractor who has had access to Confidential Information which is necessary
for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company's standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company's or its
Subsidiaries' Confidential Information to any third party.
4.16 Environmental Matters. Neither the Company nor any
Subsidiary is in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "Environmental Laws"), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, and is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company's Knowledge,
threatened investigation that might lead to such a claim.
4.17 Litigation. Except as described in the Disclosure Letter,
there are no pending actions, suits or proceedings against or affecting the
Company, its Subsidiaries or any of its or their properties; and to the
Company's Knowledge, no such actions, suits or proceedings are threatened or
contemplated.
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4.18 Financial Statements. The financial statements included
in each SEC Filing present fairly, in all material respects, the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis ("GAAP") (except as
may be disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-QSB under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described in the Disclosure Letter, neither
the Company nor any of its Subsidiaries has incurred any liabilities, contingent
or otherwise, except those incurred in the ordinary course of business,
consistent (as to amount and nature) with past practices since the date of such
financial statements, none of which, individually or in the aggregate, have had
or could reasonably be expected to have a Material Adverse Effect.
4.19 Insurance Coverage. The Company and each Subsidiary
maintains in full force and effect insurance coverage that is customary for
comparably situated companies for the business being conducted and properties
owned or leased by the Company and each Subsidiary, and the Company reasonably
believes such insurance coverage to be adequate against all liabilities, claims
and risks against which it is customary for comparably situated companies to
insure.
4.20 Brokers and Finders. No Person will have, as a result of
the transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company, other than as
described in the Disclosure Letter.
4.21 No Directed Selling Efforts or General Solicitation.
Neither the Company nor any Person acting on its behalf has conducted any
general solicitation or general advertising (as those terms are used in
Regulation D) in connection with the offer or sale of any of the Securities.
4.22 No Integrated Offering. Neither the Company nor any of
its Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
4.23 Private Placement. Assuming the accuracy of the
Investors' representations and warranties in Section 5, the offer and sale of
the Securities to the Investors as contemplated hereby is exempt from the
registration requirements of the 1933 Act.
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4.24 Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company's Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
4.25 Transactions with Affiliates. Except as disclosed in the
SEC Filings or as disclosed in the Disclosure Letter, none of the officers or
directors of the Company and, to the Company's Knowledge, none of the employees
of the Company is presently a party to any transaction with the Company or any
Subsidiary (other than as holders of stock options and/or warrants, and 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
Company's Knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
4.26 Internal Controls. Except as disclosed in the Disclosure
Letter, the Company is in material compliance with the provisions of the
Xxxxxxxx-Xxxxx Act of 2002 currently applicable to the Company. 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 1934 Act Rules 13a-14 and 15d-14) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including the Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed period report under the
1934 Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the end of the period covered by the most recently filed
periodic report under the 1934 Act (such date, the "Evaluation Date"). The
Company presented in its most recently filed periodic report under the 1934 Act
the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K) or, to the Company's Knowledge, in other factors that
could significantly affect the Company's internal controls. The Company
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP and the applicable
requirements of the 1934 Act.
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4.27 Disclosures. Neither the Company nor any Person acting on
its behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information. The written materials delivered to the Investors in connection with
the transactions contemplated by the Transaction Documents do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading.
5. Representations and Warranties of the Investors. Each of the
Investors hereby severally, and not jointly, represents and warrants to the
Company that:
5.1 Organization and Existence. Such Investor is a validly
existing corporation, limited partnership or limited liability company and has
all requisite corporate, partnership or limited liability company power and
authority to invest in the Securities pursuant to this Agreement.
5.2 Authorization. The execution, delivery and performance by
such Investor of the Transaction Documents to which such Investor is a party
have been duly authorized and will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally and to the effects of
general principles of equity.
5.3 Purchase Entirely for Own Account. The Securities to be
received by such Investor hereunder will be acquired for such Investor's own
account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of the 1933 Act, and such Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the same in violation of the 1933 Act without prejudice, however,
to such Investor's right at all times to sell or otherwise dispose of all or any
part of such Securities in compliance with applicable federal and state
securities laws. Nothing contained herein shall be deemed a representation or
warranty by such Investor to hold the Securities for any period of time. Such
Investor is not a broker-dealer registered with the SEC under the 1934 Act or an
entity engaged in a business that would require it to be so registered.
5.4 Investment Experience. Such Investor acknowledges that it
can bear the economic risk and complete loss of its investment in the Securities
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. Such Investor has had an
opportunity to receive all information related to the Company requested by it
and to ask questions of and receive answers from the Company regarding the
Company, its business and the terms and conditions of the offering of the
Securities. Such Investor acknowledges receipt of copies of the SEC Filings.
Neither such inquiries nor any other due diligence investigation conducted by
such Investor shall modify, amend or affect such Investor's right to rely on the
Company's representations and warranties contained in this Agreement.
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5.6 Restricted Securities. Such Investor understands that the
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, except as provided below,
certificates evidencing the Securities may bear the following or any similar
legend:
(a) "The securities represented hereby may not be
transferred unless (i) such securities have been registered for sale pursuant to
the Securities Act of 1933, as amended, (ii) such securities may be sold
pursuant to Rule 144(k), or (iii) the Company has received an opinion of counsel
reasonably satisfactory to it that such transfer may lawfully be made without
registration under the Securities Act of 1933 or qualification under applicable
state securities laws."
(b) If required by the authorities of any state in
connection with the issuance of sale of the Securities, the legend required by
such state authority.
5.8 Accredited Investor. Such Investor is an `accredited
investor" as defined in Rule 501 of Regulation D, as amended, under the 0000
Xxx.
5.9 No General Solicitation. Such Investor did not learn of
the investment in the Securities as a result of any public advertising or
general solicitation.
5.10 Brokers and Finders. No Person will have, as a result of
the transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.
5.11 Prohibited Transactions. During the last thirty (30) days
prior to the date hereof, neither such Investor nor any Affiliate of such
Investor which (x) had knowledge of the transactions contemplated hereby, (y)
has or shares discretion relating to such Investor's investments or trading or
information concerning such Investor's investments, including in respect of the
Securities, or (z) is subject to such Investor's review or input concerning such
Affiliate's investments or trading (collectively, "Trading Affiliates") has,
directly or indirectly, effected or agreed to effect any short sale, whether or
not against the box, established any "put equivalent position" (as defined in
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Rule 16a-1(h) under the 0000 Xxx) with respect to the Common Stock, granted any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities or sold any Common Stock (each, a
"Prohibited Transaction"). Prior to the earliest to occur of (i) the termination
of this Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline,
such Investor shall not, and shall cause its Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction. Such Investor acknowledges
that the representations, warranties and covenants contained in this Section
5.11 are being made for the benefit of the Investors as well as the Company and
that each of the other Investors shall have an independent right to assert any
claims against such Investor arising out of any breach or violation of the
provisions of this Section 5.11.
6. Conditions to Closing.
6.1 Conditions to the Investors' Obligations. The obligation
of each Investor to purchase the Debentures and the Warrants at the Closing is
subject to the fulfillment to such Investor's satisfaction, on or prior to the
Closing Date, of the following conditions, any of which may be waived by such
Investor (as to itself only):
(a) The representations and warranties made by the
Company in Section 4 hereof qualified as to materiality shall be true and
correct at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct as of such
earlier date, and, the representations and warranties made by the Company in
Section 4 hereof not qualified as to materiality shall be true and correct in
all material respects at all times prior to and on the Closing Date, except to
the extent any such representation or warranty expressly speaks as of an earlier
date, in which case such representation or warranty shall be true and correct in
all material respects as of such earlier date. The Company shall have performed
in all material respects all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.
(b) The Company shall have obtained any and all
consents, permits, approvals, registrations and waivers necessary or appropriate
for consummation of the purchase and sale of the Securities and the consummation
of the other transactions contemplated by the Transaction Documents, all of
which shall be in full force and effect.
(c) The Company shall have executed and delivered the
Registration Rights Agreement.
(d) No judgment, writ, order, injunction, award or
decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any order of or by any governmental authority,
shall have been issued, and no action or proceeding shall have been instituted
by any governmental authority, enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents.
(e) The Company shall have delivered a Certificate,
executed on behalf of the Company by its Chief Executive Officer or its Chief
Financial Officer, dated as of the Closing Date, certifying to the fulfillment
of the conditions specified in subsections (a), (b), (d) and (h) of this Section
6.1.
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(f) The Company shall have delivered a Certificate,
executed on behalf of the Company by its Secretary, dated as of the Closing
Date, certifying the resolutions adopted by the Board of Directors of the
Company approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Securities, certifying the current
versions of the Certificate of Incorporation and Bylaws of the Company and
certifying as to the signatures and authority of persons signing the Transaction
Documents and related documents on behalf of the Company.
(g) The Investors shall have received an opinion from
The Xxxxx Law Group, LLP, the Company's counsel, dated as of the Closing Date,
in form and substance reasonably acceptable to the Investors and addressing such
legal matters as the Investors may reasonably request.
(h) No stop order or suspension of trading shall have
been imposed by the SEC or
any other governmental or regulatory body with respect to public trading in the
Common Stock.
6.2 Conditions to Obligations of the Company. The Company's
obligation to sell and issue the Debentures and the Warrants at the Closing is
subject to the fulfillment to the satisfaction of the Company on or prior to the
Closing Date of the following conditions, any of which may be waived by the
Company:
(a) The representations and warranties made by the
Investors in Section 5 hereof, other than the representations and warranties
contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the "Investment
Representations"), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date. The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date. The Investors
shall have performed in all material respects all obligations and conditions
herein required to be performed or observed by them on or prior to the Closing
Date.
(b) The Investors shall have executed and delivered
the Registration Rights Agreement.
(c) The Investors shall have delivered the Purchase
Price to the Company.
6.3 Termination of Obligations to Effect Closing; Effects.
(a) The obligations of the Company, on the one hand,
and the Investors, on the other hand, to effect the Closing shall terminate as
follows:
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(i) Upon the mutual written consent of the Company
and the Investors;
(ii) By the Company if any of the conditions set
forth in Section 6.2 shall have become incapable of fulfillment, and shall not
have been waived by the Company;
(iii) By an Investor (with respect to itself only) if
any of the conditions set forth in Section 6.1 shall have become incapable of
fulfillment, and shall not have been waived by the Investor; or
(iv) By either the Company or any Investor (with
respect to itself only) if the Closing has not occurred on or prior to [January
15, 2005];
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party's seeking to
terminate its obligation to effect the Closing.
(b) In the event of termination by the Company or any Investor
of its obligations to effect the Closing pursuant to this Section 6.3, written
notice thereof shall forthwith be given to the other Investors and the other
Investors shall have the right to terminate their obligations to effect the
Closing upon written notice to the Company and the other Investors. Nothing in
this Section 6.3 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.
7. Covenants and Agreements of the Company.
7.1 Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of providing for the exercise of the
Warrants, such number of shares of Common Stock as shall from time to time equal
the number of shares sufficient to permit the exercise of the Warrants issued
pursuant to this Agreement in accordance with their respective terms.
7.2 Reports. The Company will furnish to the Investors and/or
their assignees such information relating to the Company and its Subsidiaries as
from time to time may reasonably be requested by the Investors and/or their
assignees; provided, however, that the Company shall not disclose material
nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides
the Investors, such advisors and representatives with the opportunity to accept
or refuse to accept such material nonpublic information for review and any
Investor wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.
-18-
7.3 No Conflicting Agreements. The Company will not take any
action, enter into any agreement or make any commitment that would conflict or
interfere in any material respect with the Company's obligations to the
Investors under the Transaction Documents.
7.4 Insurance. The Company shall maintain insurance coverages
in accordance with Section 4.19.
7.5 Compliance with Laws. The Company will comply in all
material respects with all applicable laws, rules, regulations, orders and
decrees of all governmental authorities.
7.6 Listing of Underlying Shares and Related Matters. If the
Company applies to have its Common Stock or other securities traded on any other
principal stock exchange or market, it shall include in such application the
Interest Shares, the Conversion Shares and the Warrant Shares and will take such
other action as is necessary to cause such Common Stock to be so listed.
7.7 Termination of Covenants. The provisions of Sections 7.2
through 7.5 shall terminate and be of no further force and effect upon the
earlier of (i) the mutual consent of the Company and the Required Investors, and
(ii) the date on which the Company's obligations under the Registration Rights
Agreement to register or maintain the effectiveness of any registration covering
the Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate.
7.8 Removal of Legends. Upon the earlier of (i) registration
for resale pursuant to the Registration Rights Agreement and receipt by the
Company of an executed certificate of subsequent sale in substantially the form
attached hereto as Exhibit D (a "Certificate of Subsequent Sale") or (ii) Rule
144(k) becoming available the Company shall, upon an Investor's written request,
promptly cause certificates evidencing the Investor's Securities to be replaced
with certificates which do not bear such restrictive legends, and Interest
Shares subsequently issued in accordance with the terms of the Debentures,
Conversion Shares subsequently issued upon due conversion of the Debentures and
Warrant Shares subsequently issued upon due exercise of the Warrants
(collectively, the "Shares") shall not bear such restrictive legends provided
the provisions of either clause (i) or clause (ii) above, as applicable, are
satisfied with respect to such Shares. From and after the effectiveness of the
Registration Statement, the Company shall provide the transfer agent for the
Shares with irrevocable written instructions, in form and substance reasonably
satisfactory to the Investors, to register the transfer of any Shares upon
receipt of the certificate or certificates representing such Shares along with a
Certificate of Subsequent Sale relating to such Shares. When the Company is
required to cause unlegended certificates to replace previously issued legended
certificates, if unlegended certificates are not delivered to an Investor within
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five (5) Business Days of submission by that Investor of legended certificate(s)
to the Company's transfer agent together with a representation letter in
customary form, the Company shall be liable to the Investor for liquidated
damages in an amount equal to 1.5% of the aggregate purchase price of the
Securities evidenced by such certificate(s) for each thirty (30) day period (or
portion thereof) beyond such five (5) Business Day that the unlegended
certificates have not been so delivered.
8. Survival and Indemnification.
8.1 Survival. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement.
8.2 Indemnification. The Company agrees to indemnify and hold
harmless each Investor and its Affiliates and their respective directors,
officers, employees and agents from and against any and all losses, claims,
damages, liabilities and expenses (including without limitation reasonable
attorney fees and disbursements and other expenses incurred in connection with
investigating, preparing or defending any action, claim or proceeding, pending
or threatened and the costs of enforcement thereof) (collectively, "Losses") to
which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by or to be performed on
the part of the Company under the Transaction Documents, and will reimburse any
such Person for all such amounts as they are incurred by such Person.
8.3 Conduct of Indemnification Proceedings. Promptly after
receipt by any Person (the "Indemnified Person") of notice of any demand, claim
or circumstances which would or might give rise to a claim or the commencement
of any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
9. Miscellaneous.
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9.1 Successors and Assigns. This Agreement may not be assigned
by a party hereto without the prior written consent of the Company or the
Investors, as applicable; provided, however, that an Investor may assign its
rights and delegate its duties hereunder in whole or in part to an Affiliate or
to a third party acquiring some or all of its Securities in a private
transaction without the prior written consent of the Company or the other
Investors, after written notice duly given by such Investor to the Company,
provided, that no such assignment or obligation shall affect the obligations of
such Investor hereunder. The provisions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and assigns
of the parties. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
9.2 Counterparts; Faxes. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement may
also be executed via facsimile, which shall be deemed an original.
9.3 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one business day after
delivery to such carrier. All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days' advance written notice to the other party:
If to the Company:
IQ Biometrix, Inc.
00000 Xxxxx Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxx
Fax: (000) 000-0000
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With a copy to:
The Xxxxx Law Group
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
If to the Investors:
to the addresses set forth on the signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of Xxxxxxxxxx Xxxxxxx PC, not to exceed $10,000.
Such expenses shall be paid not later than the Closing. The Company shall
reimburse the Investors upon demand for all reasonable out-of-pocket expenses
incurred by the Investors, including without limitation reimbursement of fees
and disbursements of one counsel for the Investors, in connection with any
amendment, modification or waiver of this Agreement or the other Transaction
Documents. In the event that legal proceedings are commenced by any party to
this Agreement against another party to this Agreement in connection with this
Agreement or the other Transaction Documents, the party or parties which do not
prevail in such proceedings shall severally, but not jointly, pay their pro rata
share of the reasonable attorneys' fees and other reasonable out-of-pocket costs
and expenses incurred by the prevailing party in such proceedings.
9.6 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Investors. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Securities purchased under this
Agreement at the time outstanding, each future holder of all such Securities,
and the Company.
9.7 Publicity. Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day immediately following the Closing Date, the Company
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shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement. No later than the third trading day following
the Closing Date, the Company will file a Current Report on Form 8-K attaching
the press release described in the foregoing sentence as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and
notices in the manner and time required by the SEC or Nasdaq. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any Investor,
or include the name of any Investor in any filing with the SEC (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the 0000 Xxx)
or any regulatory agency or Nasdaq, without the prior written consent of such
Investor, except to the extent such disclosure is required by law or trading
market regulations, in which case the Company shall provide the Investors with
prior notice of such disclosure.
9.8 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
9.9 Entire Agreement. This Agreement, including the Exhibits
and the Disclosure Letter, and the other Transaction Documents constitute the
entire agreement among the parties hereof with respect to the subject matter
hereof and thereof and supersede all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter hereof
and thereof.
9.10 Further Assurances. The parties shall execute and deliver
all such further instruments and documents and take all such other actions as
may reasonably be required to carry out the transactions contemplated hereby and
to evidence the fulfillment of the agreements herein contained.
9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial. This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York without regard to the choice of law
principles thereof. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
9.12 Independent Nature of Investors' Obligations and Rights.
The obligations of each Investor under any Transaction Document are several and
not joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
-23-
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors 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
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor 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 Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
[signature page follows]
-24-
IN WITNESS WHEREOF, the parties have executed this Agreement
or caused their duly authorized officers to execute this Agreement as of the
date first above written.
The Company: IQ BIOMETRIX, INC.
By:_________________________________________
Name: Xxxxxxx X.X. Xxxxxxxxx
Title: Chief Executive Officer and President
-25-
The Investors: SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By:_________________________________________
Name: Xxxxxx X. Xxxxx
Title: General Partner
Aggregate Purchase Price: $800,000
Principal Amount of Debentures: $800,000
Number of Warrants: 200,000
000 X. 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
with a copy to:
Xxxxxxxxxx Xxxxxxx PC
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx, Esq.
Telephone: 000.000.0000
Facsimile: 973.597.2400
SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.
By:_________________________________________
Name: Xxxxxx X. Xxxxx
Title: General Partner
Aggregate Purchase Price: $170,000
Principal Amount of Debentures: $170,000
Number of Warrants: 42,500
Address for Notice:
000 X. 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
-26-
with a copy to:
Xxxxxxxxxx Xxxxxxx PC
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx, Esq.
Telephone: 000.000.0000
Facsimile: 973.597.2400
SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.
By:_________________________________________
Name: Xxxxxx X. Xxxxx
Title: General Partner
Aggregate Purchase Price: $1,030,000
Principal Amount of Debentures: $1,030,000
Number of Warrants: 257,500
Address for Notice:
000 X. 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
with a copy to:
Xxxxxxxxxx Xxxxxxx PC
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx, Esq.
Telephone: 000.000.0000
Facsimile: 973.597.2400
-27-
ENABLE GROWTH PARTNERS
By:_________________________________________
Name:
Title:
Aggregate Purchase Price: $500,000
Principal Amount of Debentures: $500,000
Number of Warrants: 125,000
Address for Notice:
____________________________________________
Name: Xxxxxx Xxxx
Aggregate Purchase Price: $100,000
Principal Amount of Debentures: $100,000
Number of Warrants: 25,000
Address for Notice:
MEADOWBROOK OPPORTUNITY FUND
By:_________________________________________
Name:
Title:
Aggregate Purchase Price: $250,000
Principal Amount of Debentures: $250,000
Number of Warrants: 62,500
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Address for Notice:
NITE CAPITAL
By:_________________________________________
Name:
Title:
Aggregate Purchase Price: $100,000
Principal Amount of Debentures: $100,000
Number of Warrants: 25,000
Address for Notice:
SHOTTENFELD GROUP, LLC
By:_________________________________________
Name:
Title:
Aggregate Purchase Price: $200,000
Principal Amount of Debentures: $200,000
Number of Warrants: 50,000
Address for Notice:
BRIARWOOD INVESTMENTS
By:_________________________________________
Name:
Title:
Aggregate Purchase Price: $75,000
Principal Amount of Debentures: $75,000
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Number of Warrants: 18,750
Address for Notice:
___________________________________________
Name: W. Xxxxxx Xxxxx
Aggregate Purchase Price: $50,000
Principal Amount of Debentures: $50,000
Number of Warrants: 12,500
Address for Notice:
FORTE CAPITAL PARTNERS
By:_________________________________________
Name:
Title:
Aggregate Purchase Price: $25,000
Principal Amount of Debentures: $25,000
Number of Warrants: 6,250
Address for Notice:
-30-
