EXHIBIT 10.1
Execution Form
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
September 30, 2005 among Diomed Holdings, Inc., a Delaware corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser").
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.
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
In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the following meanings:
"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.
"Certificate of Designations" means the Certificate of Designations
for the Preferred Stock, substantially in the form of Exhibit A.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Issue Amount and (ii) the Company's obligations to deliver the
Securities have been satisfied or waived.
"Closing Price" 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 closing bid price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then
listed or quoted on a Trading Market and if prices for the Common Stock
are then quoted on the OTC Bulletin Board, the closing bid 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 the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers and reasonably acceptable to the
Company.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.001 per share, and any securities into which such common stock shall
hereinafter have been reclassified into.
"Company Counsel" means McGuireWoods LLP, with offices at 1345
Avenue of the Xxxxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000.
"DB&R" shall have the meaning set forth in Section 5.18.
"Disclosure Schedules" shall have the meaning ascribed to such term
in Section 3.1 hereof.
"Distributions" shall have the meaning ascribed to such term in the
Certificate of Designations.
"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.
"8-K Filing" shall have the meaning set forth in Section 4.8.
"Evaluation Date" shall have the meaning set forth in Section
3.1(t).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Price" shall mean Two Dollars Fifty Cents ($2.50) per
share of Common Stock when Exchanged for Preferred Stock under the Share
Exchange Agreement (subject to adjustment as provided thereunder).
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"Exempt Issuance" means the issuance of (a) shares of Common Stock
or options to employees, officers, directors or consultants of the Company
pursuant to any stock or option plan duly adopted by the stockholders of
the Company in any amount or outside of any such plan in an amount not to
exceed 100,000 shares of Common Stock (or the equivalent thereof) in any
fiscal year of the Company, (b) securities issued by the Company upon the
exercise of or conversion of any securities issued hereunder or as
contemplated by this Agreement, convertible securities, options or
warrants 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 and (c) securities
issued pursuant to acquisitions or strategic transactions, provided any
such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in
addition to the investment of funds, 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.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h) hereof.
"Hazardous Substances" shall have the meaning set forth in Section
3.1(ii).
"Inspectors" shall have the meaning set forth in Section 4.26.
"Intellectual Property Rights" shall have the meaning set forth in
Section 3.1(o).
"Issue Amount" means, as to each Purchaser, the aggregate amount to
be paid for Preferred Stock purchased hereunder as specified below such
Purchaser's name on the signature page of this Agreement and next to the
heading "Issue Amount," in United States Dollars and in immediately
available funds.
"Issue Price" means $2.50 per share of Preferred Stock.
"Key Employee" shall have the meaning set forth in Section 3.1(k).
"Knowledge" (including any derivation thereof) means, (i) with
respect to an individual, that (A) such individual is actually aware of a
particular fact or other matter and (B) a prudent Person could be expected
to discover or otherwise become aware of a particular fact or other matter
in the course of conducting a reasonably comprehensive investigation
concerning the existence of such fact or other matter, and (ii) with
respect to a Person other than an individual, that any individual who is
serving, or who at any relevant time pertaining to a particular fact or
other matter served, as a director or officer of such Person has, or at
such relevant time had, Knowledge of a particular fact or other matter.
"Legend Removal Date" shall have the meaning set forth in Section
4.1(c).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction of any kind or
nature.
"Limitation(s) on Ownership" shall have the meaning set forth in
Section 4.17.
"Liquidating Event" shall have the meaning assigned to such term in
the Certificate of Designations.
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"Material Adverse Change" shall mean any of the matters set forth in
clauses (i) through (xi) of Section 3.1(i) hereof.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b) hereof.
"Material Contract" shall have the meaning set forth in Section
3.1(h).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"MFN Option" shall have the meaning set forth in Section 4.16.
"MFN Securities" shall have the meaning set forth in Section 4.16.
"Observer" shall have the meaning set forth in Section 4.7.
"Participation Maximum" shall have the meaning set forth in Section
4.15.
"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 set forth in Section 4.15.
"Preferred Stock" means the Preferred Stock of the Company, par
value $0.001 per share, to be purchased and sold pursuant to this
Agreement, and any securities into which such preferred stock shall
hereinafter have been reclassified into, which preferred stock shall have
those rights and preferences as are set forth in the Certificate of
Designations.
"Preferred Stock Floor Price" shall have the meaning ascribed to
such term in the Exchange Agreement.
"Press Release" shall have the meaning set forth in Section 4.8.
"Pro Rata Portion" shall have the meaning set forth in Section 4.15.
"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.
"Proceeds" shall have the meaning ascribed to such term in the
Certificate of Designations.
"Purchaser Party" shall have the meaning set forth in Section 4.13.
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"Qualified Equity Financing" means any transaction undertaken by the
Company to raise funds for general working capital purposes in exchange
for the sale of its equity securities or any other securities that may be
converted into or exchanged for its equity securities or on the exercise
of which its equity securities may be purchased, with or without
additional consideration. For the avoidance of doubt, a Qualified Equity
Financing shall not include any issuance of shares by the Company where
such issuance either (i) constitutes an Exempt Issuance, (ii) is made upon
the exercise of warrants outstanding on the date hereof, (iii) is made in
exchange for services provided to the Company or its Subsidiaries, so long
as the value of the shares issued do not exceed $500,000 for any one
service provider or $2,000,000 in the aggregate, (iv) to any underwriter
or financial advisor to the Company or its Subsidiaries or (v) in any
transaction the purpose of which shall be for the Company or any
Subsidiary to acquire the business of another entity.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of even date herewith, by and 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 Warrant Shares and 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 Warrant
Shares or Underlying Shares issuable upon exercise of all Warrants or the
exchange of all Preferred Stock, ignoring any exchange, conversion or
exercise limits set forth therein, determined on the basis of the exercise
price of the Warrants and the Exchange Rate (as defined in the Share
Exchange Agreement), in each case as in effect on the Trading Day
immediately prior to the date of determination and without giving effect
to the issuance of any shares of Common Stock that may be issuable as
dividends on the Preferred Stock.
"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) hereof.
"Securities" means the Preferred Stock, the Warrants, the Warrant
Shares and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
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"Select SEC Reports" shall have the meaning set forth in Section
3.1(h).
"Share Exchange Agreement" means that certain Share Exchange
Agreement, dated as of even date herewith, by and among the Company and
the Purchasers, in the form of Exhibit C attached hereto, pursuant to
which the Purchasers have been granted certain rights, including the right
to exchange their shares of Preferred Stock for shares of Common Stock.
"Stockholder Approval" means such approval as may be required by the
applicable rules and regulations of the Trading Market (or any successor
entity) from the stockholders of the Company with respect to the
transactions contemplated by the Transaction Documents, including the
issuance of all of the Underlying Shares and shares of Common Stock
issuable upon exercise of the Warrants in excess of 19.9% of the Company's
issued and outstanding Common Stock on the Closing Date for less than the
greater of book or market value of the Common Stock, such that the
Preferred Stock Floor Price and the Warrant Floor Price are permitted by
the Trading Market to be rendered inapplicable or eliminated.
"Subsequent Financing" shall have the meaning ascribed to such term
in Section 4.15.
"Subsequent Financing Notice" shall have the meaning set forth in
Section 4.15.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"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 SmallCap Market, the American Stock Exchange, the New York
Stock Exchange or the Nasdaq National Market.
"Transaction Documents" means this Agreement, the Certificate of
Designations, the Warrants, the Registration Rights Agreement, Share
Exchange Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"2004 Annual Report" shall have the meaning set forth in Section
3.1(h).
"Underlying Shares" means the shares of Common Stock issuable upon
exchange of the Preferred Stock pursuant to Share Exchange Agreement.
"Warrant Floor Price" shall have the meaning ascribed to such term
in the Warrants.
"Warrants" means collectively the Common Stock purchase warrants, in
the form of Exhibit D delivered to the Purchasers at the Closing in
accordance with Section 2.1 hereof.
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"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the conditions
set forth herein, concurrent with the execution and delivery of this Agreement
by the parties hereto, the Company agrees to sell, and each Purchaser agrees to
purchase in the aggregate, severally and not jointly, its respective Issue
Amount of Preferred Stock, at the purchase price of Two Dollars Fifty Cents
($2.50) per share, and Warrants to purchase up to that number of shares of
Common Stock as is equal to forty percent (40%) of such Purchaser's Issue
Amount, divided by the Exchange Price, each at an exchange rate of Two Dollars
Fifty Cents ($2.50) per share, subject to adjustment as set forth therein.
Preferred Stock shall be purchased and sold hereunder in whole number blocks,
consisting of Four Thousand (4,000) shares of Preferred Stock per block, at an
aggregate purchase price of $10,000 per block of shares. Each Purchaser shall
deliver to the Company via wire transfer or a certified check immediately
available funds equal to their Issue Amount and the Company shall deliver to
each Purchaser their respective shares of Preferred Stock and Warrants as are
issuable at the Closing. There shall be a single Closing at which all purchases
and sales of shares hereunder shall be made concurrently on the same Trading
Date. Upon satisfaction of the conditions set forth in Section 2.2, the Closing
shall occur at such location as the parties shall mutually agree.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) certificates evidencing the shares of Preferred Stock
purchased by each Purchaser;
(iii) a Warrant registered in the name of such Purchaser to purchase
up to a number of shares of Common Stock equal to forty
percent (40%) of such Purchaser's Issue Amount divided by the
Exchange Price, subject to adjustment therein;
(iv) the Registration Rights Agreement duly executed by the
Company;
(v) the Share Exchange Agreement duly executed by the Company;
(vi) a legal opinion of Company Counsel, substantially in the form
of Exhibit E attached hereto; and
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(vii) a copy of resolutions, duly adopted by the Board of Directors
of the Company, which shall be in full force and effect at the
time of the Closing, authorizing the execution, delivery and
performance by the Company of this Agreement and the other
Transaction Documents and the consummation by the Company of
the transactions contemplated hereby and thereby, certified as
such by the Secretary or Assistant Secretary of the Company,
and such other documents they reasonably request in connection
with the Closing.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Issue Amount by wire transfer to the account
as specified in writing by the Company;
(iii) the Registration Rights Agreement duly executed by such
Purchaser; and
(iv) the Share Exchange Agreement duly executed by such Purchaser.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the representations and warranties of the Purchasers contained
herein shall be true and correct;
(ii) all obligations, covenants and agreements of the Purchasers
required to be performed, satisfied or complied with at or
prior to the Closing Date shall have been performed, satisfied
or complied with; 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 representations and warranties of the Company contained
herein shall be true and correct;
(ii) all obligations, covenants and agreements of the Company
required to be performed, satisfied or complied with at or
prior to the Closing Date shall have been performed, satisfied
or complied with;
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(iii) the Company shall have duly adopted the Certificate of
Designations and filed the Certificate of Designations with
the Secretary of State of the State of Delaware, and a copy
thereof certified by the Secretary of State of the State of
Delaware shall have been delivered to each Purchaser;
(iv) the delivery by the Company of the items set forth in Section
2.2(a) of this Agreement;
(v) there shall have been no Material Adverse Change with respect
to the Company since the date hereof; and
(vi) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated
prior to the Closing), and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading
Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth under the
corresponding section of the disclosure schedules delivered to the Purchasers
concurrently herewith (the "Disclosure Schedules"), which Disclosure Schedules
shall be deemed a part hereof, the Company hereby makes the representations and
warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect Subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities. If the Company has no Subsidiaries, then references in
the Transaction Documents to the Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company and 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 a Material Adverse Effect. For purposes of this Agreement, "Material Adverse
Effect" means any effect which, individually or in the aggregate with all other
effects reasonably would be expected to be materially adverse to (i) the
legality, validity or enforceability of any Transaction Document, (ii) the
results of operations, assets, business, prospects or financial condition of the
Company and the Subsidiaries, taken as a whole, or (iii) the Company's ability
to perform on a timely basis its obligations under any Transaction Document. To
the Company's Knowledge, 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.
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(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 to issue and sell the
Preferred Stock in accordance with the terms hereof, to issue the Underlying
Shares upon exchange of the Preferred Stock in accordance with the terms thereof
and to issue the Warrant Shares upon exercise of the Warrants in accordance with
the terms thereof; and otherwise to carry out its obligations thereunder. The
execution, delivery and performance of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby
(including, without limitation, the issuance of the Preferred Stock and the
issuance and reservation for issuance of the Underlying Shares and Warrant
Shares) 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 any committee of the board of directors, 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, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms. Neither the execution, delivery or performance by the Company of
its obligations under the Transaction Documents, nor the consummation by it of
the transactions contemplated thereby (including, without limitation, the
issuance of the Preferred Stock or the issuance or reservation for issuance of
the Underlying Shares or Warrant Shares) requires any consent or authorization
of the Company's stockholders.
(d) No Conflicts. Except as described in Schedule 3.1(d), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the other transactions contemplated thereby
(including, without limitation, the issuance of the Preferred Stock and the
issuance and reservation for issuance of the Underlying Shares and Warrant
Shares) 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 (including, without limitation, the triggering
of any anti-dilution provisions), 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) 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, rules and regulations and rules
and regulations of any self-regulatory organizations to which either the Company
or its securities are subject), or by which any property or asset of the Company
or a Subsidiary is bound or affected, or (iv) conflict with or violate the terms
of any agreement by which the Company or any Subsidiary is bound or to which any
property or asset of the Company or any Subsidiary is bound or affected; except
in the case of each of clauses (ii) through (iv), 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) the filing of the Certificate of Designations, (ii) filings required
pursuant to Section 4.8, (iii) the filing with the Commission of the
Registration Statement, (iv) the notice and/or application(s) to each applicable
Trading Market for the issuance and sale of the Preferred Stock and Warrants and
the listing of the Warrant Shares and the Underlying Shares and (v) the filing
of Form D with the Commission and such filings as are required to be made under
applicable state securities or "blue sky" 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, (i) will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens other than restrictions on transfer provided for in
the Transaction Documents, (ii) except as described on Schedule 3.1(f), will not
be subject to preemptive rights, rights of first refusal or other similar rights
of stockholders of the Company or any other person and (iii) will not impose
personal liability on the holder thereof. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of the
Warrant Shares and the Underlying Shares at least equal to 125% of the Required
Minimum on the date hereof. The Company has not, and to the Knowledge of the
Company, no Affiliate of the Company has sold, offered for sale or solicited
offers to buy or otherwise negotiated in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
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(g) Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Stock and the
Warrants) exercisable or exchangeable for, or convertible into, any shares of
capital stock and the number of shares to be reserved for issuance upon exchange
of the Preferred Stock and exercise of the Warrants is set forth in Schedule
3.1(g). Except as described in Schedule 3.1(g), no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as described in Schedule 3.1(g), and 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 capital stock of the Company or any Subsidiary, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of capital
stock of the Company or any Subsidiary, or securities or rights convertible or
exchangeable into shares of capital stock of the Company or any Subsidiary nor
are any such issuances, contracts, commitments, understandings or arrangements
contemplated. Except for the Securities and as set forth in Schedule 3.1(g), (i)
there are no contracts, commitments, understandings or arrangements under which
the Company or any of its Subsidiaries is obligated to register the sale of any
of its or their securities under the Securities Act (except the Registration
Rights Agreement); and (ii) there are no outstanding securities or instruments
of the Company or any of its Subsidiaries which contain any redemption or
similar provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem or otherwise acquire any security of the Company or any of its
Subsidiaries. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities, and all such securities or instruments are set forth on
Schedule 3.1(g). 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. Except as contemplated by the Transaction Documents
with respect to the applicable rules and regulations of the American Stock
Exchange (or any successor entity), 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. Except as disclosed in the SEC Reports,
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, since February 14, 2002 (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the
"SEC Reports") on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. The SEC Reports, after giving effect to all amendments filed thereon,
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Report is, or has been, required to be amended
or updated under applicable law (except for such statements as have been amended
or updated in subsequent filings made prior to the date hereof). 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 consolidated financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the consolidated
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.
To the extent required by the rules and regulations of the Commission applicable
thereto, the Select SEC Reports contain a complete and accurate list of all
material undischarged written or oral contracts, agreements, leases or other
instruments to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary is bound or to which any of the properties or assets
of the Company or any Subsidiary is subject (each, a "Material Contract").
Except as set forth in the Select SEC Reports, none of the Company, its
Subsidiaries or, to the best Knowledge of the Company, any of the other parties
thereto is in breach or violation of any Material Contract, which breach or
violation would have a Material Adverse Effect. For purposes of this Agreement,
"Select SEC Reports" means the Company's (A) Proxy Statement for its 2005 Annual
Meeting, (B) Annual Report on Form 10-KSB for the fiscal year ended December 31,
2004 (the "2004 Annual Report"), (C) Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, 2005, and June 30, 2005, and (D) Current Reports
on Form 8-K filed since June 30, 2005.
13
(i) Material Changes. Except as described in the SEC Reports or
Schedule 3.1(i), since the date of the latest audited
financial statements included within the SEC Reports, except
as specifically disclosed in the SEC Reports:
(i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a
Material Adverse Effect;
(ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected
in the Company's financial statements pursuant to GAAP or
required to be disclosed in filings made with the Commission;
(iii) the Company has not altered its method of accounting;
(iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock;
(v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing
Company stock option plans;
(vi) there has been no material damage, destruction or loss,
whether or not covered by insurance to any assets or
properties of the Company or its Subsidiaries;
(vii) there has been no waiver by the Company or any Subsidiary of a
material right or of a material debt owed to it;
(viii) there has been no 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 to or to which any of their respective
assets or properties is subject;
(ix) there has been no loss of services of any key employee, or
material change in the composition or duties of the senior
management of the Company or any Subsidiary;
(x) there has been no loss or threatened loss of any customer
which has had or could reasonably be expected to have a
Material Adverse Effect; and
(xi) there has been no material transaction entered into by the
Company or a Subsidiary other than in the ordinary course of
business.
The Company has not taken any steps, and does not currently expect to take
any steps, to seek protection pursuant to any bankruptcy or receivership law,
nor does the Company or any of its Subsidiaries have any Knowledge or reason to
believe that its creditors intend to initiate involuntary bankruptcy proceedings
with respect to the Company or any or its Subsidiaries.
14
(j) Litigation. Except as described in the SEC Reports or Schedule 3.1(j),
there is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the Knowledge of the Company, threatened against or
affecting the Company, any Subsidiary or any of their respective properties, or
any of their respective directors or officers in the capacity as such before or
by any court, public board, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an "Action"). Except as described in Schedule 3.1(j), 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. Except as
described in Schedule 3.1(j), 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. Except as described in Schedule 3.1(j), 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. Except with respect to Intellectual Property Rights
of the Company, the Company's representations and warranties as to which are set
forth exclusively in Section 3.1(o), to the Company's Knowledge, there are no
facts which, if known by a potential claimant or governmental authority, could
give rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its Subsidiaries, could reasonably be
expected to have a Material Adverse Effect.
(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.
Each of the Company's directors and officers and any Key Employee (as
defined below) is currently serving the Company in the capacity disclosed in the
Select SEC Documents or Schedule 3.1(k). No Key Employee is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement with the Company
or any of its Subsidiaries or any restrictive covenant, and the continued
employment of each Key Employee does not subject the Company or any of its
Subsidiaries to any material liability with respect to any of the foregoing
matters. No Key Employee has, to the Knowledge of the Company and its
Subsidiaries, any intention to terminate or limit his employment with, or
services to, the Company or any of its Subsidiaries, nor is any such Key
Employee subject to any constraints which would cause such employee to be unable
to devote his full time and attention to such employment or services. For
purposes of this Agreement, "Key Employee" means the persons listed in Schedule
3.1(k).
15
(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 except in each case as could not have a Material
Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits 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. Except as described in Schedule 3.1(n), the Company
and the Subsidiaries have good and marketable title in fee simple to all real
property owned by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases of which the Company
and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries own, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses, permits,
inventions, discoveries, processes, scientific, technical, engineering and
marketing data, object and source codes, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and proprietary knowledge
necessary or material for use in connection with their respective businesses as
described in the SEC Reports (collectively, the "Intellectual Property Rights").
Except as described in Schedule 3.1(o), neither the Company nor any Subsidiary
has received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
To the Knowledge of the Company, except as described in Schedule 3.1(o), there
is no existing infringement by another Person of any of the Company's
Intellectual Property Rights. Neither the Company nor any of its Subsidiaries
has entered into any consent agreement, indemnification agreement, forbearance
to xxx or settlement agreement with respect to the validity of the Company's or
its Subsidiaries' ownership of or right to use its Intellectual Property Rights
and there is no reasonable basis for any such claim to be successful. Except as
described on Schedule 3.1(o), to the Knowledge of the Company, the Intellectual
Property Rights are valid and enforceable and no registration relating thereto
has lapsed, expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications therefor are
pending and in good standing, the failure of which could have or reasonably be
expected to result in a Material Adverse Effect. The Company and its
Subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Intellectual Property
Rights used pursuant to licenses.
16
(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. No default or event has occurred that could give
rise to a default under any of its insurance policies. To the best of Company's
Knowledge, such insurance contracts and policies are accurate and complete.
Neither the Company nor any Subsidiary has any reason to believe 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, directors or 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 employee
has a substantial interest or is an officer, director, trustee or partner, other
than (i) for reimbursement for expenses incurred on behalf of the Company and
(ii) 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 the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the "Evaluation Date"). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company's Knowledge,
in other factors that could significantly affect the Company's internal
controls.
17
(s) Certain Fees. Except as described in Schedule 3.1(s), 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
this Agreement. Except as described in Schedule 3.1(s), 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 this
Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act or any state securities laws 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 or any state securities laws.
(u) Investment Company. The Company is not, and is not 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. Except as described in Schedule 3.1(v), no Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock is
registered pursuant to Section 12(b) 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's Common Stock is
currently listed for trading on the American Stock Exchange. The Company is not
in violation of the listing requirements of the American Stock Exchange. 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 continue to be, in compliance with all such
listing and maintenance requirements.
18
(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 any Purchaser 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 any and all Purchasers' ownership of
the Securities.
(y) Disclosure. The Company confirms that neither it nor, to its
Knowledge, any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that constitutes or
might constitute material, nonpublic information, other than with respect to the
specific terms of the transactions contemplated hereby. The Company understands
and confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All
disclosures provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company are true and correct 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. No event or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, properties, prospects, operations
or financial conditions, which has not been publicly disclosed but, under
applicable law, rule or regulation, would be required to be disclosed by the
Company in a registration statement filed on the date hereof by the Company
under the Securities Act with respect to a primary issuance of the Company's
securities.
(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 require
registration of the Securities or 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 stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system 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 the
Closing Date after giving effect to the receipt by the Company of the proceeds
from the sale of the Securities hereunder, (i) the Company's fair saleable value
of its assets exceeds the amount that will be required to be paid on or in
respect of the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).
19
(bb) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect, the
Company and each of its Subsidiaries has made or filed all foreign, U.S.
federal, state, provincial and local income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the assessment or
collection of any foreign, federal, state, provincial or local tax. None of the
Company's income tax returns and, except to the extent described on Schedule
3.1(bb), to the Company's Knowledge, none of the Company's other tax returns is
presently being audited by any taxing authority.
(cc) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company (including any distributor participating on the Company's
behalf in the transactions contemplated hereby (if any)) has offered or sold any
of the Securities by any form of "general solicitation" (as such term is defined
in Regulation D) 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 any of the
Subsidiaries, nor any director, officer, agent, employee or to the Knowledge of
the Company, other Person acting on behalf of the Company or any Subsidiary has
(i) directly or indirectly, used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) directly or indirectly 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, (iv) made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee, or
(v) violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended, where such violations would, individually or in the aggregate, have or
reasonably be expected to have a Material Adverse Effect.
20
(ee) Accountants. The Company's accountants are set forth on Schedule
3.1(ee) of the Disclosure Schedule. 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 ended
December 31, 2005, are independent accountants as required by the Securities
Act.
(ff) 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 accountants and lawyers formerly or presently
employed by the Company which individually or in the aggregate could reasonably
be expected to result in a Material Adverse Effect and the Company is current
with respect to any fees owed to its accountants and lawyers.
(gg) Environmental Matters. There is no environmental litigation or other
environmental proceeding pending or, to the Knowledge of the Company or any of
its Subsidiaries, threatened by any governmental regulatory authority or others
with respect to the current or any former business of the Company or any of its
Subsidiaries or any partnership or joint venture currently or at any time
affiliated with the Company or any of its Subsidiaries. No state of facts exists
as to environmental matters or Hazardous Substances (as defined below) that
involves the reasonable likelihood of a material capital expenditure by the
Company or any of its Subsidiaries that may otherwise have a Material Adverse
Effect. The Company has not, and to the Company's Knowledge no prior Person has
treated, stored or disposed of, or otherwise deposited any Hazardous Substances
in or on the properties owned or leased by the Company or any of its
Subsidiaries or by any partnership or joint venture currently or at any time
affiliated with the Company or any of its Subsidiaries in violation of any
applicable environmental laws. The environmental compliance programs of the
Company and each of its Subsidiaries comply in all material respects with all
applicable environmental laws, whether foreign, federal, state, provincial or
local, currently in effect. For purposes of this Agreement, "Hazardous
Substances" means any substance, waste, contaminant, pollutant or material that
has been determined by any governmental authority to be capable of posing a risk
of injury to health, safety, property or the environment.
(hh) Form SB-2 Eligibility. The Company is eligible to register the resale
of its Common Stock on a registration statement on Form SB-2 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form SB-2 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement). The Company has no basis to believe that its past or present
independent public auditors will withhold their consent to the inclusion, or
incorporation by reference, of their audit opinion concerning the Company's
financial statements which are included in the Registration Statement required
to be filed pursuant to the Registration Rights Agreement.
21
(ii) Acknowledgment Regarding Each Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that, except for those Purchasers specified
in Schedule 3.1(ii), each Purchaser is acting solely in the capacity of arm's
length purchaser with respect to this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby, and that no
Purchaser is (i) an officer or director of the Company, (ii) an "affiliate" of
the Company (as defined in Rule 144) or (iii) a "beneficial owner" of more than
5% of the Common Stock (as defined for purposes of Rule 13d-3 of the Exchange
Act). The Company further acknowledges that, except for those Purchasers
specified in Schedule 3.1(ii), no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement or the other Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Purchaser or any of its
representatives or agents in connection with this Agreement or the other
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Purchaser's 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 by the Company and its representatives (including its
financial advisors engaged in connection with the transactions contemplated
hereby).
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 the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by such Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. Each Transaction Document to which it is a
party has been duly executed by 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) Purchaser Representations. 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, reselling or offering such Securities or any part thereof, has no
present intention of distributing or offering any of such Securities and has no
arrangement or understanding with any other persons regarding the distribution
of such Securities (this representation and warranty not limiting such
Purchaser's right to sell the Securities pursuant to the Registration Statement
or otherwise in compliance with applicable federal and state securities laws).
Such Purchaser is acquiring the Securities hereunder in the ordinary course of
its business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute or sell any of the
Securities. Each Purchaser further represents and warrants that in making its
decision to enter into this Agreement and to purchase Securities hereunder, such
Purchaser did not rely on the presentation made by Xxxxx X. Xxxxx at the Xxxx
Capital Partners Investor Conference held in September 2005 or any webcast or
other reproduction of said presentation. Each Purchaser further represents and
warrants that such Purchaser had a business relationship with Xxxx Capital
Partners LLC or Musket Research Associates, Inc. prior to its being solicited to
purchase Securities hereunder.
22
Notwithstanding anything in this Section 3.2(b) to the contrary, by making
the representations herein, such Purchaser does not agree to hold the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from the registration requirements under the
Securities Act.
(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 exchanges any Preferred Stock 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) Short Sales. Each Purchaser represents that during the 30 days prior
to the execution of this Agreement, neither it nor any of its Affiliates has
made any short sales of, or granted any option for the purchase of or entered
into any hedging or similar transaction with the same economic effect as a short
sale, in the Common Stock.
(f) No 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.
23
(g) Limit to Representations and Warranties of Purchaser. The Company
acknowledges and agrees that each Purchaser does not make or has not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
(h) Certain Laws. To the Knowledge of such Purchaser, neither the
Purchaser nor (if the Purchaser is an individual) any Person who is a member of
the Purchaser's household or immediate family, nor any Person who otherwise may
have an indirect interest in securities or other property owned by the Purchaser
has been designated as, and that neither you or any of the foregoing is under
the control of, a "suspected terrorist" as defined in Executive Order 13224. The
Purchaser acknowledges that the Company seeks to comply with all applicable laws
covering money laundering and related activities. In furtherance of those
efforts, the Purchaser hereby represents, warrants and agrees that: to the
Knowledge of such Purchaser (i) none of the cash or property that Purchaser will
pay or will contribute to the Company has been or shall be derived from, or
related to, any activity that is deemed criminal under United States law; and
(ii) no contribution or payment by the Purchaser to the Company, to the extent
that they are within Purchaser's control, shall cause the Company to be in
violation of the Untied States Bank Secrecy Act, the United States Money
Laundering Control Act of 1986 or the Untied States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001.
Each Purchaser's representations and warranties made in Sections 3.2(b),
(c), (d) and (f) are made solely for the purpose of permitting the Company to
make a determination that the offer and sale of the Securities pursuant to this
Agreement comply with applicable U.S. federal and state securities laws and not
for any other purpose. Accordingly, the Company may not rely on such
representations and warranties for any other purpose. No Purchaser has made or
hereby makes any other representations or warranties, express or implied, to the
Company in connection with the transactions contemplated hereby.
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 which opinion shall
be in form, substance and scope customary for opinions of counsel in comparable
transactions, 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.
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(b) The Purchasers agree to the imprinting, so long as is required by this
Section 4.1(b), of a legend on the Preferred Stock, the Underlying Shares and
the Warrant Shares in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR WITH 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
IF SO REQUIRED BY THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
The Company shall, contemporaneously with a registration statement
covering the Securities (including, without limitation, the Registration
Statement contemplated by the Registration Rights Agreement) being declared
effective, deliver to its transfer agent an opinion letter of counsel, opining
that at any time such registration statement is effective, the transfer agent
shall issue, in connection with the issuance of the Underlying Shares and
Warrant Shares, certificates representing such Underlying Shares and Warrant
Shares without the restrictive legend above, provided such Underlying Shares and
Warrant Shares are to be sold pursuant to the prospectus contained in such
registration statement. Upon receipt of such opinion, the Company shall use
commercially reasonable efforts to cause the transfer agent to confirm, for the
benefit of the holders, that no further opinion of counsel is required at the
time of transfer in order to issue such shares without such restrictive legend
and, if such transfer agent requires a further opinion, the Company shall
provide an opinion of its counsel to that effect, in connection with which each
Purchaser hereby agrees that should the registration statement, the basis for
which such non-legended reissuances were reissued, no longer be effective, such
Purchaser will promptly upon the Company's written request return its shares for
re-legending and reissuance.
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 Common Stock
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
the Transaction Documents and, if required under the terms of such arrangement,
such Purchaser may transfer pledged or secured Securities to the pledgees or
secured parties. Such a pledge or transfer would not be subject to approval of
the Company and no legal opinion of legal counsel of the pledgee, secured party
or pledgor shall be required in connection therewith. Further, no notice shall
be required of such pledge. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including, 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.
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(c) Certificates evidencing the Warrant Shares and 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 Warrant Shares and Underlying
Shares pursuant to Rule 144, or (iii) if such Warrant Shares and Underlying
Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission);
provided, however, in connection with the issuance of the Underlying Shares and
the Warrant Shares, each Purchaser, severally and not jointly with the other
Purchasers, hereby agrees to adhere to and abide by all prospectus delivery
requirements under the Securities Act and rules and regulations of the
Commission. The Company shall cause its counsel to issue 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 the Preferred Stock or Warrant is exchanged or exercised (as
applicable) at a time when there is an effective registration statement to cover
the resale of the Underlying Shares or the Warrant Shares, or if such Underlying
Shares or the Warrant Shares may be sold under Rule 144(k) or if such legend is
not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations thereof) then such Underlying Shares and
Warrant Shares shall be issued free of all legends. The Company agrees that at
such time as such legend is no longer required under this Section 4.1(c), it
will, no later than three Trading Days following the delivery by a Purchaser to
the Company or the Company's transfer agent of a certificate representing
Underlying Shares or the Warrant 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.
Notwithstanding the foregoing, the Purchasers agree that if at any time after
the Legend Removal Date a legend would be legally required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) to be placed upon the
certificates evidencing the Warrant Shares and the Underlying Shares, then upon
reasonable advance written notice to such Purchaser the Company may require that
the above legend be placed on any such Security that cannot then be sold
pursuant to an effective registration statement or under Rule 144 and such
Purchaser shall cooperate in the replacement of such legend. Such legend shall
thereafter be removed when such Security may again be sold pursuant to an
effective registration statement or under Rule 144.
26
(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 or the Warrant Shares (based on
the Closing Price of the Common Stock on the date such Securities are submitted
to the Company's transfer agent) delivered for removal of the restrictive
legend, $5 per Trading Day (increasing to $10 per Trading Day 10 Trading Days
after such damages have begun to accrue) for each Trading Day after the Legend
Removal Date until it has sent its transfer agent instructions to issue such
certificate without a legend. Nothing herein shall limit such Purchaser's right
to pursue actual damages for the Company's failure to deliver certificates
representing any Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief.
(e) Each Purchaser, severally and not jointly with the other Purchasers,
agrees that 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.
4.2 Acknowledgment of Dilution. The number of Underlying Shares issuable
upon exchange of the Preferred Stock and the number of Warrant Shares issuable
upon exercise of the Warrants may increase in certain circumstances. The
Company's directors and executive officers have studied and fully understand the
nature of the Securities being sold hereunder. 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 if the Company undertakes
another financing which triggers the anti-dilution protections of the Preferred
Stock and the Warrants. The Company further acknowledges that its obligations
under the Transaction Documents, including without limitation its obligation to
issue the Underlying Shares and the Warrant Shares pursuant to the Transaction
Documents, are unconditional and absolute and not subject to any right of set
off, counterclaim, delay or reduction, regardless of the effect of any such
dilution or any claim the Company may have against any Purchaser and regardless
of the dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company. Taking the foregoing into account, the Company's
Board of Directors has determined in its good faith business judgment that the
issuance of the Preferred Stock hereunder and the consummation of the other
transactions contemplated hereby are in the best interests of the Company and
its stockholders.
4.3 Furnishing of Rule 144 Information. As long as any Purchaser (or any
Purchaser's Affiliates) beneficially 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, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.
27
4.4 Financial Information. So long as any Purchasers (or any of their
respective Affiliates) beneficially own any of the Securities, the Company shall
send (via electronic transmission or otherwise) the following reports to each
such Purchaser: (i) within ten days after the filing with the Commission, a copy
of Current Reports on Form 8-K; and (ii) within one day after release, copies of
all press releases issued by the Company or any of its Subsidiaries.
4.5 Information. So long as any Purchasers (or any of their respective
Affiliates) beneficially own any of the Securities, the Company shall furnish to
each such Purchaser the information the Company must deliver to any holder or to
any prospective transferee of Securities in order to permit the sale or other
transfer of such Securities pursuant to Rule 144A of the Commission or any
similar rule then in effect.
4.6 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.
4.7 Board of Directors Observer. The Purchasers shall have the right, but
not the obligation, to appoint one Person to serve as an observer of meetings of
the Board of Directors (the "Observer"), who shall be afforded notice of and the
right to participate, as an observer only, in meetings of the Board of
Directors, provided, that the Company may exclude the Observer from
participation in meetings of the Board of Directors if and to the extent that
the Board of Directors, as determined in the discretion of its Chairman,
determines in good faith that such exclusion is appropriate to preserve the
Company's attorney-client privilege with respect to matters before the Board of
Directors, and provided, further, that the Observer shall have executed and
delivered to the Company a written confidentiality agreement, in a form
determined by the Company, with respect to matters discussed by the Board of
Directors and the Observer's compliance with Company policies and procedures and
applicable securities laws. The Observer shall be determined from time-to-time
by the Purchasers holding at least 51% of the shares of Preferred Stock then
outstanding, and the Purchasers shall notify the Company of the identity of and
contact information for the Observer, and shall promptly notify the Company in
the event that the Observer ceases for any reason to so act or shall be
replaced. The Company reserves the right to object to any Person selected by the
Purchasers to serve as an Observer, or to exclude an Observer from participation
in relevant meetings of the Board of Directors, if and to the extent that such
Person is engaged in a business which is or may be in competition with the
Company in any market in which the Company currently operates, provided,
however, that the Company acknowledges that certain of the Purchasers may be
investment or similar funds that may from time to time invest in competitors of
the Company and that any such investment shall not be a reason to object to or
exclude an Observer.
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4.8 Securities Laws Disclosure; Publicity. The Company shall file with the
Commission a Form D with respect to the Securities as required under Regulation
D. The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the Securities for
sale to each Purchaser pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States or obtain exemption
therefrom, and shall provide evidence of any such action so taken to each
Purchaser on or prior to the Closing Date (or such later date as such actions
are required, under applicable law, to be taken). The Company shall issue on or
before the next business day following the Closing Date a press release (the
"Press Release") announcing the entry into the transactions contemplated hereby
and shall within two business days following the Closing Date file a Current
Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and attaching the Transaction Documents thereto as exhibits
(the "8-K Filing"). The Company hereby acknowledges that, as of the date of the
8-K Filing, no Purchaser shall be in possession of any material nonpublic
information received from the Company, any of its Subsidiaries or any of its
respective officers, directors, employees or agents, that is not disclosed in
the 8-K Filing. 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, 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.
4.9 Stockholders Rights Plan. No claim will be made or enforced by the
Company or any director, officer, employee, representative or other Person
acting on behalf of the Company that any Purchaser is an "Acquiring Person"
under any stockholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchasers. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.
4.10 Non-Public Information. Except to the extent that information that is
(i) provided to the Observer in connection with the Observer's role as such and
(ii) included in notices to the Purchasers which the Company is required to
deliver pursuant to this Agreement may be deemed material nonpublic information,
the Company shall not, and shall cause each of its Subsidiaries and its and each
of their respective officers, directors, employees and agents not to, provide
any Purchaser with any material nonpublic information regarding the Company or
any of its Subsidiaries from and after the date hereof without the express
written consent of such Purchaser; provided, however, that a Purchaser that
exercises its rights under Section 4.26 shall be deemed to have given such
express written consent. In the event of a breach of the foregoing covenant by
the Company, any of its Subsidiaries or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the other Transaction Documents, a Purchaser shall have the right to make
a public disclosure, in the form of a press release, public advertisement or
otherwise, of such material nonpublic information without the prior approval by
the Company, its Subsidiaries or any of its or their respective officers,
directors, employees or agents. No Purchaser shall have any liability to the
Company, its Subsidiaries or any of its or their respective officers, directors,
employees, stockholders or agents for any such disclosure.
29
4.11 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes. Such proceeds shall
not be used (i) to pay dividends (other than Dividends on the Preferred Stock);
(ii) to pay for any increase in executive compensation or make any loan or other
advance to any officer, employee, stockholder, director or other affiliate of
the Company, without the express approval of the Board of Directors acting in
accordance with past practice; (iii) to purchase debt or equity securities of
any entity (including redeeming the Company's own securities (other than the
Preferred Stock)); (iv) to make any investment not directly related to the
current business of the Company (other than acquisitions, joint ventures,
strategic alliances and similar strategic transactions approved by the Board of
Directors in good faith); or (v) 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).
4.12 Reimbursement of Purchaser Expenses. The Company shall pay or
reimburse the Purchasers for all costs and expenses incurred in the negotiation,
preparation and execution of the Transaction Documents, including attorney's
fees and expenses, in an aggregate amount of up to $50,000 upon presentation, at
or after the Closing, of invoices or other evidence reasonably satisfactory to
the Company of the incurrence of such expenses.
4.13 Indemnification of Purchasers. Subject to the provisions of this
Section 4.13, the Company will indemnify and hold the Purchasers and their
directors, officers, stockholders, partners, members, direct investors,
employees and agents (each, a "Purchaser Party") harmless from any and all
losses, liabilities, obligations, claims, suits, causes of actions, penalties,
fees, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any misrepresentation or breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents, or any other certificate,
instrument or document contemplated thereby, 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 (including
for these purposes a derivative action brought on behalf of the Company), with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representation,
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), any disclosure made by such Purchaser pursuant to Section 4.8
or Section 4.26 hereof, or the status of such Purchaser or holder of the
Securities as an investor in the Company in such Person's capacity as a
Purchaser of Securities purchased and sold pursuant to the Transaction
Documents. If any action shall be brought against any Purchaser Party in respect
of which indemnity may be sought pursuant to this Agreement, such Purchaser
Party shall promptly notify the Company in writing, and the Company shall have
the right to assume the defense thereof with counsel of its own choosing. Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel, or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party. The Company will not be liable to any Purchaser Party under
this Agreement (i) for any settlement by an Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed, or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
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4.14 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 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 90th day
after such date.
(c) The Company shall, if applicable: (i) in the time and manner
required by the Trading Market, but in any event within 10 days after the
Closing Date, prepare and file with such Trading Market an additional shares
listing application covering a number of shares of Common Stock at least equal
to the Required Minimum on the date of such application, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing on the
Trading Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common Stock on
any date at least equal to the Required Minimum on such date on such Trading
Market or another Trading Market. In addition, the Company shall at its first
annual meeting of stockholders following the Closing Date (or at any prior
special meeting of stockholders), which meeting shall be held no later than May
31, 2006, include a proposal to obtain Stockholder Approval, with the
recommendation of the Company's Board of Directors that such proposal be
approved, and the Company shall solicit proxies from its stockholders in
connection therewith in the same manner as all other management proposals in
such proxy statement and all management-appointed proxyholders shall vote their
proxies in favor of such proposal. Should the Company not obtain Stockholder
Approval when submitted to a vote of the stockholders, the Company shall
similarly include a proposal and recommendation of the Board seeking Stockholder
Approval in each instance where matters are submitted by the Company for
approval of its stockholders for so long as any Warrants or Preferred Stock
remains outstanding.
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4.15 Participation in Subsequent Qualified Equity Financings. From the
date hereof until the Preferred Stock is no longer outstanding, upon any
Qualified Equity Financing by the Company or any of its Subsidiaries (a
"Subsequent Financing"), each Purchaser shall have the right to participate in
such financing up to the greater of (i) 50% of the Issue Amount and (ii) 100% of
the Issue Price paid for such Preferred Stock by the initial Purchaser thereof
for the outstanding Preferred Stock held by such Purchaser, plus all accrued and
unpaid dividends (as applicable, the "Participation Maximum"), all on the same
terms and conditions as the participant or participants in such Qualified Equity
Financing whose terms and conditions are least favorable to the Company. Unless
the Company is specifically instructed in writing by an individual Purchaser to
suspend such notices, at least five (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 one
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 with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or similar
document relating thereto. If by 5:30 p.m. (New York City time) on the fifth
(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 Participation Maximum, then the
Company may effect the remaining portion of such Subsequent Financing on the
terms and to the Persons set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such fifth (5th) Trading Day,
such Purchaser shall be deemed to have notified the Company that it does not
elect to participate. The Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.15, 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. If the
Company receives responses to Subsequent Financing Notices from Purchasers
seeking to purchase more than the aggregate amount of the Participation Maximum,
each such Purchaser shall have the right to purchase their Pro Rata Portion (as
defined below) of the Participation Maximum. "Pro Rata Portion" is the ratio of
(x) the Issue Amount of Securities purchased by a participating Purchaser and
(y) the sum of the aggregate Issue Amount of all participating Purchasers.
4.16 Most Favored Nations Exchange Option. From the date hereof until the
Preferred Stock is no longer outstanding, whenever the Company makes a Qualified
Equity Financing, in addition to the right of the Purchasers to participate in
the Subsequent Financing as purchasers of securities therein pursuant to Section
4.15, any Purchaser holding outstanding shares of Preferred Stock may opt to
exchange all or any portion of such shares of Preferred Stock for such amount of
securities issued in such Subsequent Financing (the "MFN Securities") as shall
equal in amount to the purchase price paid under this Agreement for such
outstanding shares of Preferred Stock to be exchanged, plus any accrued and
unpaid dividends thereon (the "MFN Option") on the terms and conditions set
forth herein. Any Purchaser that desires to exercise its MFN Option shall notify
the Company that it desires to do so not later than the closing of the intended
consummation of the Subsequent Financing, and such notice shall be an
irrevocable offer on the part of such Purchaser to exchange such portion of its
shares of Preferred Stock identified in such notice for the securities to be
issued in such Subsequent Financing. The purchase price at which MFN Securities
shall be purchased by all Purchasers shall be the price paid by any purchaser of
MFN Securities that is least favorable to the Company. The MFN Option with
respect to a particular Subsequent Financing shall terminate and may not be
exercised in connection with such Subsequent Financing later than the closing of
the Subsequent Financing to which it relates. If this MFN Option shall cause any
Purchaser to exceed the limitations on ownership set forth in Section 4.17, then
the securities offered the Purchaser exercising its MFN Option shall be modified
so that (i) the limitation on ownership is not exceeded; and (ii) the economic
value of the securities issued to the Purchaser upon exercise of the MFN Option
is substantially similar to the economic value of the securities issued in the
Subsequent Financing such Purchaser would have owned had it exercised its MFN
Option without such limitation on ownership.
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4.17 Limitation of Purchasers' Ownership of Common Stock. Unless a
Purchaser delivers to the Company written notice prior to the Closing Date or
sixty-one (61) days prior to the effective date of such notice that this Section
4.17 shall not apply to such Purchaser, in no event shall the Company issue
Common Stock to any holder of Preferred Stock as payment of any Dividend (as
defined in the Certificate of Designations), and in no event shall a holder of
shares of Preferred Stock have the right to exchange shares of Preferred Stock
into shares of Common Stock or to dispose of any shares of Preferred Stock to
the extent that such payment of Dividend or right to effect such exchange or
disposition would result in the holder and its affiliates together beneficially
owning more than (a) with respect to those holders identified on Schedule 4.17A,
4.99% of the outstanding shares of Common Stock or (b) with respect with respect
to those holders identified on Schedule 4.17B, 9.99% of the outstanding shares
of Common Stock (each, a "Limitation on Ownership," and together, the
"Limitations on Ownership"). For purposes of this Section 4.17, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder. In the event
the Company is prohibited from issuing Common Stock to any holder of Preferred
Stock as payment of any Dividend, it shall pay such Dividend to such holder in
cash.
4.18 Variable Securities. So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Securities, the Company shall
not, without first obtaining the written approval of the holders of at least 51%
of the shares of Preferred Stock then outstanding (which approval may be given
or withheld by such holders in their sole and absolute discretion), issue or
sell any rights, warrants or options to subscribe for or purchase Common Stock,
or any other securities directly or indirectly convertible into or exchangeable
or exercisable for Common Stock, at an effective conversion, exchange or
exercise price that varies or may vary with the market price of the Common
Stock, including by way of one or more reset(s) to any fixed price. For purposes
of this Section 4.18, antidilution adjustments and proportional adjustments for
stock splits, recapitalizations and similar events shall not require prior
approval.
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4.19 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 to
treat for the Company the Debenture holders as a class and shall not in any way
be construed as the Purchasers acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.
4.20 Issuance of Debt. Without the prior written approval of holders of at
least 51% of the Preferred Stock, at any time while any shares of Preferred
Stock are issued and outstanding, the Company shall not authorize or issue, or
obligate itself to issue any debt obligations of the Company. Notwithstanding
the foregoing, the Company shall be permitted to establish, on terms and
conditions determined in the discretion of the Company, a line of credit or
other credit facility secured by United States accounts receivable in an amount
not to exceed $1,000,000.
4.21 No Short Sales. For the period commencing on the Closing Date through
the earlier of (i) one hundred twenty (120) days after the Closing Date and (ii)
the Effective Date, neither the Purchaser nor any of its Affiliates shall make
any short sales of, or grant any option for the purchase of or enter into any
hedging or similar transaction with the same economic effect as a short sale, in
the Common Stock.
4.22 Acknowledgments Regarding Purchasers' Purchase of Securities. The
Company and each Purchaser acknowledges and agrees that, except for those
Purchasers identified in Schedule 3.1(ii), each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The Company and
each Purchaser further acknowledges and agrees that, except for those Purchasers
identified in Schedule 3.1(ii), no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to the Purchasers' purchase of the Securities. The Company and each
Purchaser further acknowledges and agrees that their respective decision to
enter into this Agreement has been based solely on the independent evaluation of
the transactions contemplated hereby by the Company and such Purchaser, as the
case may be, and its respective representatives (including, as to the Company,
the financial advisors to the Company identified on Schedule 3.1(ii).
4.23 Corporate Existence. So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Securities, the Company shall
maintain its corporate existence, and in the event of a merger, consolidation or
sale of all or substantially all of the Company's assets, the Company shall
ensure that the surviving or successor entity in such transaction (i) assumes
the Company's obligations under this Agreement and the other Transaction
Documents and the agreements and instruments entered into in connection herewith
and therewith regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the exchange of all the Preferred Stock and exercise
in full of all Warrants outstanding as of the date of such transaction and (ii)
except in the event of a merger, consolidation of the Company into any other
corporation, or the sale or conveyance of all or substantially all of the assets
of the Company where the consideration consists solely of cash, the surviving or
successor entity is a publicly traded corporation whose common stock is listed
for trading on the Nasdaq SmallCap Market, the Nasdaq National Market, the NYSE
or the AMEX.
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4.24 Legal Compliance. The Company shall conduct its business and the
business of its Subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.
4.25 Redemptions, Dividends and Repayments of Indebtedness. So long as any
Purchasers (or any of their respective affiliates) beneficially own any of the
Preferred Stock, the Company shall not, without first obtaining the written
approval of the holders of at least 51% of the shares of Preferred Stock then
outstanding (which approval may be given or withheld by such holders in their
sole and absolute discretion), repurchase, redeem or declare or pay any cash
dividend or distribution on any shares of capital stock of the Company or repay
or prepay any indebtedness of the Company other than as expressly required
pursuant to the terms of such indebtedness as in effect on the date hereof.
4.26 Inspection of Properties and Books. So long as any Purchasers (or any
of their respective affiliates) beneficially own any of the Securities, each
such Purchaser and its representatives and agents (collectively, the
"Inspectors") shall have the right, at such Purchaser's expense, to visit and
inspect any of the properties of the Company and of its Subsidiaries, to examine
the books of account and records of the Company and of its Subsidiaries, to make
or be provided with copies and extracts therefrom, to discuss the affairs,
finances and accounts of the Company and of its Subsidiaries with, and to be
advised as to the same by, its and their officers, employees and independent
public accountants (and by this provision the Company authorizes such
accountants to discuss such affairs, finances and accounts, whether or not a
representative of the Company is present) all at such reasonable times and
intervals and to such reasonable extent as the Purchasers may desire; provided,
however, that each Inspector shall hold in confidence and shall not make any
disclosure (except to such Purchaser) of any such information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration
Statement filed pursuant to the Registration Rights Agreement, (ii) the release
of such information is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or (iii) such information
has been made generally available to the public other than by disclosure in
violation of this or any other agreement. Each Purchaser agrees that it shall,
upon learning that disclosure of such information is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the information deemed confidential.
4.27 Protection Provisions. So long as any shares of Preferred Stock are
outstanding, the Company shall not take any of the following corporate actions
(whether by merger, consolidation or otherwise) without first obtaining the
approval the holders of at least 51% of the shares of Preferred Stock then
outstanding:
(a) alter or change the rights, preferences or privileges of the
Preferred Stock, or increase the authorized number of shares of Preferred
Stock;
(b) alter or change the rights, preferences or privileges of any
capital stock of the Company so as to affect adversely the Preferred Stock
or otherwise alter or change the rights, preferences or privileges of the
Preferred Stock in relation to the shares of the Common Stock;
(c) create or issue any class or series of capital stock of the
Company specifically ranking, by its terms, on parity with or senior to
the Preferred Stock, in each case as to distribution of assets upon a
Liquidation Event (as defined in the Certificate of Designations);
(d) issue any shares of Preferred Stock other than pursuant to the
Securities Purchase Agreement;
(e) redeem, repurchase or otherwise acquire, or declare or pay any
cash dividend or distribution on, any class or series of capital stock of
the Company, other than the Preferred Stock;
(f) increase the par value of the Common Stock;
(g) redeem, repurchase, prepay or otherwise acquire any outstanding
debt securities or indebtedness of the Company, except as expressly
required by the terms of such securities or indebtedness;
(h) enter into any agreement, commitment, understanding or other
arrangement to take any of the foregoing actions;
(i) cause or authorize any subsidiary of the Company to engage in
any of the foregoing actions; or
(j) consummate a transaction that would constitute a Dilutive
Issuance (as defined in the Exchange Agreement or the Warrants) without
the prior written approval of the holders of at least 51% of the shares of
Preferred Stock then outstanding unless Stockholder Approval has been
obtained.
Notwithstanding the foregoing, no action set forth in subsections (a) through
(i) above that is approved by the holders of at least 51% of the shares of
Preferred Stock then outstanding pursuant to this Section 4.28 shall be
permitted to the extent that, by its terms, such action applies to less than all
of the holders of Preferred Stock then outstanding.
35
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the Closing has not been consummated on
or before November 30, 2005; provided 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. The Company shall also pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the issuance of
any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 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. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
36
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 4.13.
5.9 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
5.10 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, stockholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
County of New York, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If 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 attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.11 Survival. The representations and warranties of the parties and the
agreements and covenants contained herein shall survive the Closing and the
delivery, exercise and/or conversion of the Securities, as applicable for the
applicable statue of limitations notwithstanding any due diligence investigation
conducted by or on behalf of any Purchaser. Moreover, none of the
representations and warranties made by the Company herein shall act as a waiver
of any rights or remedies any Purchaser may have under applicable U.S. federal
or state securities laws.
37
5.12 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.13 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.14 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided, that in
the case of a rescission of any exchange of the Preferred Stock or exercise of a
Warrant, the Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded conversion or exercise notice.
5.15 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.16 Remedies. No provision of this Agreement or any other Transaction
Document providing for any remedy to a Purchaser shall limit any other remedy
which would otherwise be available to such Purchaser at law, in equity or
otherwise. Nothing in this Agreement or any other Transaction Document shall
limit any rights any Purchaser may have under any applicable federal or state
securities laws with respect to the investment contemplated hereby. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Purchasers by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations hereunder (including, but not
limited to, its obligations pursuant to Article 4 hereof) will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Agreement (including, but not limited to, its obligations
pursuant to Article 4 hereof), that each Purchaser shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer of the Securities, without
the necessity of showing economic loss and without any bond or other security
being required.
38
5.17 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.
5.18 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 of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. The
Purchasers and, to its Knowledge, the Company agree that the Purchasers have not
taken any actions that would deem such Purchasers to be members of a "group" for
purposes of Section 13(d) of the Exchange Act, and the Purchasers have not
agreed to act together for the purpose of acquiring, holding, voting or
disposing of equity securities of the Company. 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. Each Purchaser further acknowledges that North Sound
Legacy International Ltd. and North Sound Legacy Institutional Fund LLC have
retained Drinker Xxxxxx & Xxxxx LLP ("DB&R") to act as their counsel in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents and that DB&R has not acted as counsel for any of the
other Purchasers in connection therewith and none of the other Purchasers have
the status of a client of DB&R for conflict of interest or other purposes as a
result thereof. 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.
(SIGNATURE PAGES FOLLOW)
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[COMPANY SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
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.
DIOMED HOLDINGS, INC. Address for Notice:
-------------------
By:___________________________ One Dundee Park
Name: Xxxxx X. Xxxxx, Xx. Xxxxxxx, XX 00000
Title: Chief Executive Officer Attn: Chief Executive Officer
(000) 000-0000 Telephone
(000) 000-0000 Facsimile
With a copy (which shall not constitute notice) to:
McGuireWoods LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
(000) 000-0000 Telephone
(000) 000-0000 Facsimile
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
40
[PURCHASER SIGNATURE PAGE TO 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 Investing Entity: ______________________________________________________
By: __________________________________
(Signature of Authorized Signatory)
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Authorized Signatory:
---------------------------------------------
Telephone Number of Authorized Signatory: ______________________________________
Address (including facsimile number) for Notice to Investing Entity:
Address for Delivery of Securities to Investing Entity (if not same as above):
Issue Amount: _________________________ shares of Preferred Stock
$ _________________________ aggregate purchase price
Warrant Shares: ____________________________
US Tax ID Number: _________________________
NOTE: SCHEDULES AND EXHIBITS OMITTED
----
41
