EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of March
16, 2004, among Riviera Tool Company, a Michigan corporation (the "Company"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder (the
"Securities Act"), including Regulation D ("Regulation D"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder,
the Company desires to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, desires to purchase from the Company in the
aggregate, $1,500,000 of shares of Common Stock and Warrants on the Closing
Date; and
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means, with respect to the Company, any officer, employee,
consultant OR director of the Company or any person owning any capital
stock of the Company or any member of the immediate family of such officer,
employee, consultant, director or stockholder or any corporation or other
entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder which, in each case, is required to be
disclosed in the SEC Reports. With respect to a Purchaser, any investment
fund or managed account that is managed on a discretionary basis by the
same investment manager as such Purchaser will be deemed to be an Affiliate
of such Purchaser.
"Closing" means the closing of the purchase and sale of the Common
Stock and the Warrants pursuant to Section 2.1.
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"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations to
pay the Subscription Amount and (ii) the Company's obligations to deliver
the Securities have been satisfied or waived.
"Closing Price" means on any particular date (a) the last reported
closing price per share of Common Stock on such date on the Trading Market
(as reported by Bloomberg L.P. at 4:15 PM (New York City time) as the last
reported closing price for regular session trading on such day), or (b) if
there is no such price on such date, then the closing price on the Trading
Market on the date nearest preceding such date (as reported by Bloomberg
L.P. at 4:15 PM (New York City time) as the closing price for regular
session trading on such day), or (c) if the Common Stock is not then listed
or quoted on the Trading Market and if prices for the Common Stock are then
reported in the "pink sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent price per share of the
Common Stock so reported, or (d) if the shares of Common Stock are not then
publicly traded the fair market value of a share of Common Stock as
determined by an appraiser selected in good faith by the Purchasers of a
majority in interest of the Shares then outstanding.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, no par value per
share, and any securities into which such common stock may hereafter be
reclassified.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
"Company Counsel" means Xxxxxxxxx Xxxxxxx, LLP with offices located at
The Met Life Building, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
"Disclosure Schedules" means the disclosure schedules of the Company
delivered concurrently herewith.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
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"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any
stock or option plan duly adopted by a majority of the non-employee members
of the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose, (b)
securities upon the exercise of or conversion of any convertible
securities, options or warrants issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the
date of this Agreement, (c) the Securities issued or issuable hereunder,
(d) up to 300,000 warrants, in the aggregate, with terms no less favorable
to the Company than the Warrants, including but not limited to, an exercise
price not less than the Exercise Price (as defined in the Warrant),
issuable in connection with any mezzanine financing with Hillstreet Fund
II, L.P. ("Hillstreet")(or any such other investor with terms substantially
similar to those proposed by Hillstreet) or (e) warrants issued to Granite
Financial Group, Inc. in connection with this transaction to purchase up to
20,000 shares of Common Stock.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"Intellectual Property Rights" shall have the meaning ascribed to such
term in Section 3.1(o).
"Liens" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning ascribed to such term
in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Per Share Purchase Price" equals $3.80, subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the date of
this Agreement.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding,
such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and
each Purchaser, in the form of Exhibit A hereto.
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"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale by the Purchasers of the Shares and the Warrant Shares.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" collectively means the Shares, the Warrants and the
Warrant Shares.
"Series A Warrant" shall mean the Series A Common Stock Purchase
Warrant to be delivered pursuant to Section 2.2(a)(ii) in the form of
Exhibit B attached hereto.
"Series B Warrant" shall mean the Series B Common Stock Purchase
Warrant to be delivered pursuant to Section 2.2(a)(v) in the form of
Exhibit C attached hereto.
"Shares" means the shares of Common Stock issued or issuable to each
Purchaser pursuant to this Agreement.
"Subscription Amount" means, as to each Purchaser, the amounts set
forth below such Purchaser's signature block on the signature page hereto,
in United States dollars and in immediately available funds.
"Subsidiary" shall mean the subsidiaries of the Company, if any, set
forth on Schedule 3.1(a) and any future direct or indirect subsidiaries of
the Company.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
American Stock Exchange, the New York Stock Exchange, the Nasdaq National
Market or the Nasdaq SmallCap Market.
"Transaction Documents" means this Agreement, the Warrants and the
Registration Rights Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
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"Warrants" means collectively the Series A Common Stock Purchase
Warrants and the Series B Common Stock Purchase Warrants delivered to the
Purchasers at the Closing in accordance with Section 2.2 hereof.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from the
Company, severally and not jointly with the other Purchasers, and the Company
shall issue and sell to each Purchaser, (a) a number of Shares equal to such
Purchaser's Subscription Amount divided by the Per Share Purchase Price and (b)
the Warrants as determined pursuant to Section 2.2(a). The aggregate
Subscription Amounts for Shares sold hereunder shall be $1,500,000. Upon
satisfaction of the conditions set forth in Section 2.2, the Closing shall occur
at the offices of FW or such other location as the parties shall mutually agree.
2.2 Closing Conditions; Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a copy of the irrevocable instructions to the Company's
transfer agent instructing the transfer agent to deliver, on an
expedited basis, a certificate evidencing a number of Shares equal to
such Purchaser's Subscription Amount divided by the Per Share Purchase
Price, registered in the name of such Purchaser;
(iii) a copy of a Series A Warrant registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right to
acquire up to the number of shares of Common Stock equal to 40% of the
Shares to be issued to such Purchaser at the Closing, with an exercise
price equal to $5.07, subject to adjustment therein;
(iv) a copy of a Series A Warrant registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right to
acquire up to the number of shares of Common Stock equal to 40% of the
Shares to be issued to such Purchaser at the Closing, with an exercise
price equal to $5.53, subject to adjustment therein;
(v) a copy of a Series B Warrant registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right to
acquire up to the number of shares of Common Stock equal to 66.66% of
the
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Shares to be issued to such Purchaser at the Closing, with an
exercise price equal to the Per Share Purchase Price, subject to
adjustment therein;
(vi) the Registration Rights Agreement duly executed by the
Company; and
(vii) a legal opinion of Company Counsel, in the form of Exhibit
D attached hereto.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer of
immediately available funds to the account as specified in writing by
the Company; and
(iii) the Registration Rights Agreement duly executed by such
Purchaser.
(c) All representations and warranties of the other party contained
herein shall remain true and correct as of the Closing Date and all
covenants of the other party shall have been performed if due prior to such
date.
(d) From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time
prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades
are reported by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity of
such magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of each
Purchaser, makes it impracticable or inadvisable to purchase the Shares at
the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the Disclosure Schedules which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser:
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(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe
for or purchase securities. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is
in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as the case may be, could not have or reasonably be expected to result in
(i) a material adverse effect on the legality, validity or enforceability
of any Transaction Document, (ii) a material adverse effect on the results
of operations, assets, business, properties, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a
whole, or (iii) a material adverse effect on the Company's ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith other
than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company
and, assuming this Agreement constitutes the valid and binding obligation
of each Purchaser and when delivered in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar laws relating to or
affecting the rights of creditors' generally and by general equitable
principles (regardless of
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whether such enforceability is considered in a proceeding in equity or
at law) and by an implied covenant of good faith and fair dealing.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Shares
and the consummation by the Company of the other transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of
the Company's or any Subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien upon
any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) subject to the
Required Approvals, conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company or a Subsidiary
is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound
or affected, or (iv) conflict with or violate the terms of any agreement by
which the Company or any Subsidiary is bound or to which any property or
asset of the Company or any Subsidiary is bound or affected; except in the
case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.4 of this
Agreement, (ii) the filing with the Commission of the Registration
Statement, (iii) application(s) to each applicable Trading Market for the
listing of the Shares and Warrant Shares for trading thereon in the time
and manner required thereby, and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable
state securities laws (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Shares and Warrants are duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens (other than restrictions generally imposed on
securities under U.S. federal, state or foreign securities laws or any
restrictions on transfer provided for in the Transaction Documents). The
Warrant Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and
clear of all Liens (other than restrictions
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generally imposed on securities under U.S. federal, state or foreign
securities laws or any restrictions on transfer provided for in the
Transaction Documents). The Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement and the Warrants.
(g) Capitalization. The capitalization of the Company is as described
in the Company's most recent periodic report filed with the Commission. The
Company has not issued any capital stock since such filing other than
pursuant to the exercise of employee stock options under the Company's
stock option plans, the issuance of shares of Common Stock to employees
pursuant to the Company's employee stock purchase plan and pursuant to the
conversion or exercise of outstanding Common Stock Equivalents outstanding.
No Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the
purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. The issue and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. All of the outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and none
of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or any other Person is required for the issuance and sale of the
Shares. Except as disclosed in the SEC Reports, there are no stockholders
agreements, voting agreements or other similar agreements with respect to
the Company's capital stock to which the Company is a party or, to the
knowledge of the Company, between or among any of the Company's
stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
two years preceding the date hereof (or such shorter period as the Company
was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as
the "SEC Reports") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
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Securities Act and the Exchange Act, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission
with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the
periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and
fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes. Since the date of the latest financial
statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be disclosed
in filings made with the Commission, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending
before the Commission any request for confidential treatment of
information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been,
and to the knowledge of the Company, there is not pending or contemplated,
any
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investigation by the Commission involving the Company or any current
or former director or officer of the Company. The Commission has not issued
any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business except in each case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not have or reasonably be expected to
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Company
and the Subsidiaries are in compliance.
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(o) Patents and Trademarks. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure
to so have could have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged. To the best of
Company's knowledge, such insurance contracts and policies are accurate and
complete. Neither the Company nor any Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a significant
increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 in any twelve (12) month period other than (i) for payment of
salary or consulting fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company and (iii) for other employee
benefits, including stock option agreements under any stock option plan of
the Company.
(r) Xxxxxxxx-Xxxxx Act. The Company is in substantial compliance with
the applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the
"Xxxxxxxx-Xxxxx Act"), and the rules and regulations promulgated
thereunder, that are effective and intends to comply substantially with
other applicable provisions of the Xxxxxxxx-Xxxxx Act, and the rules and
regulations promulgated thereunder, upon the effectiveness of such
provisions.
(s) Certain Fees. No brokerage or finder's fees or commissions are or
will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the
12
transactions contemplated by this Agreement, except as set forth on
Schedule 3.1(s). The Purchasers shall have no obligation with respect to
any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the rules
and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Shares, will not be or
be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(v) Registration Rights. No Person has any right to cause the Company
to effect the registration under the Securities Act of any securities of
the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(b) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
(x) Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation
(or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation the
Company's issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) Disclosure. The Company confirms that, neither the Company nor any
other Person acting on its behalf has provided any of the Purchasers or
their
13
agents or counsel with any information that constitutes or might
constitute material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business
and the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with
respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation
system on which any of the securities of the Company are listed or
designated.
(aa) Form S-3 Eligibility. The Company is eligible to register the
resale of its Common Stock by the Purchasers under Form S-3 promulgated
under the Securities Act and the Company hereby covenants and agrees to use
commercially reasonable efforts to maintain its eligibility to use Form S-3
until the Registration Statement covering the resale of the Shares shall
have been filed with, and declared effective by, the Commission.
(bb) Taxes. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal,
state and foreign income and franchise tax returns and has paid or accrued
all taxes shown as due thereon, and the Company has no knowledge of a tax
deficiency which has been asserted or threatened against the Company or any
Subsidiary.
(cc) General Solicitation. Neither the Company nor any person acting
on behalf of the Company has offered or sold any of the Shares by any form
of general solicitation or general advertising. The Company has offered the
Shares for sale only to the Purchasers and certain other "accredited
investors" within the meaning of Rule 501 under the Securities Act.
14
(dd) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or
made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended.
(ee) Accountants. The Company's accountants are set forth on Schedule
3.1(ee) of the Disclosure Schedule. To the Company's knowledge, such
accountants, who the Company expects will express their opinion with
respect to the financial statements to be included in the Company's Annual
Report on Form 10-K for the year ended August 31, 2004, are independent
accountants as required by the Securities Act.
(ff) Acknowledgment Regarding Purchasers' Purchase of Shares. The
Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by
any Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to the Purchasers' purchase of the Shares. The Company
further represents to each Purchaser that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation of
the transactions contemplated hereby by the Company and its
representatives.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has been duly
executed by such Purchaser, and, assuming this Agreement constitutes the
valid and binding obligation of the Company and each other Purchaser and
when delivered by such Purchaser in accordance with the terms
15
hereof, will constitute the valid and legally binding obligation of
such Purchaser, enforceable against it in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws relating
to or affecting the rights of creditors' generally and by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and by an implied covenant of good faith
and fair dealing.
(b) Investment Intent. Such Purchaser understands that the Securities
are "restricted securities" and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account for investment purposes only
and not with a view to or for distributing or reselling such Securities or
any part thereof, has no present intention of distributing any of such
Securities and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser's right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws). Such Purchaser is acquiring
the Securities hereunder in the ordinary course of its business. Such
Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
(c) Rule 144. Such Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the
Securities Act or an exemption from registration is available. Such
Purchaser acknowledges that it is familiar with Rule 144, and that such
Purchaser has been advised that Rule 144 permits resales only under certain
circumstances. Such Purchaser understands that to the extent that Rule 144
is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of
another exemption from such registration requirement.
(d) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which
it exercises any Warrants, it will be either: (i) an "accredited investor"
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a "qualified institutional buyer" as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.
(e) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
16
(f) General. Such Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such
Purchaser set forth herein in order to determine the applicability of such
exemptions and the suitability of such Purchaser to acquire the Securities.
Such Purchaser understands that no United States federal or state agency or
any government or governmental agency has passed upon or made any
recommendation or endorsement of the Securities.
(g) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
(h) Patriot Act. If such Purchaser is an individual, such Purchaser
certifies that he or she is not nor to his or her knowledge has been
designated, a "suspected terrorist" as defined in Executive Order 13224. If
such Purchaser is a corporation, trust, partnership, limited liability
company or other organization, such Purchaser certifies that, to the best
of such Purchaser's knowledge, such Purchaser has not been designated, and,
to the knowledge of the Purchaser after due inquiry, is not owned or
controlled, by a "suspected terrorist" as defined in Executive Order 13224.
Such Purchaser hereby acknowledges that the Company seeks to comply with
all applicable laws concerning money laundering and related activities. In
furtherance of those efforts, such Purchaser hereby represents, warrants
and agrees that: (i) to its knowledge after due inquiry, none of the cash
or property that such Purchaser will pay or will contribute to the Company
has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and (ii) to its knowledge, no
contribution or payment by such Purchaser to the Company, to the extent
that they are within such Purchaser's control shall cause the Company to be
in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001. Such Purchaser understands and agrees that if at anytime while
such Purchaser holds any of the Securities it is discovered that any of the
foregoing representations are incorrect, it shall promptly notify the
Company.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
17
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an Affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected
by the transferor and reasonably acceptable to the Company, the form and
substance of which opinion and shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of
such transferred Securities under the Securities Act. As a condition of
transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 4.1(b), of a legend on any of the Securities in the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES
ACT.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities
to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and who agrees to be bound by the
provisions of this Agreement and the Registration Rights Agreement and, if
required under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor
shall be required in connection therewith, unless
18
otherwise reasonably required by the Company's transfer agent.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably
request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or
other applicable provision of the Securities Act to appropriately amend the
list of Selling Stockholders thereunder.
(c) Certificates evidencing the Shares and Warrant Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)), (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act,
provided that the Purchaser's selling broker provides the Company with a
representation that any sales or transfers of such Shares or Warrant Shares
shall be made pursuant to the prospectus delivery requirements, or (ii)
following a sale of such Securities pursuant to an effective registration
statement (including the Registration Statement) or (iii) following any
sale of such Shares or Warrant Shares pursuant to Rule 144, or (iv) if such
Shares or Warrant Shares are eligible for sale under Rule 144(k), or (v) if
such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the
Staff of the Commission); provided, however, that in each of instances
(iii) through (v) above, (A) such Purchaser shall have -------- -------
provided representations that such Purchaser is permitted to dispose of
such Shares and/or Warrant Shares without limitation as to amount or manner
of sale pursuant to Rule 144 under the Securities Act and (B) such
certificates evidencing the Shares and/or Warrant Shares shall have been
surrendered along with a notice requesting removal of any legend and
requesting the issuance of new certificates free of the legend to replace
those surrendered. The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective Date
if required by the Company's transfer agent to effect the removal of the
legend hereunder. If all or any portion of a Warrant is exercised at a time
when there is an effective registration statement to cover the resale of
the Warrant Shares, such Warrant Shares shall be issued free of all
legends. The Company agrees that following the Effective Date or at such
time as such legend is no longer required under this Section 4.1(c), it
will, no later than five Trading Days following the delivery by a Purchaser
to the Company or the Company's transfer agent of a certificate
representing Shares or Warrant Shares, as the case may be, issued with a
restrictive legend (such date, the "Legend Removal Date"), deliver or cause
to be delivered to such Purchaser a certificate representing such
Securities that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a
19
penalty, for each $1,000 of Shares or Warrant Shares (based on the
Closing Price of the Common Stock on the date such Securities are submitted
to the Company's transfer agent) subject to Section 4.1(c), $10 per Trading
Day (increasing to $20 per Trading Day five (5) Trading Days after such
damages have begun to accrue) for each Trading Day after the Legend Removal
Date until such certificate is delivered. Nothing herein shall limit such
Purchaser's right to pursue actual damages for the Company's failure to
deliver certificates representing any Securities as required by the
Transaction Documents, and such Purchaser shall have the right to pursue
all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom.
(f) Until the 30th day after the Effective Date, the Company shall not
undertake a reverse or forward stock split or reclassification of the
Common Stock without the prior written consent of the Purchasers holding a
majority in interest of the Shares, which consent shall not be unreasonably
withheld.
4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
4.3 Integration. Except as otherwise contemplated by this Agreement, the
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Purchasers or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day following the date hereof, issue a press release
20
reasonably acceptable to Purchasers holding at least 51% of the Shares
disclosing the material terms of the transactions contemplated hereby. The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, which consent shall not unreasonably be withheld, except (i) as
required by federal securities law in connection with the registration statement
contemplated by the Registration Rights Agreement and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure
permitted under subclause (i) or (ii).
4.5 Shareholders Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.6 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.7 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital and general corporate purposes.
4.8 Indemnification of Purchasers. Subject to the provisions of this
Section 4.8, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the
21
other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by an Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
4.9 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.10 Listing of Common Stock. The Company hereby agrees to use commercially
reasonable efforts to maintain the listing of the Common Stock on a Trading
Market, and as soon as reasonably practicable following the Closing (but not
later than the earlier of the Effective Date and the first anniversary of the
Closing Date) to list all of the Shares and Warrant Shares on such Trading
Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Trading Market, it will include in such application
all of the Shares and Warrant Shares, and will take such other action as is
necessary to cause all of the Shares and Warrant Shares to be listed on such
other Trading Market as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on
a Trading Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Trading Market.
4.11 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of
22
the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents. For clarification purposes,
this provision constitutes a separate right granted to each Purchaser by the
Company and negotiated separately by each Purchaser, and is intended to treat
for the Company the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.12 Participation in Future Financing. From the date hereof until twelve
(12) months after the Effective Date, upon any issuance by the Company of its
Common Stock or Common Stock Equivalents (a "Subsequent Financing"), each
Purchaser shall have the right to participate in up to 50% of such Subsequent
Financing (the "Participation Maximum"). At least five (5) Trading Days prior to
the closing of the Subsequent Financing, the Company shall deliver to each
Purchaser a written notice of its intention to effect a Subsequent Financing
("Pre-Notice"), which Pre-Notice shall ask such Purchaser if it wants to review
the details of such financing (such additional notice, a "Subsequent Financing
Notice"). Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no
later than one (1) Trading Day after such request, deliver a Subsequent
Financing Notice to such Purchaser. The Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto. If by 6:30 p.m. (New
York City time) on the fifth Trading Day after all of the Purchasers have
received the Pre-Notice, notifications by the Purchasers of their willingness to
participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent
Financing, then the Company may effect the remaining portion of such Subsequent
Financing on the terms and to the Persons set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Purchaser as of such 5th
Trading Day, such Purchaser shall be deemed to have notified the Company that it
does not elect to participate. The Company must provide the Purchasers with a
second Subsequent Financing Notice, and the Purchasers will again have the right
of participation set forth above in this Section 4.12, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not consummated
for any reason on the terms set forth in such Subsequent Financing Notice within
60 Trading Days after the date of the initial Subsequent Financing Notice. In
the event the Company receives responses to Subsequent Financing Notices from
Purchasers seeking to purchase more than the aggregate amount of the Subsequent
Financing, each such Purchaser shall have the right to purchase their Pro Rata
Portion (as defined below) of the Participation Maximum. "Pro Rata Portion" is
the ratio of (x) the Subscription Amount of Securities purchased by a
participating Purchaser and (y) the sum of the aggregate Subscription Amount of
all participating Purchasers. Notwithstanding the foregoing, this Section 4.12
shall not apply in respect of an Exempt Issuance.
4.13 Subsequent Equity Sales. From the date hereof until 60 days after the
Effective Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents; provided, however, the 60 day period
set forth in
23
this Section 4.13 shall be extended for the number of Trading Days during
such period in which (y) trading in the Common Stock is suspended by any Trading
Market, or (z) following the Effective Date, the Registration Statement is not
effective or the prospectus included in the Registration Statement may not be
used by the Purchasers for the resale of the Shares and Warrant Shares.
Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of
an Exempt Issuance.
4.14 Delivery of Securities After Closing. The Company shall deliver, or
cause to be delivered, the respective Shares and Warrants purchased by each
Purchaser to such Purchaser within three (3) Trading Days of the Closing Date.
4.15 Per Share Purchase Price Protection. From the date hereof until twelve
(12) months after the Effective Date, if in connection with a Subsequent
Financing, the Company or any Subsidiary shall issue any Common Stock or Common
Stock Equivalents entitling any person or entity to acquire shares of Common
Stock at a price per share less than the Per Share Purchase Price (subject to
reverse and forward stock splits and the like) (the "Discounted Purchase Price",
as further defined below), the Company shall issue to such Purchaser that number
of additional shares of Common Stock equal to (a) the Subscription Amount paid
by such Purchaser at the Closing divided by the Discounted Purchase Price, less
(b) the Shares issued to such Purchaser at the Closing pursuant to this
Agreement and pursuant to this Section 4.15. The term "Discounted Purchase
Price" shall mean the amount actually paid by third parties for a share of
Common Stock. The sale of Common Stock Equivalents shall be deemed to have
occurred at the time of the issuance of the Common Stock Equivalents and the
Discounted Purchase Price covered thereby shall also include the actual exercise
or conversion price thereof at the time of the conversion or exercise (in
addition to the consideration per share of Common Stock underlying the Common
Stock Equivalents received by the Company upon such sale or issuance of the
Common Stock Equivalents). In the case of any Subsequent Financing involving a
"Variable Rate Transaction" or an "MFN Transaction" (each as defined below), the
Discounted Purchase Price shall be deemed to be the lowest actual conversion or
exercise price at which such securities are converted or exercised in the case
of a Variable Rate Transaction, or the lowest adjustment price in the case of an
MFN Transaction. If shares are issued for a consideration other than cash, the
per share selling price shall be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. The term
"Variable Rate Transaction" shall mean a transaction in which the Company issues
or sells any debt or equity securities that are convertible into, exchangeable
or exercisable for, or include the right to receive additional shares of Common
Stock either (x) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (y) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock. The term "MFN Transaction" shall mean a transaction in which
the Company issues or sells any securities in a capital raising transaction or
series of related transactions which grants to an investor the right to receive
additional shares
24
based upon future transactions of the Company on terms more favorable than
those granted to the such investor in such offering. The Company may not refuse
to issue a Purchaser additional Shares hereunder based on any claim that such
Purchaser or any one associated or affiliated with such Purchaser has been
engaged in any violation of law, agreement or for any other reason, unless, an
injunction from a court, on notice, restraining and or enjoining an issuance
hereunder shall have been sought and obtained. Nothing herein shall limit a
Purchaser's right to pursue actual damages for the Company's failure to deliver
Shares hereunder and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. Notwithstanding anything to the
contrary herein, this Section 4.15 not apply in respect of (a) an Exempt
Issuance or (b) with respect to a Purchaser, any Subsequent Financing that such
Purchaser Participates in as contemplated in Section 4.12 hereof. Additionally,
prior to any issuance to a Purchaser pursuant to this Section 4.5, such
Purchaser shall have the right to irrevocably defer such issuances to such
Purchaser under this Section 4.15, in whole or in part, for continuous periods
of not less than seventy-five (75) days.
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. At the Closing, the Company will pay The BlueGrass
Fund ("BlueGrass") up to $20,000 for its reasonable and documented legal fees
and expenses, $10,000 of which has already been paid. Accordingly, in lieu of
the foregoing payments, the Company, on the Closing Date, will direct that the
aggregate amount that BlueGrass is to pay for the Shares and Warrants at the
Closing, be reduced by up to $10,000. Except as otherwise set forth in this
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to
25
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party 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 (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof.
26
Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.9 Survival. The representations and warranties herein shall survive for
eighteen (18) months after the Closing and delivery of the Shares and Warrant
Shares.
5.10 Execution. This Agreement may be executed in two (2) or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.13 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The
27
parties agree that monetary damages may not be adequate compensation for
any loss incurred by reason of any breach of obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
5.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent any of
the Purchasers in this transaction other than BlueGrass. The Company has elected
to provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do so
by the Purchasers.
5.17 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
(Signature Page Follows)
28
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
RIVIERA TOOL COMPANY Address for Notice:
By:__________________________________________ Riviera Tool Company
Name: Xxxxx X. Xxxxxx 0000 Xxxxxxxxx Xxxxxxx XX
Title: Chief Financial Officer Xxxxx Xxxxxx, XX 00000
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
29
[PURCHASER SIGNATURE PAGES TO RTC SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Authorized Entity:_____________________________________________
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount:
Shares:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
30
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
SEE EXHIBIT 10.1
1
EXHIBIT B
FORM OF SERIES A WARRANT
SEE EXHIBIT 10.2
1
EXHIBIT C
FORM OF SERIES B WARRANT
SEE EXHIBIT 10.3
1
EXHIBIT D
FORM OF GT OPINION
March 16, 2004
To each of the Purchasers set forth
on Schedule A attached hereto
Re: Riviera Tool Company - Securities Purchase Agreement
Ladies and Gentlemen:
We have acted as special counsel to Riviera Tool Company (the "Company") in
connection with the preparation, authorization, execution and delivery of, and
the consummation by the Company of the issuance and sale of $1,500,000 of common
stock, no par value (the "Common Stock"), of the Company and warrants (the
"Warrants" and, together with the Common Stock, the "Securities") to purchase
Common Stock of the Company pursuant to that certain Securities Purchase
Agreement, dated as of March 16, 2004 (the "Agreement"), by and among the
Company, and such other persons or entities identified on the signature pages
thereto (collectively, the "Purchasers"). All capitalized terms used but not
otherwise defined herein have the respective meanings assigned to them in the
Agreement.
This opinion is furnished to you pursuant to Section 2.2(vi) of the
Agreement solely for your benefit.
In so acting, we have examined originals or copies (certified or otherwise
identified to our satisfaction) of the Agreement, the Stockholders' Agreement
and the Warrants (collectively, the "Documents"), and such corporate records,
agreements, documents and instruments, and such certificates or comparable
documents of public officials and governmental authorities and of officers and
representatives of the Company, and have made such inquiries of such officers
and representatives, as we have deemed relevant and necessary as a basis for the
opinions hereafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified, conformed or photostatic copies, and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not independently been established by
us, we have relied upon certifications or comparable documents of officers and
representatives of the Company and upon the representations and warranties of
the Company contained in the Agreement.
As used herein, "to our knowledge," "of which we are aware" and all
correlative and analogous phrases mean the conscious awareness of facts or other
1
information by those attorneys in our firm actively involved in the transactions
contemplated by the Agreement and do not: include constructive notice of any
matters or information, and, other than conferences with executive officers of
the Company and our review of the Documents to the extent stated above, do not
imply that we have undertaken any independent inquiries or investigations (x)
with any persons outside of our firm, (y) as to the accuracy or completeness of
any factual representations, information or any other matters made or furnished
in connection with the transactions contemplated by the Agreement, or (z) as to
any instruments or agreements other than the Documents. Moreover, such phrases
mean only that nothing has come to our attention that leads us to believe that
there exists any facts or circumstances contradicting the statement that follows
and do not imply that we know the statement to be correct or to have any basis,
other than the Documents and said conversations.
Moreover, we note that as special counsel to the Company, our
representation of the Company is necessarily limited to such specific and
discrete matters referred to us from time to time by representatives of the
Company. Accordingly, we do not have and you should not infer from our
representation of the Company in this particular instance that we have any
knowledge of the Company's affairs or transactions other than as expressly set
forth in this opinion letter.
For purposes of this opinion, we have assumed that you have all requisite
power and authority, and have taken any and all necessary corporate action, to
execute and deliver the Agreements, and we are assuming that the representations
and warranties made by each Purchaser in the Agreements and pursuant thereto are
true and correct.
The opinions contained in this opinion letter merely constitute expressions
of our reasoned professional judgment regarding the matters of law addressed
herein and neither are intended nor should they be construed as a prediction or
guarantee that any court or other public or governmental authority will reach
any particular result or conclusion as to the matters of law addressed herein.
Based on the foregoing, and subject to the qualifications and assumptions
stated herein, we are of the opinion that:
1. In reliance solely on the opinion letter of Law Xxxxxxxx & Xxxxxxxxxx,
P.C. (the "LWR Opinion"), dated March 16, 2004, and subject to the assumptions,
qualifications and limitations set forth therein and to the exceptions and
limitations expressed below in this paragraph 1, the Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
Michigan and has all requisite corporate power and authority to own, lease and
operate its properties as described in the Company's SEC Documents and to
conduct its business as presently being conducted. To our knowledge, the Company
does not have any Subsidiaries and does not own more than fifty percent (50%) of
the outstanding capital stock of or control any other business entity.
2. Based solely upon the review of the Company's articles of incorporation
and by-laws, requisite corporate resolutions and approvals of the Company,
2
and without any further inquiry, the Company has all requisite corporate
power and authority to execute and deliver the Documents and to perform the
obligations thereunder. The execution, delivery and performance of the Documents
by the Company and the consummation by the Company of the transactions
contemplated thereby have been duly authorized by all requisite corporate action
on the part of the Company.
3. The Documents have been duly and validly executed and delivered by the
Company (assuming the due authorization, execution and delivery thereof by each
of the Purchasers) constitutes the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
conservatorship, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (irrespective of whether enforcement is sought in a proceeding at law or
in equity) and except that rights to indemnification and contribution hereunder
may be limited by federal or state securities laws or public policy relating
hereto.
4. To our knowledge and based solely on the Certificate of Incorporation of
the Company, as amended, and a certificate of an officer of the Company, dated
March 16, 2004, immediately prior to the consummation of the transactions
contemplated by the Agreement, the authorized capital stock of the Company
consists of 9,798,575 shares of Common Stock, of which 3,379,609 shares are
issued and outstanding and 7,000 shares of preferred stock, no par value, of
which none are issued and outstanding.
5. Assuming the accuracy of the information provided by the Purchasers in
the Agreement and that the parties thereto have complied with the requirements
of Section 4(2) of the Securities Act (and the provisions of Regulation D
promulgated thereunder), the Securities to be issued by the Company pursuant to
the Agreement have been duly authorized and, when issued and delivered in the
manner contemplated by the Documents, will be validly issued, fully paid and
nonassessable, and free of preemptive rights arising under law or pursuant to
the Company's articles of incorporation; and the shares of Common Stock for
which the Warrants are exercisable at the initial exercise price has been duly
authorized and, when issued and delivered in the manner contemplated by the
Documents, will be validly issued, fully paid and nonassessable, and free of
preemptive rights arising under law or pursuant to the Company's certificate of
incorporation.
6. The execution, delivery and performance of the Documents by the Company
and the consummation by the Company of the transactions contemplated thereby,
including, without limitation, the issuance of the Securities, does not and will
not (i) result in a violation of the Company's articles of incorporation or
by-laws; (ii) conflict with, or constitute a material default (or an event that
with notice or lapse of time or both would become a default) under, require a
consent under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any "material agreement" within the meaning set
forth in Item 601(b)(10) of Regulation S-K of Title 17, Part 229 of the
3
Code of Federal Regulations to which the Company is a party and which the
Company has filed as an exhibit to its SEC Reports; or (iii) result in a
violation of any Federal or State law, rule or regulation or any rule or
regulation of the Trading Market applicable to the Company or by which any
property or asset of the Company is bound or affected, except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
7. To our knowledge and except as set forth on the Disclosure Schedules,
there is no litigation, proceeding or public or governmental investigation
pending or threatened in writing against the Company that relates to the
transactions contemplated by this Agreement or which, if determined adversely to
the Company, could reasonably be expected to have a Company Material Adverse
Effect; and we have not been engaged by the Company to give substantive
attention to or to represent the Company in connection with any such litigation,
proceeding or investigation.
8. In reliance solely on the LWR Opinion, and subject to the assumptions,
qualifications and limitations set forth therein and to the exceptions and
limitations expressed below in this paragraph 8, the Company has taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
articles of incorporation (or similar charter documents) or the laws of the
State of Michigan that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their respective obligations
or exercising their rights under the Documents, including without limitation, as
a result of the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
The opinions expressed herein are limited to the laws of the State of New
York and the federal laws of the United States, and we express no opinion as to
the effect on the matters covered by this letter of the laws of any other
jurisdiction.
The opinions expressed herein are written as of and relate solely to the
date hereof and are rendered exclusively for your benefit in connection with the
transactions described herein. The opinions expressed herein may not be used or
relied upon by any other person or entity, nor may this opinion letter or any
copies or excerpts thereof be furnished to a third party, filed with a public or
governmental authority, quoted, cited or otherwise referred to without our prior
written consent.
Very truly yours,
Xxxxxxxxx Xxxxxxx, LLP
4
SCHEDULE A
Vertical Ventures, LLC
000 Xxxxxxxxx Xxx.
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxxxx
Bluegrass Growth Fund, LP
000 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx
Iroquois Capital, LP
000 Xxxxxxxxx Xxx.
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxxxx
Capital Ventures International
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx Xxxxxxxx
