SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of March 2,
2006, by and among Composite Technology Corporation, a Nevada corporation, with
headquarters located at 0000 XxXxx Xxxxxx, Xxxxxx, Xxxxxxxxxx 00000 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and/or Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured convertible
notes of the Company, which notes shall be convertible into the Company's common
stock, par value $0.001 per share (the "COMMON STOCK"), in accordance with the
terms of the Notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of senior secured convertible notes, in substantially the form attached
hereto as EXHIBIT A (the "NOTES"), set forth opposite such Buyer's name in
column (3) on the Schedule of Buyers (which aggregate amount for all Buyers
shall be $3,500,000) (as converted, collectively, the "CONVERSION SHARES"), (ii)
warrants in substantially the form attached hereto as EXHIBIT B-1 (the "SERIES A
WARRANTS"), to acquire up to that number of additional shares of Common Stock
set forth opposite such Buyer's name in column (4) of the Schedule of Buyers and
(iii) warrants in substantially the form attached hereto as EXHIBIT B-2 (the
"SERIES B WARRANTS"), to acquire up to that number of additional shares of
Common Stock set forth opposite such Buyer's name in column (5) of the Schedule
of Buyers (collectively with the Series A Warrants, the "WARRANTS") (as
exercised, collectively, the "WARRANT SHARES").
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company will provide certain registration
rights with respect to the Registrable Securities (as defined in the
Registration Rights Agreement) under the 1933 Act and the rules and regulations,
promulgated thereunder and applicable state securities laws.
E. The Notes, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "SECURITIES".
F. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Security Agreement, in the form
attached hereto as EXHIBIT D, the "SECURITY AGREEMENT") pursuant to which the
Company and each Company Subsidiary (as defined below) has agreed to grant a
security interest in the assets of the Company and such Company Subsidiary (as
defined below), to secure the obligations of the Company to the Buyers.
G. Contemporaneous with the execution and delivery of this Agreement, each
of CTC Cable Corporation, a Nevada corporation, CTC Wind Systems Corporation, a
Nevada corporation, Transmission Technology Corporation, a Nevada corporation,
and CTC Towers & Poles Corporation, a Nevada corporation (each a "COMPANY
SUBSIDIARY" and collectively the "COMPANY SUBSIDIARIES") each a wholly-owned
Subsidiary (as defined herein) of the Company, is executing and delivering a
Guaranty Agreement, in the form attached hereto as EXHIBIT E, (each a
"GUARANTY"), guaranteeing the obligations of the Company to the Buyers.
H. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Pledge Agreement, in the form
attached hereto as EXHIBIT F, (the "PLEDGE AGREEMENT") pursuant to which the
Company has agreed to pledge all of the equity of each Company Subsidiary.
I. Contemporaneous with the execution and delivery of this Agreement,
Xxxxxx Xxxxxxxx and the Collateral Agent are executing and delivering a Pledge
Agreement with respect to shares of common stock of the Company owned by Xxxxxx
Xxxxxxxx, in the form attached hereto as EXHIBIT G, (the "CEO SHARES PLEDGE
AGREEMENT," and together with the Security Agreement, the Guaranties, the and
the Pledge Agreement, the "SECURITY DOCUMENTS").
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes and Warrants.
(i) Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell
to each Buyer, and each Buyer severally, but not jointly, agrees to purchase
from the Company on the Closing Date (as defined below), (x) a principal amount
of Notes as is set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers, (y) Series A Warrants to acquire up to that number of
Warrant Shares as is set forth opposite such Buyer's name in column (4) on the
Schedule of Buyers, and (z) Series B Warrants to acquire up to that number of
Warrant Shares as is set forth opposite such Buyer's name in column (5) on the
Schedule of Buyers (the "CLOSING").
(ii) Closing. The date and time of the Closing (the "CLOSING
DATE") shall be 10:00 a.m., New York City Time, on the date hereof (or such
later date as is mutually agreed to by the Company and each Buyer) after
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below at the offices of Xxxxxxx Xxxx & Xxxxx LLP, 000
Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
(iii) Purchase Price. The aggregate purchase price for the
Notes and the Warrants to be purchased by each Buyer at the Closing (the
"PURCHASE PRICE") shall be the amount set forth opposite such Buyer's name in
column (6) of the Schedule of Buyers. Each Buyer shall pay $1.00 for each $1.00
of principal amount of Notes and related Warrants to be purchased by such Buyer
at the Closing.
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(b) Form of Payment. On the Closing Date, (i) each Buyer shall pay
its Purchase Price to the Company for the Notes and the Warrants to be issued
and sold to such Buyer at the Closing, (A) by wire transfer of immediately
available funds for the amount of the Purchase Price in accordance with the
Company's written wire instructions or (B) by cancellation and exchange of that
certain note (the "LOAN NOTE") issued to Lane Capital Markets LLC on February
27, 2006 in the principal amount of $200,000 (exchangeable at the principal
amount of such note) and (ii) the Company shall deliver to each Buyer (1) the
Notes (in the principal amounts as such Buyer shall request) which such Buyer is
then purchasing and (2) the Warrants (in the amounts as such Buyer shall
request) such Buyer is purchasing, in each case duly executed on behalf of the
Company and registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the
Notes and the Warrants and (ii) upon the conversion of the Notes and exercise of
the Warrants (other than pursuant to a Cashless Exercise (as defined in the
Warrants)) will acquire the Conversion Shares issuable upon conversion of the
Notes and the Warrant Shares issuable upon exercise of the Warrants, for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of 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, or a registration
statement or an exemption under the 1933 Act. Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business. Such Buyer does not
presently have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
(b) Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D. Such Buyer is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act. Such Buyer 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 to such Buyer's knowledge,
any general solicitation or advertisement.
(c) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
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(e) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated
under the 1933 Act, as amended (or a successor rule thereto) (collectively,
"RULE 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the Person (as defined in Section 3(s)) through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 0000
Xxx) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other Person is under any obligation to register the Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.
(g) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing Conversion Shares and the Warrant Shares, except
as set forth below, shall bear any legend as required by the "blue sky" laws of
any state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]
[EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
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The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A.
(h) Validity; Enforcement. This Agreement, the Registration Rights
Agreement and the Security Documents to which such Buyer is a party have been
duly and validly authorized, executed and delivered on behalf of such Buyer and
shall constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer in accordance with their respective terms, except
as such enforceability may be limited by general principles of equity or to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement, the Registration Rights Agreement and the Security
Documents to which such Buyer is a party and the consummation by such Buyer of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the organizational documents of such Buyer or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.
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(k) Prohibited Transactions. During the last ten (10) days prior to
the date hereof, neither such Buyer nor any Person acting on behalf of or
pursuant to any understanding with such Buyer has, directly or indirectly,
effected or agreed to effect any short sale, whether or not against the box,
established any "put equivalent position" (as defined in Rule 16a-1(h) under the
Exchange Act) with respect to the Common Stock, granted any other right
(including, without limitation, any put or call option) with respect to the
Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities (but not including any actions to
secure available shares to borrow in order to effect short sales or similar
transactions in the future) (each, a "PROHIBITED TRANSACTION"). Prior to the
earliest to occur of (i) the termination of this Agreement or (ii) the date of
the 8-K Filing as described in Section 4(i), such Buyer shall not, and shall
cause any Person acting on behalf of or pursuant to any understanding with such
Buyer not to, engage, directly or indirectly, in a Prohibited Transaction. Such
Buyer acknowledges that the representations, warranties and covenants contained
in this Section 2(k) are being made for the benefit of the Buyers as well as the
Company.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and its
"SUBSIDIARIES" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are entities duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authority to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company has
no Subsidiaries except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the
requisite power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Registration Rights Agreement, the Security
Documents, the Irrevocable Transfer Agent Instructions (as defined in Section
5(b)), the Warrants, and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the "TRANSACTION DOCUMENTS") and to issue the
Securities in accordance with the terms hereof and thereof. The execution and
delivery of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Notes and the Warrants, the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion of
the Notes, the reservation for issuance and issuance of the Warrant Shares upon
exercise of the Warrants, and the granting of a security interest in the
Collateral (as defined in the Security Documents) have been duly authorized by
the Company's Board of Directors and no further filing, consent, or
authorization is required by the Company, its Board of Directors or its
stockholders, except for post-closing Securities filings or notifications
required to be made under federal or state securities laws. This Agreement and
the other Transaction Documents of even date herewith have been duly executed
and delivered by the Company, and shall constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(c) Issuance of Securities. The issuance of the Notes and the
Warrants are duly authorized and are free from all taxes, liens and charges with
respect to the issue thereof. As of the Closing, a number of shares of Common
Stock shall have been duly authorized and reserved for issuance which equals
130% of the maximum number of shares Common Stock issuable upon conversion of
the Notes (assuming for purposes hereof, that the Notes are convertible at the
initial Conversion Price and without taking into account any limitations on the
conversion of the Notes set forth in the Notes) and upon exercise of the
Warrants (without taking into account of any limitations on the exercise of the
Warrants set forth in the Warrants). Upon issuance or conversion in accordance
with the Notes or exercise in accordance with the Warrants, as the case may be,
and payment of the consideration set forth in this Agreement, the Notes and the
Warrants, the Conversion Shares and the Warrant Shares, respectively, will be
validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
Subject to the accuracy of the Buyer's representations and warranties in Section
2 of this Agreement, the offer and issuance by the Company of the Securities in
conformity with the terms of this Agreement constitute transactions is exempt
from registration under the 1933 Act.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes and the Warrants, and reservation for issuance and
issuance of the Conversion Shares and the Warrant Shares) and the granting of a
security interest in the Collateral will not (i) result in a violation of the
Articles of Incorporation (as defined in Section 3(r)) of the Company or any of
its Subsidiaries or Bylaws (as defined in Section 3(r)) of the Company or any of
its Subsidiaries or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
result in termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the NASD's OTC Bulletin
Board (the "PRINCIPAL MARKET")) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, except in the case of clauses (ii) and (iii)
for any such conflicts, violations or defaults which are reasonably likely to
have a Material Adverse Effect.
(e) Consents. The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof, except for post-closing securities filings or
notifications to be made under federal or state securities laws. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the Closing Date, except for (i) the filing of appropriate UCC
financing statements with the appropriate states and other authorities pursuant
to the Security Documents and (ii) the filing with the SEC of one or more
Registration Statements in accordance with the requirements of the Registration
Rights Agreement. The Company and its Subsidiaries are unaware of any facts or
circumstances which might prevent the Company from obtaining or effecting any of
the registration, application or filings pursuant to the preceding sentence. The
Company is not in violation of the applicable listing requirements of the
Principal Market and has no knowledge of any facts which would reasonably lead
to delisting or suspension of the Common Stock. The issuance by the Company of
the Securities shall not have the effect of delisting or suspending the Common
Stock from the Principal Market.
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(f) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an "affiliate" of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a "beneficial owner" of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended (the "1934 ACT")). The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby, including, without limitation,
placement agent fees payable to Lane Capital Markets, LLC (the "Agent") in
connection with the sale of the Securities. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim. Other than the Agent, the Company has not engaged any
placement agent or other agent in connection with the sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries,
any of their affiliates, and any Person acting on 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 any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 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. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants, in each case,
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.
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(j) Application of Takeover Protections; Rights Agreement. 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 Articles of Incorporation or
the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
(k) SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(k), during the two (2) years prior to the date hereof, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
1934 Act (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company has delivered to the Buyers or their respective
representatives true, correct and complete copies of the SEC Documents not
available on the XXXXX system. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. As of their respective filing dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers in connection with the transactions contemplated hereby which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in any disclosure schedules,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
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(l) Absence of Certain Changes. Except as disclosed in Schedule
3(l), since September 30, 2005, there has been no event which has had, or could
reasonably be expected to result, in a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole. Except as disclosed in Schedule 3(l),
since September 30, 2005, the Company has not (i) declared or paid any
dividends, (ii) sold any assets, individually or in the aggregate, in excess of
$100,000 outside of the ordinary course of business or (iii) had capital
expenditures, individually or in the aggregate, in excess of $100,000. The
Company has not taken any steps to seek protection pursuant to any bankruptcy
law nor does the Company have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact which would reasonably lead a creditor to do so. The
Company and its Subsidiaries, individually and on a consolidated basis, are not
as of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the Closing, will not be Insolvent (as defined below). For
purposes of this Section 3(l), "INSOLVENT" means, with respect to any Person (as
defined in Section 3(s)), (i) the present fair saleable value of such Person's
assets is less than the amount required to pay such Person's total Indebtedness
(as defined in Section 3(s)), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or
Circumstances. No material event, liability, development or circumstance has
occurred or exists, or is contemplated to occur with respect to the Company, its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its Articles
of Incorporation or Bylaws or their organizational charter or articles of
incorporation or bylaws, respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation that are currently necessary or applicable to the
operation of the Company or its Subsidiaries as currently conducted and as
described on the Company's Form 10-K for the year-ended September 30, 2005 and
neither the Company nor any of its Subsidiaries will conduct its business in
violation of the foregoing except for possible violations which would not,
individually or in the aggregate, have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances which would reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable
future. Since September 30, 2005, except as set forth in Schedule (n), (i) the
Common Stock has been designated for quotation on the Principal Market, (ii)
trading in the Common Stock has not been suspended by the SEC or the Principal
Market and (iii) the Company has received no communication, written or oral,
from the SEC or the Principal Market regarding the suspension or delisting of
the Common Stock from the Principal Market. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
-11-
(o) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor, to the best knowledge of the Company and its Subsidiaries,
any director, officer, agent, employee or other Person acting on behalf of the
Company or any of its Subsidiaries has, in the course of its actions for, or on
behalf of, the Company (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
(p) Xxxxxxxx-Xxxxx Act. The Company is in compliance with any and
all applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective
as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof,
except where such noncompliance would not have, individually or in the
aggregate, a Material Adverse Effect.
(q) Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof and other than the
grant of stock options disclosed on Schedule 3(q), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for ordinary course
services as employees, officers or 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 such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of(i) 200,000,000 shares of Common Stock,
of which as of the date hereof, 135,329,914 are issued and outstanding,
12,946,912 shares are reserved for issuance pursuant to the Company's stock
option and purchase plans and 13,828,758 shares are reserved for issuance
pursuant to securities (other than the Notes and the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii) 5,000,000
shares of preferred stock, par value $0.001 per share, of which as of the date
hereof, none is issued and outstanding. All of such outstanding shares have
been, or upon issuance and payment of the consideration therefor, will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(r): (i) none of the Company's share capital is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any share capital of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional share
capital of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any share capital of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (vi) 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 a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
its Subsidiaries' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has
furnished to the Buyers true, correct and complete copies of the Company's
Articles of Incorporation, as amended and as in effect on the date hereof (the
"ARTICLES OF INCORPORATION"), and the Company's Bylaws, as amended and as in
effect on the date hereof (the "BYLAWS"), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock and
the material rights of the holders thereof in respect thereto.
-12-
(s) Indebtedness and Other Contracts. Except as disclosed in
Schedule 3(s), neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument would result in a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. Schedule 3(s) provides a detailed description of the material
terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
"INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and (z)
"PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
-13-
(t) Absence of Litigation. There is no material action, suit,
proceeding, inquiry or investigation before or by the Principal Market, any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company, the Common Stock or any of the Company's Subsidiaries or any of the
Company's or its Subsidiaries' officers or directors, except as set forth in
Schedule 3(t).
(u) Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
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 at a cost that would not have a Material Adverse Effect.
(v) Employee Relations. (i) Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union. The Company and its Subsidiaries believe that their relations
with their employees are good. No executive officer of the Company or any of its
Subsidiaries (as defined in Rule 501(f) of the 0000 Xxx) has notified the
Company or any such Subsidiary that such officer intends to leave the Company or
any such Subsidiary or otherwise terminate such officer's employment with the
Company or any such Subsidiary. No executive officer of the Company or any of
its Subsidiaries, to the knowledge of the Company or any such Subsidiary, 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 or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any such Subsidiaries to any liability with respect to
any of the foregoing matters.
-14-
(ii) The Company and its Subsidiaries are in compliance with
all applicable federal, state, local and foreign laws and regulations respecting
labor, employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
(w) Title. Except as set forth on Schedule 3(w), the Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(x) Intellectual Property Rights. Except as set forth on Schedule
3(x), the Company and its Subsidiaries own or possess adequate rights or
licenses to use all trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights ("INTELLECTUAL PROPERTY RIGHTS") described or
referred to on the Company's Form 10-K for the year-ended September 30, 2005 as
owned or possessed by it or that are necessary to conduct their respective
businesses as now conducted, except where the failure to currently own or
possess such Intellectual Property Rights could not reasonably be expected to
have a Material Adverse Effect. Except as set forth in Schedule 3(x), none of
the Company's Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the
Company or its Subsidiaries of Intellectual Property Rights of others that
individually, or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. There is no material claim, action or proceeding being
made or brought, or to the knowledge of the Company, being threatened, against
the Company or its Subsidiaries regarding its Intellectual Property Rights. The
Company is unaware of any facts or circumstances which could reasonably be
expected to give rise to any of the foregoing infringements or claims, actions
or proceedings. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties.
-15-
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. Except as set forth in Schedule 3(z), the
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.
(aa) Tax Status. The Company and each of its Subsidiaries (i) has
made or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) 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 (iii) has set aside
on its books provision 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.
(bb) Internal Accounting Controls. The Company maintains a system of
internal control over financial reporting (as such term is defined in the 1934
Act) regarding the reliability of financial reporting and preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes policies and procedures that (i) pertain to
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of the Company, (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company, and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company's
assets that could have a material adverse effect on the financial statements.
(cc) Ranking of Notes. Except as set forth on Schedule (cc), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.
-16-
(dd) Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its 1934 Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.
(ee) Form S-1 Eligibility. The Company is eligible to register the
Conversion Shares and the Warrant Shares for resale by the Buyers using Form S-1
promulgated under the 1933 Act.
(ff) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result or that could reasonably be expected
to cause or result, in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities or (ii) other than the Agent, sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any of the Securities.
(gg) Acknowledgement Regarding Buyers' Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding, except as
expressly provided in Section 2(k), it is understood and acknowledged by the
Company (i) that none of the Buyers have been asked to agree, nor has any Buyer
agreed, to desist from purchasing or selling, long and/or short, securities of
the Company, or "derivative" securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) that any Buyer,
and counter parties in "derivative" transactions to which any such Buyer is a
party, directly or indirectly, presently may have a "short" position in the
Common Stock, and (iii) that each Buyer shall not be deemed to have any
affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and acknowledges that,
except as expressly provided in Section 2(k), one or more Buyers may engage in
hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Conversion Shares and the Warrant Shares deliverable with respect to
Securities are being determined.
(hh) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by this Agreement, the Notes and the
Warrants, which shall be publicly disclosed by the Company pursuant to its
reporting obligations under the 1934 Act and pursuant to Section 4(i) hereof,
the Company confirms that neither it nor any other Person acting on its behalf
has provided any of the Buyers or their agents or counsel with any information
that constitutes material, nonpublic information. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. The representations and
warranties of the Company contained in this Section 3, as modified by the
Schedules to this Agreement, furnished by or on behalf of the Company as of the
date hereof, 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 the light of the circumstances under which they were made, not misleading.
Each press release issued by the Company during the twelve (12) months preceding
the date of this Agreement did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.
-17-
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the Conversion
Shares and Warrant Shares and none of the Notes or Warrants is outstanding (the
"REPORTING PERIOD"), the Company shall file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit such
termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale
of the Securities for working capital purposes and not for the (i) repayment of
any outstanding Indebtedness of the Company or any of its Subsidiaries other
than Permitted Indebtedness (as defined in the Note) as set forth in Schedule
3(cc) or (ii) redemption or repurchase of any of its or its Subsidiaries equity
securities.
(e) Financial Information. As long as any Notes or Warrants are
outstanding, the Company agrees to send the following to each Investor during
the Reporting Period (i) unless the following are filed with the SEC through
XXXXX and are available to the public through the XXXXX system, within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K or 10-KSB, any interim reports or any consolidated balance sheets,
income statements, stockholders' equity statements and/or cash flow statements
for any period other than annual, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed
copies of all press releases issued by the Company or any of its Subsidiaries
(unless otherwise included in a Current Report on Form 8-K), and (iii) copies of
any notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving
thereof to the stockholders; provided, that each such Investor provides to the
Company an email address on the Schedule of Buyers for the provision of such
information. As used herein, "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
-18-
(f) Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system, if any,
upon which the Common Stock is then listed (subject to official notice of
issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company
shall maintain the Common Stocks' authorization for quotation on the Principal
Market. Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).
(g) Fees. Subject to Section 8 below, at the Closing, the Company
shall reimburse Xxxxxx Bay Fund, LP (a Buyer) or its designee(s) for all
reasonable legal fees and expenses incurred in connection with the transactions
contemplated by the Transaction Documents, which amount shall be withheld by
such Buyer from its Purchase Price at the Closing. The Company shall be
responsible for the payment of any placement agent's fees, financial advisory
fees, or broker's commissions (other than for Persons engaged by any Buyer)
relating to or arising out of the transactions contemplated hereby, including,
without limitation, any fees or commissions payable to the Agent. The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, reasonable attorney's fees and out-of-pocket
expenses) arising in connection with any claim relating to any such payment.
Except as otherwise set forth in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that
the Securities may be pledged by an Investor (as defined in the Registration
Rights Agreement) in connection with a bona fide margin agreement or other loan
or financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(f) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.
-19-
(i) Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York Time, on the first Business Day following the date of
this Agreement (provided, that this Agreement is entered into prior to 3pm New
York time; otherwise, the second Business Day), the Company shall file a Current
Report on Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents and the Acquisitions in the form required by the 1934 Act
and attaching the material Transaction Documents (including, without limitation,
this Agreement (and all schedules to this Agreement), the form of the Notes, the
form of Warrant, the Registration Rights Agreement and the form of each of the
Security Documents) and the material transaction documents relating to the
Acquisitions as exhibits to such filing (including all attachments, the "8-K
FILING"). From and after the filing of the 8-K Filing with the SEC, no Buyer
shall be in possession of any material, nonpublic information received from the
Company or 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 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
Buyer with any material, nonpublic information regarding the Company or any of
its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express prior written consent of such Buyer. In the event of a
breach of the foregoing covenant by the Company or 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 Transaction Documents, a
Buyer 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 Buyer
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. Subject to the foregoing, neither the Company, its Subsidiaries
nor any Buyer shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions (i)
in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations (provided that in the
case of clause (i) each Buyer shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release).
(j) Restriction on Redemption and Cash Dividends. So long as any
Notes are outstanding, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, the Common Stock without
the prior express written consent of the holders of Notes representing not less
than a majority of the aggregate principal amount of the then outstanding Notes.
(k) Additional Notes; Variable Securities; Dilutive Issuances. So
long as any Buyer beneficially owns any Notes, the Company will not issue any
Notes other than to the Buyers as contemplated hereby and the Company shall not
issue any other securities that would cause a breach or default under the Notes.
For long as any Notes or Warrants remain outstanding, the Company shall not, in
any manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Common Stock at a price which 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 unless the conversion, exchange or exercise price of any such
security cannot be less than the then applicable Conversion Price (as defined in
the Notes) with respect to the Common Stock into which any Note is convertible
or the then applicable Exercise Price (as defined in the Warrants) with respect
to the Common Stock into which any Warrant is exercisable. For long as any Notes
or Warrants remain outstanding, the Company shall not, in any manner, enter into
or affect any Dilutive Issuance (as defined in the Notes) if the effect of such
Dilutive Issuance is to cause the Company to be required to issue upon
conversion of any Note or exercise of any Warrant any shares of Common Stock in
excess of that number of shares of Common Stock which the Company may issue upon
conversion of the Notes and exercise of the Warrants without breaching the
Company's obligations under the rules or regulations of the Principal Market.
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(l) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants.
(m) Reservation of Shares. So long as any Investor owns any Notes or
Warrants, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, after the Closing Date,
110% of the number of shares of Common Stock issuable upon conversion of all of
the Notes and the number of shares of Common Stock issuable upon exercise of the
Warrants (without taking into account any limitations on the conversion of the
Notes or exercise of the Warrants as set forth in the Notes and Warrants,
respectively).
(n) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
(o) Registration of Pledged CEO Shares. The Company hereby covenants
and agrees to register for resale, pursuant to the Registration Statement (as
defined in the Registration Rights Agreement) the Pledged Shares (as defined in
the CEO Shares Pledge Agreement), and upon foreclosure of the Pledged Shares
pursuant to the CEO Shares Pledge Agreement, to file a prospectus supplement to
name the part(y)(ies) specified by the Collateral Agent (as defined below) as
owner(s) of the Pledged Shares as selling shareholders thereunder.
(p) Additional Issuances of Securities.
(i) For purposes of this Section 4(p), the following
definitions shall apply.
(1) "CONVERTIBLE SECURITIES" means any stock or
securities (other than Options) convertible into or exercisable or
exchangeable for shares of Common Stock.
(2) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible
Securities.
(3) "COMMON STOCK EQUIVALENTS" means, collectively,
Options and Convertible Securities.
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(ii) From the date hereof until no Notes are outstanding, if
the Company shall have consummated a transaction to sell, grant any option to
purchase, or otherwise dispose of any of its or its Subsidiaries' equity or
equity equivalent securities, including without limitation, any debt, preferred
stock or other instrument or security that is, at any time during its life and
under any circumstances, convertible into or exchangeable or exercisable for
shares of Common Stock or Common Stock Equivalents (any such sale, grant, or
disposition being referred to as a "SUBSEQUENT PLACEMENT"), the Company shall
promptly deliver to each Buyer a written notice (the "OFFER NOTICE") of such
Subsequent Placement which Offer Notice shall (w) identify and describe the
Subsequent Placement, (x) describe the price and other terms upon which the
securities issued in the Subsequent Placement were issued, sold or exchanged,
and the number or amount of the such securities issued, sold or exchanged, (y)
identify the persons or entities to which or with which such securities were
issued, sold or exchanged and (z) offer to issue and sell to or exchange with
each such Buyer an amount of such securities (the "OFFERED SECURITIES") equal to
no less than the Purchase Price paid by such Buyer hereunder on the same terms
and conditions as the investors in the Subsequent Placement. Each Buyer may
purchase the Offered Securities for cash or by exchanging any applicable amount
of its existing Notes. To accept an offer hereunder, such Buyer must deliver a
written notice to the Company prior to the end of the third (3rd) Business Day
after the later of (i) the consummation of the Subsequent Placement and (ii)
such Buyer's receipt of the Offer Notice (the "OFFER PERIOD"), stating whether
such Buyer elects to purchase the Offered Securities (the "NOTICE OF
ACCEPTANCE"); provided, that if the Company has delivered an Optional Redemption
Notice to a Buyer and such Buyer delivers a Notice of Acceptance during the
Offer Period, such Notice of Acceptance shall supersede any Optional Redemption
Notice and any such Optional Redemption Notice shall be null and void.
(iii) The restrictions contained in subsection (ii) of this
Section 4(p) shall not apply in connection with the issuance of any Excluded
Securities (as defined in the Notes).
(q) Appointment of Collateral Agent. Xxxxxx Bay Fund, LP (the
"COLLATERAL AGENT") is hereby appointed as the collateral agent for the Buyers
hereunder, and each Buyer hereby authorizes the Collateral Agent (and its
officers, directors, employees and agents) to take any and all such actions on
behalf of the Buyers with respect to the Collateral (as defined in the Security
Documents) and the Obligations in accordance with the terms of this Agreement.
The Collateral Agent shall not have, by reason hereof or any of the other
Transaction Documents, a fiduciary relationship in respect of any Buyer. Neither
the Collateral Agent nor any of its officers, directors, employees and agents
shall have any liability to any Buyer for any action taken or omitted to be
taken in connection hereof except to the extent caused by its own gross
negligence or willful misconduct, and each Buyer agrees to defend, protect,
indemnify and hold harmless the Collateral Agent and all of its officers,
directors, employees and agents (collectively, the "INDEMNITEES") from and
against any losses, damages, liabilities, obligations, penalties, actions,
judgments, suits, fees, costs and expenses (including, without limitation,
reasonable attorneys' fees, costs and expenses) incurred by such Indemnitee,
whether direct, indirect or consequential, arising from or in connection with
the performance by such Indemnitee of the duties and obligations of Collateral
Agent pursuant hereto.
(r) Within 10 days following the Closing Date, the Company and each
Company Subsidiary shall execute the Guaranty and the Security Agreement and
deliver the same to each Buyer. Together with the execution and delivery of the
Security Documents, such Buyer shall have received the opinion of Xxxxxxxxxx &
Xxxxx, XX, the Company's outside counsel, in form and substance reasonably
satisfactory to the Collateral Agent and its counsel with respect to the
execution, delivery and enforceability of Security Documents, the creation and
perfection security interests granted thereunder to the Collateral Agent for the
benefit of the Buyer and other related opinions reasonably requested by the
Collateral Agent.
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(s) Within 10 days following the Closing Date, in accordance with
the terms of the Security Documents, the Company shall deliver to the Collateral
Agent certificates representing the Subsidiaries' shares of capital stock, along
with duly executed blank stock powers
(t) Within 10 days following the Closing Date, the Company and the
Company Subsidiaries shall deliver to such Buyer, appropriate financing
statements on Form UCC-1 in form for filing under the Uniform Commercial Code or
other applicable local law of each jurisdiction in which the filing of a
financing statement or giving of notice may be required, or reasonably requested
by the Collateral Agent, to perfect the security interests intended to be
created by the Security Document.
(u) Within 10 days following the Closing Date, the Company shall
deliver or caused to be delivered to each Buyer certified copies of UCC search
results, listing all effective financing statements which name as debtor the
Company or any of its Subsidiaries filed in the prior five years to perfect an
interest in any assets thereof, together with copies of such financing
statements, none of which, except as otherwise agreed in writing by the Buyers,
shall cover any of the Collateral (as defined in the Security Documents) and the
results of searches for any tax lien and judgment lien filed against such Person
or its property, which results, except as otherwise agreed to in writing by the
Buyers shall not show any such Liens (as defined in the Security Documents).
(v) Within 10 days following the Closing Date, unless such time
period is extended by the Collateral Agent,, the Company shall file or cause to
be filed (i) UCC termination statements for all UCC financing statements filed
by the Crucian transition Incorporate dba CTI Capital Management as Collateral
Agent and covering any portion of the assets of the Company or any of its
Subsidiaries and (ii) an amendment to the UCC financing statement filed by IFC
Credit Corporation ("IFC") filed with the State of Nevada under document number
2004017288-7, amending the description of collateral to include only the
equipment leased to the Company pursuant to master lease 801036 between the
Company and IFC.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Notes and the Warrants
in which the Company shall record the name and address of the Person in whose
name the Notes and the Warrants have been issued (including the name and address
of each transferee), the principal amount of Notes held by such Person, the
number of Conversion Shares issuable upon conversion of the Notes and Warrant
Shares issuable upon exercise of the Warrants held by such Person. The Company
shall keep the register open and available at all times during business hours
for inspection of any Buyer or its legal representatives.
-23-
(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares issued
at the Closing or upon conversion of the Notes or exercise of the Warrants in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in the form of EXHIBIT H
attached hereto (the "IRREVOCABLE TRANSFER AGENT Instructions"). The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(g) hereof, will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect such
sale, transfer or assignment. In the event that such sale, assignment or
transfer involves Conversion Shares or Warrant Shares sold, assigned or
transferred pursuant to an effective registration statement or pursuant to Rule
144, the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Notes
and the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
(ii) Such Buyer and each other Buyer shall have delivered to
the Company the Purchase Price (less, in the case of Xxxxxx Bay Fund, LP, the
amounts withheld pursuant to Section 4(g)) for the Notes and the related
Warrants being purchased by such Buyer at the Closing (i) by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Company or (ii) by cancellation and exchange of the Lane Notes pursuant to the
terms hereof.
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(iii) The representations and warranties of such Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Notes and the
related Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The Company shall have executed and delivered to such
Buyer (A) each of the Transaction Documents, (B) the Notes (in such principal
amounts as such Buyer shall request) being purchased by such Buyer at the
Closing pursuant to this Agreement, and (C) the Warrants (in such amounts as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement.
(ii) Such Buyer shall have received the opinion of Xxxxxxxxxx
& Xxxxx, XX, the Company's outside counsel, dated as of the Closing Date, in
substantially the form of EXHIBIT I attached hereto.
(iii) The Company shall have delivered to such Buyer a copy of
the Irrevocable Transfer Agent Instructions, in the form of EXHIBIT H attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(iv) The Company shall have delivered to such Buyer a
certificate evidencing the formation and good standing of the Company and each
of its Subsidiaries in such entity's jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction, as of a date
within 10 days of the Closing Date.
(v) The Company shall have delivered to such Buyer a
certificate evidencing the Company's qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business, as of a date within 10 days
of the Closing Date.
(vi) The Company shall have delivered to such Buyer a
certified copy of the Articles of Incorporation as certified by the Secretary of
State of the State of Nevada within ten (10) days of the Closing Date.
-25-
(vii) The Company shall have delivered to such Buyer a
certificate, executed by the Chief Executive Officer of the Company and dated as
of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as
adopted by the Company's Board of Directors in a form reasonably acceptable to
such Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as in
effect at the Closing, in the form attached hereto as EXHIBIT J.
(viii) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer in the form attached hereto as EXHIBIT K.
(ix) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Closing Date.
(x) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market and (II) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Closing Date, either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing maintenance
requirements of the Principal Market.
(xi) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the sale
of the Securities, except for post-closing securities filings or notifications
required to be made under federal or state securities laws.
(xii) Xxxxxx Xxxxxxxx shall have executed and delivered to
such Buyer the letter agreement in the form attached hereto as EXHIBIT L.
(xiii) The Company shall have delivered to such Buyer the CFO
Shares Pledge Agreement, duly executed by Xxxxxx Xxxxxxxx, together with the
original stock certificates representing all of the common stock of the Company
pledged pursuant thereto and accompanied by undated stock powers executed in
blank and other proper instruments of transfer.
(xiv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) Business Days from the date hereof due
to the Company's or such Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, this if this Agreement is terminated pursuant to this Section
8, the Company shall remain obligated to reimburse the non-breaching Buyers for
the expenses described in Section 4(g) above.
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9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, 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 brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. 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 to such
party at the address for such 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. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
-27-
(e) Entire Agreement; Amendments. This Agreement and the other
Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their Affiliates and Persons acting on their
behalf with respect to the matters discussed herein and therein, and this
Agreement, the other Transaction Documents and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, and any amendment to this
Agreement made in conformity with the provisions of this Section 9(e) shall be
binding on all Buyers and holders of Securities, as applicable. No provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the applicable
Securities then outstanding. 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 also is offered to
all of the parties to the Transaction Documents, holders of Notes or holders of
the Warrants, as the case may be. The Company has not, directly or indirectly,
made any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other obligation to provide any financing to the Company or
otherwise.
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Composite Technology Corporation
0000 XxXxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxx
Copy to:
Xxxxxxxxxx & Xxxxx, XX
00000 Xxxxxxxx Xxxx., Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxx, Esq.
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If to the Transfer Agent:
Securities Transfer Corporation
0000 Xxxxxx Xxxx Xxxxx 000
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxxxx Xxx
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
with a copy (for informational purposes only) to:
Xxxxxxx Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder and under the Notes,
including by way of a Fundamental Transaction (unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set
forth in the Notes and the Warrants). A Buyer may assign some or all of its
rights hereunder without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such assigned
rights.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8,
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
-29-
(j) 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
any 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.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities (but
indemnification pursuant to this clause (ii) shall not apply to any expense
reimbursement payments to be made to any Buyer, any Buyer's counsel or to any
Buyer's other representatives), (iii) any disclosure made by such Buyer pursuant
to Section 4(i) that has been reasonably approved by the Company, or (iv) the
status of such Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
(l) No Strict Construction. 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.
-30-
(m) Remedies. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or 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, foreign, 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.
(o) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents. Each Buyer confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.
[SIGNATURE PAGE FOLLOWS]
-31-
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
COMPANY:
COMPOSITE TECHNOLOGY CORPORATION
By: ____________________________________
Name:
Title:
Signature Page to Securities
Purchase Agreement
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
XXXXXX BAY FUND, LP
By: __________________________________
Name: ______________
Title:______________
Signature Page to Securities
Purchase Agreement
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
By: ___________________________________
Name:
Title:
Signature Page to Securities
Purchase Agreement
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5)
AGGREGATE
PRINCIPAL NUMBER OF
ADDRESS AND AMOUNT OF NUMBER OF SERIES A SERIES B
BUYER FACSIMILE NUMBER NOTES WARRANT SHARES WARRANT SHARES
Xxxxxx Bay Fund, LP 000 Xxxxxxxx, 00xx Xxxxx $1,500,000.00 321,429 857,143
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxx
May Xxx
Facsimile: 000-000-0000
Telephone: 000-000-0000
Residence: United States
E-mail: xxxxx@xxxxxx.xxx
xxx@xxxxxx.xxx
Enable Growth Partners LP Xxx Xxxxx Xxxxxxxx, Xxxxx 000 $ 730,000.00 156,429 417,143
Xxx Xxxxxxxxx, XX 00000
Contact: Xxxxxxx X'Xxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Residence: United States
Tax ID:
Enable Opportunity Partners Xxx Xxxxx Xxxxxxxx, Xxxxx 000 $ 120,000.00 25,714 68,571
LP Xxx Xxxxxxxxx, XX 00000
Contact: Xxxxxxx X'Xxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Residence: United States
Tax ID:
Xxxxxx Diversified Strategy Xxx Xxxxx Xxxxxxxx, Xxxxx 000 $ 150,000.00 32,143 85,714
Master Fund LLC Xxx Xxxxxxxxx, XX 00000
Contact: Xxxxxxx X'Xxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Residence: United States
Tax ID:
Capital Ventures c/o Heights Capital Management, Inc. $ 800,000.00 171,429 457,143
International 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Contact: Xxxxxx Hoe
Telephone: 0000-000-0000
Facsimile: 415.403.6525
Residence: United States
Tax ID: 00-0000000
Lane Capital Markets 000 Xxxxxxxx, xxxxx 0000 $ 200,000.00 42,857 114,286
Xxx Xxxx, Xxx Xxxx 00000
Contact: Xxxx X. Xxxx
Telephone: 2120-6080-3300
Facsimile: 000-000-0000
Residence: United States
Tax ID: 00-0000000
(1) (6) (7)
LEGAL REPRESENTATIVE'S ADDRESS
AND FACSIMILE NUMBER
BUYER PURCHASE PRICE
Xxxxxx Bay Fund, LP $1.55 Xxxxxxx Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Enable Growth Partners LP $1.55
Enable Opportunity Partners $1.55
XX
Xxxxxx Diversified Strategy $1.55
Master Fund LLC
Capital Ventures $1.55
International
Lane Capital Markets $1.55
Signature Page to Securities
Purchase Agreement
EXHIBITS
Exhibit A Form of Notes
Exhibit B-1 Form of Series A Warrants
Exhibit B-2 Form of Series B Warrants
Exhibit C Form of Registration Rights Agreement
Exhibit D Security Agreement
Exhibit E Guaranty
Exhibit F Pledge Agreement
Exhibit G CEO Shares Pledge Agreement
Exhibit H Irrevocable Transfer Agent Instructions
Exhibit I Form of Outside Company Counsel Opinion
Exhibit J Form of Secretary's Certificate
Exhibit K Form of Officer's Certificate
Exhibit L Xxxxxx Xxxxxxxx Letter Agreement
SCHEDULES
Schedule 3(a) Subsidiaries
Schedule 3(k) SEC Documents; Financial Statements
Schedule 3(l) Absence of Certain Changes
Schedule 3(q) Transactions with Affiliates
Schedule (n) Conduct of Business
Schedule 3(r) Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Litigation
Schedule 3(w) Title
Schedule 3(x) Intellectual Property
Schedule 3(z) Subsidiary Rights
Schedule 3(cc) Ranking of Notes
