SECURITIES PURCHASE AGREEMENT
Exhibit
10.01
This
Securities Purchase Agreement, together with all schedules and exhibits (this
“Agreement”),
is
dated as of April 18, 2006, among SAN Holdings, Inc., a Colorado corporation
(the “Company”),
and
each Purchaser (as defined below) identified on the signature pages hereto,
each
a “party” and collectively the “parties.”
WITNESSETH:
WHEREAS,
pursuant to the Securities Purchase Agreement, dated as of February 28, 2006
(the “Initial
Purchase Agreement”),
among
the Company and each purchaser identified on the signature pages thereto (each,
an “Initial
Purchaser”),
on
March 2, 2006, in an initial closing (the “Initial
Closing”),
the
Company sold 236.8 Units to the Initial Purchasers, each Unit consisting of
(i) one share of Preferred Stock of the Company initially convertible into
333,333 shares of Common Stock, with such Preferred Stock having the terms
and
conditions as described in the Certificate of Designations, and (ii) a
$0.30 Warrant and a $0.50 Warrant, each of such Warrants initially exercisable
into 166,667 shares of Common Stock, with such Warrants having the terms and
conditions described in Exhibit
D
and
Exhibit
E;
WHEREAS,
Sun Solunet, LLC (“Sun
Solunet”),
the
majority shareholder of the Company, purchased a total of 176.5 Units from
the
Company for $8,000,000 in the Initial Closing;
WHEREAS,
the number of Units purchased by Sun Solunet at the Initial Closing was equal
to
quotient obtained by dividing (i) 8,000,000 by (ii) the Per Unit Purchase Price
applicable to Sun Solunet. The Per Unit Purchase Price applicable to Sun Solunet
equaled the quotient obtained by dividing (a) the aggregate Subscription Amount
from all Initial Purchasers (other than Sun Solunet) less the aggregate fees
payable to Monarch Capital Group LLC by (b) number of Units purchased by all
Initial Purchasers (other than Sun Solunet);
WHEREAS,
the Initial Purchase Agreement provides that the Company may sell additional
Units which sale is not required to be pursuant to the Initial Purchase
Agreement so long as the Units are sold on the same terms and conditions as
set
forth in the Initial Purchase Agreement;
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act (as defined below), and Rule 506 promulgated
thereunder, the Company desires to issue and sell to the Purchasers, and the
Purchasers, severally and not jointly, desire to purchase from the Company
in
the aggregate, up to 10.8 Units;
WHEREAS,
this Agreement is substantially similar to the Initial Purchase Agreement and
the Company desires to grant the Purchasers under this Agreement the same rights
with respect to the Units as those granted to the Initial Purchasers under
the
Initial Purchase Agreement and the Company desires to treat the Purchasers
under
this Agreement and the Initial Purchasers as a single class of holders of Units;
and
WHEREAS,
subject to the terms and conditions set forth in the Initial Purchase Agreement,
the Company may sell additional Units to Purchasers and or other Persons (as
defined herein) pursuant to the terms set forth in the Initial Purchase
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser 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
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person as such
terms are used in and construed under Rule 144. 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.
“Business
Day”
means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other governmental action to
close.
“Certificate
of Designations”
means
the Certificate of Designations, Preferences and other rights and qualifications
of the Series A Preferred Stock substantially in the form of Exhibit
A
hereto.
“Closing”
means
the closing of the purchase and sale of the Units pursuant to Section 2.1.
The
Closing shall be deemed to be an additional Closing under the Initial Purchase
Agreement. There may be subsequent Closings for the sale of additional Units
pursuant to the Initial Purchase Agreement or on the same terms and conditions
as set forth in the Initial Purchase Agreement.
“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
the
Purchasers’ obligations to pay the Subscription Amount and the Company’s
obligation to issue the Warrants and the Preferred Shares have been satisfied
or
waived.
“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.
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“Credit
Support Termination Agreement”
means
the termination to the letter agreement, dated as of March 31, 2003, by and
between Sun Capital Partners II, LP, a Delaware limited partnership (the
“Fund”), and the Company, as amended on November 23, 2005, acknowledged and
agreed to by Sun Solunet, substantially in the form of Exhibit
G
attached
hereto.
“Disclosure
Schedules”
means
the Disclosure Schedules attached hereto.
“Effective
Date”
means
the date that the Registration Statement is first declared effective by the
Commission.
“Escrow
Agent”
means
Xxxxx Fargo Bank, National Association.
“Escrow
Agreement”
shall
mean the Escrow Agreement substantially in the form of Exhibit
B
hereto,
as the same may be amended or supplemented from time to time.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“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(l).
“Per
Unit Purchase Price”
equals
$50,000 for all Purchasers other than Sun Solunet and for Sun Solunet equals
the
lesser amount set forth in the third “WHEREAS” clause of this
Agreement.
“Person”
means
any legal person, including without limitation, 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.
“Preferred
Shares”
means
the Series A Preferred Stock issuable pursuant to this Agreement.
“Preferred
Stock”
mean
the Series A Preferred Stock of the Company no par value per share. Each share
of Preferred Stock is convertible into 333,333 shares of Common
Stock.
“Purchaser”
means
each Person signing this Agreement as a Purchaser. Each Purchaser hereunder
shall be deemed to be a Purchaser under the Initial Purchase Agreement.
“Purchaser
Questionnaire”
means
the Purchaser Agreement and Questionnaire, substantially in the form of Exhibit
H attached hereto.
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“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the date of this Agreement,
among
the Company and each Purchaser, substantially in the form of Exhibit
C
hereto.
“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.
“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”
means
the Preferred Shares, the Shares and the Warrants.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Shares”
means
the shares of Common Stock issuable to each Purchaser pursuant to the exercise
of the Warrants or the conversion of the Preferred Stock.
“Subscription
Amount”
means,
as to each Purchaser, the amounts set forth below such Purchaser’s signature
block on the signature page hereto, payable (i) with respect to Purchasers
other
than Sun Solunet, in United States dollars and in immediately available funds
and (ii) with respect to Sun Solunet, in the form of the exchange of debt owed
to Sun Solunet in form and substance acceptable to the Company.
“Subsidiary”
shall
mean the subsidiaries of the Company disclosed in the SEC Reports.
“Sun
Solunet”
means
Sun Solunet, LLC, the majority shareholder of the Company as of the date of
this
Agreement.
“Trading
Day”
means
(i) a day on which the Common Stock is traded on a Trading Market, or (ii)
if
the Common Stock is not listed on a Trading Market, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day.
“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, the Nasdaq SmallCap Market or the
OTC Bulletin Board.
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“Transaction
Documents”
means
this Agreement, the Certificate of Designations, the Escrow Agreement, the
Warrants and the Registration Rights Agreement and any other documents or
agreements executed in connection with the transactions contemplated hereunder.
“Units”
means
the Units being offered pursuant to this Agreement, each Unit consisting of
one
share of Preferred Stock, one $0.30 Warrant and one $0.50 Warrant.
“$0.30
Warrants”
means
the Common Stock Purchase Warrants, substantially in the form of Exhibit
D,
issuable to the Purchasers at the Closing, which warrants shall have an exercise
price equal to $0.30 per share and be exercisable for a period of five years.
Each $0.30 Warrant is initially exercisable into 166,667 shares of Common Stock.
“$0.50
Warrants”
means
the Common Stock Purchase Warrants, substantially in the form of Exhibit
E,
issuable to the Purchasers at the Closing, which warrants shall have an exercise
price equal to $0.50 per share and be exercisable for a period of five years.
Each $0.50 Warrant is initially exercisable into 166,667 shares of Common
Stock.
“Warrants”
means
the $0.30 Warrants and $0.50 Warrants, collectively.
ARTICLE
II
PURCHASE
AND SALE
2.1. Closing.
At the
Closing, 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 number of Units equal to such Purchaser’s Subscription Amount
divided by the Per Unit Purchase Price. Sun Solunet, employees and executive
officers of the Company that are Purchasers (the “Insider Purchasers”) shall be
permitted to invest in less than full Unit increments, and notwithstanding
anything to the contrary set forth herein, any such Purchasers shall be excluded
from the representations and warranties to the Company set forth in Section
3.2(i) of this Agreement and the covenants to the Company set forth in Section
4.5 of this Agreement. Purchasers other than the Inside Purchasers shall also
be
permitted to invest in less than full Unit increments, subject to the delivery
by such Purchaser of a Purchaser Questionnaire as set forth in Section
2.2(b)(v). Upon satisfaction of the conditions set forth in Section 2.2, the
Closing shall occur at the offices of Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx &
Xxxxxxx LLP, Park Avenue Tower, 00 Xxxx 00xx
Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, or such other location as the parties shall mutually
agree.
2.2. Closing
Conditions; Deliveries.
(a) At
the
Closing the Company shall deliver or cause to be delivered to each Purchaser
or
in lieu thereof the Placement Agent the following:
(i) this
Agreement duly executed by the Company;
(ii) a
certificate evidencing a number of Preferred Shares equal to such Purchaser’s
Subscription Amount divided by the Per Unit Purchase Price, registered in the
name of such Purchaser;
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(iii) a
copy of
a $0.30 Warrant, registered in the name of such Purchaser, pursuant to which
such Purchaser shall have the initial right to acquire up to the number of
shares of Common Stock equal to 50% of the Shares to be issued to such Purchaser
at the Closing assuming the conversion of all Preferred Stock into Common Stock
of all of the Preferred Stock acquired by the Purchaser;
(iv) a
copy of
a $0.50 Warrant, registered in the name of such Purchaser, pursuant to which
such Purchaser shall have the initial right to acquire up to the number of
shares of Common Stock equal to 50% of the Shares to be issued to such Purchaser
at the Closing assuming the conversion of all Preferred Stock into Common Stock
of all of the Preferred Stock acquired by the Purchaser;
(v) the
Registration Rights Agreement duly executed by the Company
(vi) Lock-up
agreements, substantially in the form of Exhibit
F
hereto
executed by officers and inside directors of the Company that are employees
of
the Company; and
(vii) a
Certificate of the President and the Secretary of the Company that the
Certificate of Designations has been adopted and filed
(b) At
the
Closing each Purchaser shall deliver or cause to be delivered to the Company
the
following:
(i) this
Agreement duly executed by such Purchaser;
(ii) with
respect to the Purchasers other than Sun Solunet, such Purchaser’s Subscription
Amount by wire transfer to the account of the Escrow Agent (such account as
provided to the Purchasers in writing by or on behalf of the Escrow Agent)
prior
to the Closing Date;
(iii) with
respect to Sun Solunet, their Subscription Amount in the form of exchange of
debt owed by the Company to Sun Solunet in form and substance reasonably
acceptable to the Company on or prior to the initial Closing Date;
(iv) the
Registration Rights Agreement duly executed by such Purchaser; and
(v) the
Purchaser Questionnaire duly executed by such Purchaser if such Purchaser is
purchasing less than 1 Unit.
(c) All
representations and warranties of the other parties contained herein shall
remain true and correct as of the Closing Date.
(d) As
of the
Closing Date, there shall have been no Material Adverse Effect with respect
to
the Company since the date hereof.
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(e) 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 Units at the Closing.
(f) After
giving effect to (i) the payment by Sun Solunet of its Subscription Amount
for
the Units purchased in the Initial Closing in the form of exchange of debt
owed
by the Company to Sun Solunet and (ii) the payment by the Company of some of
the
outstanding indebtedness owed to Sun Solunet (separate from the cancellation
of
debt described in (i)), the total remaining indebtedness of the Company to
Sun
Solunet shall be less than or equal to $5,000,000 (in aggregate principal
amount); and
(g) The
Credit Support Termination Agreement shall be duly executed by the parties
thereto and shall include an agreement of the parties thereto to amend the
credit facility the Company maintains with Sun Solunet to decrease the Company’s
borrowing availability from $14,000,000 to $5,000,000, to revise the credit
facility from a revolving loan to a term loan and to extend the maturity date
thereof to a date that is three years from the date of the Credit Support
Termination Agreement.
2.3. Satisfied
Closing Conditions.
The
parties hereto agree and acknowledge that the closing conditions set forth
in
Section 2.2(a)(vi), Section 2.2(a)(vii), Section 2.2(b)(iii), Section 2.2(f)
and
Section 2.2(g) were all satisfied at the Initial Closing and are not closing
conditions for purposes of the Closing pursuant to this Agreement.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
3.1. Representations
and Warranties of the Company.
Except
as disclosed in the SEC Reports or as set forth under the corresponding section
of the Disclosure Schedules delivered concurrently herewith, the Company hereby
makes the following representations and warranties as of the date hereof and
as
of the Closing Date to each Purchaser:
(a) Subsidiaries.
Except
as disclosed in the SEC Reports, the Company has no direct or indirect
subsidiaries. Except as disclosed in the SEC Reports, 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. If the Company
has no subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.
7
(b) Organization
and Qualification.
The
Company 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 of any of
the
provisions of its respective certificate or articles of incorporation, bylaws
or
other organizational or charter documents. The Company 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 or
financial condition 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”).
(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 corporate 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, when delivered
in accordance with the terms hereof assuming such Transaction Documents are
duly
authorized, executed and delivered by the Purchasers as applicable, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be
limited by applicable law.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated thereby
do
not and will not (i) conflict in any material respect with or violate any
provision of the Company’s articles of incorporation, bylaws, 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, 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),
(iii) and (iv), such as could not have or reasonably be expected to result
in a
Material Adverse Effect.
8
(e) Filings,
Consents and Approvals.
The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of any reports with the
Commission, as mandated by the Exchange Act or the Securities Act, (ii) the
filing with the Commission of the Registration Statement, (iii) application(s)
to each applicable Trading Market for the listing of the 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, with each of the items listed in clauses (i)-(iv)
inclusive being deemed a “Required
Approval”).
(f) Issuance
of the Securities.
The
Preferred 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 imposed by the Company
other than as set forth in the Transaction Documents. The Shares, when issued
in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company.
(g) Capitalization.
The
capitalization of the Company is as described in the Company’s SEC Reports filed
with the Commission. The Company has not issued any capital stock since the
Initial Closing 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. 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,
other than as set forth in the SEC Reports. 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 material compliance with all federal and state securities
laws, and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase securities.
Except with respect to the approvals and authorizations required to increase
the
Company’s authorized capital
to permit issuance of the Shares, no further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for
the
issuance and sale of the Preferred Shares or the grant of the Warrants or the
issuance of the Shares upon conversion of the Preferred Stock. With respect
to
the Shares issuable upon the exercise of the Warrants, the Company shall
increase its authorized capital in amount sufficient to provide for the exercise
of all outstanding Warrants of the Company. Except as disclosed in the SEC
Reports, there are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any
of
the Company’s stockholders.
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(h) SEC
Reports; Financial Statements.
The
Company has filed all reports 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, as the same may have been amended,
complied in all material respects at the time of filing with the requirements
of
the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports except to the
extent amended, updated or superseded by any subsequent filed report, when
furnished or 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 in any material respect. The financial statements of the
Company included in the SEC Reports, except to the extent amended, updated
or
superseded by any subsequent filed report, whether furnished or filed, at the
time of filing complied 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 generally accepted accounting principles applied
on
a consistent basis during the periods involved (“GAAP”),
except to the extent amended, updated or superseded by and subsequent filed
report, 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, except to the extent amended, updated or superseded
by
and subsequent filed report, 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 filing of the latest audited financial statements included
within the SEC Reports, except as 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 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, with or without consideration, 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. Except as disclosed in the SEC Reports, the Company
does not have pending before the Commission any request for confidential
treatment of information.
10
(j) Litigation.
Except
as disclosed in the SEC Reports, 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 to the Company’s
knowledge, 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, with
respect to the Company, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) Compliance.
Except
as disclosed in the SEC Reports, 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) where the
effect of such default or violation could be reasonably expected to be a
Material Adverse Effect, (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.
(l) Regulatory
Permits.
The
Company possesses 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
the Company has not received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(m) Xxxxxxxx-Xxxxx.
The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act
of 2002 which are applicable to it as of the Closing Date.
11
(n) Certain
Fees.
Except
for fees payable to Monarch Capital Group LLC and Bathgate Capital Partners
LLC,
no brokerage or finder’s fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. 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.
(o) Private
Placement.
Assuming the accuracy of each 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.
(p) Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that
the Commission is contemplating terminating such registration. Except as
disclosed in the SEC Reports, 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.
(q) Disclosure.
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 Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company are true
and correct and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(r) General
Solicitation.
Neither
the Company nor, to the Company’s knowledge, any person acting on behalf of the
Company has offered or sold any of the Units by any form of general solicitation
or general advertising. To the Company’s knowledge, based upon representations
by such Purchasers or other investors, the Company has offered the Units for
sale only to the Purchasers and certain other “accredited investors” within the
meaning of Rule 501 under the Securities Act.
3.2. Representations
and Warranties of the Purchasers.
The
Purchasers acknowledge that the offering of Securities to the Purchasers is
intended to be exempt from registration under the Securities Act by virtue
of
Section 4(2) of the Securities Act and the provisions of Regulation D
promulgated thereunder, which is in part dependent upon the truth, completeness
and accuracy of the representations made by the Purchasers in this Agreement.
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:
12
(a) No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
the Purchaser of the transactions contemplated hereby or relating hereto do
not
and will not (i) result in a violation of such Purchaser’s charter
documents or bylaws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which the Purchaser
is
a party, or conflict with, breach or violate any law applicable to the Purchaser
or its properties (except for such conflicts, defaults and violations as would
not, individually or in the aggregate, have a Material Adverse Effect on such
Purchaser). The Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of such Purchaser’s
obligations under this Agreement or to purchase the securities from the Company
in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, the Purchaser is assuming and relying
upon
the accuracy of the relevant representations and agreements of the Company
herein.
(b) Organization;
Authority.
If a
Purchaser is an entity, 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 individual, corporate
or partnership action on the part of such Purchaser. Each Transaction Document
to which it is party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will constitute
the valid and legally binding obligation of such Purchaser, enforceable against
it in accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar
as
indemnification and contribution provisions may be limited by applicable law.
(c) Purchaser’s
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 (this
representation and warranty not limiting such Purchaser’s right to sell the
Shares pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws and in accordance with the
Transaction Documents). 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.
(d) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and at the date hereof
and as of the Closing Date it is an “accredited investor” as defined in Rule
501(a) under the Securities Act. Such Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act. Such Purchaser
understands that such Purchaser’s investment in the Securities being purchased
from the Company involve a high degree of risk. Such Purchaser understands
that
no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
being purchased by such Purchaser from the Company. Such Purchaser warrants
that
such Purchaser is able to bear the complete loss of such Purchaser’s investment
in the securities being purchased from the Company.
13
(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.
(f) Full
Access.
Such
Purchaser has been given full access to such records of the Company and the
Subsidiaries and to the officers and directors of the Company (including the
opportunity to ask questions of and receive answers from such Persons) and
the
Subsidiaries as it has deemed necessary or appropriate.
(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) Compliance
with Patriot Act.
The
funds utilized by such Purchaser for the purchase of the Securities do not
violate any provisions of the USA Patriot Act of 2001.
(i) Beneficial
Ownership.
The
Purchaser (other than Sun Solunet) and its affiliates do not beneficially own
more than 4.9% of the Common Stock as of the date hereof. The Purchaser (other
than Sun Solunet) shall not exercise the Warrants or convert the Preferred
Shares to the extent that such exercise or conversion would result in beneficial
ownership by the Purchaser and its affiliates of more than 4.9% of the then
outstanding number of shares of Common Stock on such date. For the purposes
of
this subsection, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act, and Regulation 13d-3 promulgated thereunder.
Notwithstanding the foregoing, such Purchaser, to the extent such purchase
of
the Securities causes such Purchaser’s beneficial ownership to exceed 4.9% of
the outstanding shares of the Company, will qualify for filing on a Schedule
13D
under the Exchange Act.
(j) Blue
Sky Compliance.
Such
Purchaser shall agree to comply with any state blue sky limitations on the
resale of the Securities, if any.
(k) Certain
Fees.
Except
for fees payable to Monarch Capital Group LLC and Bathgate Capital Partners
LLC,
no brokerage or finder’s fees or commissions are or will be payable by the
Purchasers to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. 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.
14
(l) Investment
Decision.
The
Purchaser is making its own investment decision to invest in the Securities
and
has not relied on any representation (oral or written other than as set forth
in
this Agreement).
(m) Purchaser
Questionnaire.
All
statements made by the Purchaser in the Purchaser Questionnaire were true and
correct as of the date thereof and shall remain true and correct as of the
Closing Date.
ARTICLE
IV
OTHER
AGREEMENTS OF THE PARTIES
4.1. Transfer
Restrictions.
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,
to
an Affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section 4.1(a), the Company may require the transferor thereof to provide to
the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the applicable terms of this Agreement and
shall
have the rights of a Purchaser under this Agreement, the Certificate of
Designations and the Registration Rights Agreement.
(a) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1(a), 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.
So
long
as any pledgee, secured party or transferee provides a questionnaire to the
Company demonstrating to the Company that such pledgee or transferee is an
“accredited investor,” 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, if required under the terms of
such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject
to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further,
no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under
the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
15
(b) Certificates
evidencing the Shares shall not contain any legend (including the legend set
forth in Section 4.1(a)), (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Shares pursuant to Rule
144, or (iii) if such Shares are eligible for sale under Rule 144(k) and a
request for the removal has been provided in writing by the Purchasers to the
Company, or (iv) if such legend is not required under applicable requirements
of
the Securities Act (including judicial interpretations and pronouncements issued
by the Staff of the Commission) and a request for the removal has been provided
in writing by the Purchasers to the Company. 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 with respect to the Shares registered thereunder,
subject to any state blue sky law limitations. If any Preferred Shares are
converted or 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 Shares
for which the Preferred Shares are converted or the applicable portion of the
Warrant has been exercised, such 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(b), 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 issued with a
restrictive legend, 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.
(c) 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
such Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
4.2. 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 such laws, 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 to the extent Rule 144 is available for such sale.
The
Company further covenants that it will take such further reasonable action
as
any holder of Securities may reasonably request, to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.
16
4.3. Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that (X) 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 (Y) 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 such shareholder approval is obtained
before the closing of such subsequent transaction.
4.4. Shareholders
Rights Plan.
Except
as set forth in the Disclosure Schedule, 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.
4.5. Non-Public
Information.
The
Purchasers (other than Sun Solunet) have all executed a written agreement with
the Company regarding the confidentiality and use of any information provided
to
the Purchasers (other than Sun Solunet) by the Company that constitutes material
non-public information. Except for the power-point presentation made to the
Purchasers (other than Sun Solunet) by the Company and any information covered
by the aforementioned confidentiality agreement, each Purchaser (other than
Sun
Solunet) acknowledges and the Company confirms that neither the Company nor,
to
its knowledge, any other person acting on the Company’s behalf, has provided any
of the Purchasers (other than Sun Solunet) or their agents or counsel with
any
other information that constitutes material, non-public information.
4.6. Use
of
Proceeds.
The
Company shall use the net proceeds from the sale of the Securities (excluding
amounts paid by the Company for legal and administrative fees in connection
with
the sale of the Securities) hereunder for the paydown or payoff of outstanding
debt, including some of the outstanding amounts owed to Sun Solunet, working
capital and general corporate purposes.
4.7. Reimbursement.
If any
Purchaser becomes involved in any capacity in any Proceeding by or against
any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Purchaser to or with
any
current stockholder), solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such Purchaser
for
its reasonable legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in
connection therewith,
as such expenses are incurred. The reimbursement obligations of the Company
under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions
to
any Affiliates of the Purchasers who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Purchasers and any
such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Purchasers
and
any such Affiliate and any such Person. The Company also agrees that neither
the
Purchasers nor any such Affiliates, partners, directors, agents, employees
or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result
of
acquiring the Securities under this Agreement.
17
4.8. Indemnification
of Purchasers.
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 misrepresentation, breach or inaccuracy of any of the
representations, warranties, covenants or agreements made by the Company in
this
Agreement or in the other Transaction Documents; or (b) any cause of action,
suit or claim brought or made against such Purchaser Party and arising solely
out of or solely resulting from the execution, delivery, performance or
enforcement of this Agreement or any of the other Transaction Documents and
without causation by any other activity, obligation, condition or liability
pertaining to such Purchaser. The Company will reimburse such Purchaser for
its
reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred; provided, however, that absent an
actual conflict of interest with respect to all Purchasers involved in any
such
matter for which indemnification claim is made hereunder, the Company shall
pay
only one reasonable counsel fee for the representation of all Purchasers in
such
matter.
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, 50,000,000
shares of Common Stock for the purpose of enabling the Company to issue Shares.
The Company shall increase its authorized capital in an amount sufficient to
provide for the conversion of all the Preferred Stock and exercise of all of
the
outstanding Warrants of the Company. Until such time as the Company has so
increased its authorized capital, each Purchaser shall each be entitled to
convert the Preferred Stock and exercise the Warrants held by them on a pro
rata
basis with the other Purchasers, weighted on the basis of the respective
Subscription Amounts paid to the Company by each Purchaser.
4.10. Listing
of Common Stock.
The
Company hereby agrees to use commercially reasonably efforts to maintain the
listing or quotation of the Common Stock on the 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 on the 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 will take such other action
as is necessary to cause all of the Shares to be listed or quoted on such other
Trading Market as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and/or quotation 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.
18
4.11. Equal
Treatment of Purchasers.
Following the execution and delivery of this Agreement by the parties hereto,
no
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents. 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. No
Net
Short Position.
Each
Purchaser agrees, severally and not jointly with any other Purchasers, that
they
or any Person acting at the request or direction of Purchaser, nor any
Affiliate, will not enter into any Short Sales (as hereinafter defined) from
the
period commencing on the Closing Date and ending on the date that such Purchaser
no longer holds any Shares. For purposes of this Section 4.12, a “Short
Sale”
by
any
Purchaser shall mean a sale of Common Stock by such Purchaser that is marked
as
a short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by such Purchaser. For purposes of
determining whether there is an equivalent offsetting long position in Common
Stock held by the Purchaser, Shares that have not yet been converted or
exercised pursuant to the Certificate of Designations or the Warrants shall
be
deemed to be held long by the Purchaser, and the amount of shares of Common
Stock held in a long position shall be all Shares held by such Purchaser on
such
date, plus any shares of Common Stock otherwise then held by such Purchaser.
Additionally, each Purchaser understands and acknowledges, severally and not
jointly with any other Purchaser, that the Commission currently takes the
position that coverage of short sales of shares of the Common Stock “against the
box” prior to the Effective Date of the Registration Statement with the Shares
purchased hereunder is a violation of Section 5 of the Securities Act, as set
forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Accordingly, each Purchaser hereby
agrees not to use any of the Shares to directly cover any short sales made
prior
to the Effective Date.
4.13. Corporate
Existence; Conflicting Agreements.
The
Company will take all steps necessary to preserve and continue the corporate
existence of the Company to the extent that failure to so preserve and continue
the corporate existence of the Company would restrict or impair the right or
ability of the Company or any successor to perform any of its obligations under
this Agreement or any of the other agreements attached as exhibits hereto.
The
Company shall not enter into any agreement, the terms of which agreement would
restrict or impair the right or ability of the Company or any successor to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
19
4.14. Lock-Up
Agreement.
The
Company has caused the officers and inside directors that are employees of
the
Company to execute a lock-up agreement hereto restricting such Persons from
selling any shares of Common Stock for a one-year period commencing on the
date
of the Initial Purchase Agreement.
ARTICLE
V
MISCELLANEOUS
5.1. Fees
and Expenses.
Except
with respect to the reasonable fees and expenses of Sun Solunet, which have
been
paid by the Company, 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 and void 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 (receipt confirmed) 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 (receipt confirmed) 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 deposit with
a
carrier or service, if sent by U.S. nationally recognized overnight carrier
or
courier service, or (d) upon actual receipt by the party to whom such notice
is
required to be given. The address for such notices and communications shall
be
as set forth on the signature pages attached hereto.
5.4. 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 (unless it so
provides by its terms), 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.
20
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 agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in the City of New York. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, New York for the adjudication
of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably waives,
and agrees not to assert in any suit, action or proceeding, any claim that
it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by delivering a copy thereof via overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto (including its affiliates, agents, officers,
directors and employees) hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. If either party shall commence an action or proceeding
to
enforce any provisions of a Transaction Document, then the prevailing party
in
such action or proceeding, as determined by the court hearing such matter,
shall
be reimbursed by the other party for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution
of such action or proceeding.
5.9. Survival.
The
representations and warranties herein shall survive the Closing and delivery
of
the Preferred Shares, the Warrants and the Shares.
5.10. Execution.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that all 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.
21
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. 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.
5.13. Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Purchasers and the Company
will
be entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations 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.
5.14. 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 independently to 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 or has had the opportunity to be represented
by
its own separate legal counsel in its review and negotiation of the Transaction
Documents. 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.
[Signature
Pages Follow]
22
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.
SAN
HOLDINGS, INC.
By:_______________________________________
Name:
Title:
Address
for Notice:
If
to
SAN Holdings, Inc.:
0000
Xxxxxxx Xxxxx
Xxxxx
000
Xxxxxxxxx,
XX 00000
Attention:
Xxxx Xxxxxxx or Xxxxxx Xxxxx
With
a
copy to:
Xxxxx
Xxxx LLP
0000
Xxxxxxxxxx Xxxxxx
Xxxxx
0000
Xxxxxx,
XX 00000
Facsimile
No.: (000) 000-0000
Attention:
Xxxxxx Xxxxxxxx, Esq.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGES FOR PURCHASERS FOLLOW]
[FORM
OF
PURCHASER SIGNATURE PAGE;
EXECUTED
SIGNATURE PAGES INTENTIONALLY OMITTED]
[PURCHASER
SIGNATURE PAGES 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:
Units:
Preferred
Shares:
$0.30
Warrants:
$0.50
Warrants:
EIN
Number:
DISCLOSURE
SCHEDULES
[Intentionally
Omitted]
Exhibit
A
Form
of Certificate of Designations of Series A Preferred Stock
[INTENTIONALLY
OMITTED; Incorporated by reference to Exhibit A of Exhibit 10.01 to the
Company’s Current Report on Form 8-K filed March 8, 2006]
Exhibit
B
Form
of Escrow Agreement
[INTENTIONALLY
OMITTED; Incorporated by reference to Exhibit B of Exhibit 10.01 to the
Company’s Current Report on Form 8-K filed March 8, 2006]
Exhibit
C
Form
of Registration Rights Agreement
[INTENTIONALLY
OMITTED; Incorporated by reference to Exhibit C of Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed March 8, 2006 except for the signature page
which follows]
[PURCHASER’S
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
IN
WITNESS WHEREOF, the undersigned has executed this Registration Rights
Agreement
as of the date first written above in connection with the Securities Purchase
Agreement between the Company and the Purchasers dated as of even date
and, by
executing this Registration Rights Agreement, the Purchaser acknowledges
and
agrees that the reference to the receipt of funds by the Company in clause
(a)
of the definition of “Effectiveness Date” means the date of the receipt of funds
by the Company from the undersigned Purchaser.
Name
of
Investing Entity:
______________________________________________________
Signature
of Authorized Signatory of Investing entity:
______________________________________________________
Name
of
Authorized Signatory:
______________________________________________________
Title
of
Authorized Signatory:
______________________________________________________
Date
of
Execution:
______________________________________________________
Exhibit
D
Form
of $0.30 Warrant
Warrant
Number WA-[A][B]- ____
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED, IF REQUESTED, BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED
IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER
OR
OTHER BONA FIDE LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED
INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES
ACT.
COMMON
STOCK PURCHASE WARRANT
To
Purchase _________________Shares of Common Stock of
SAN
HOLDINGS, INC.
THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”)
CERTIFIES that, for value received, [______________] (the “Holder”),
is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date of issuance
of this Warrant (the “Initial
Exercise Date”)
and on
or prior to the five year anniversary of the Initial Exercise Date (the
“Termination
Date”)
but
not thereafter, to subscribe for and purchase from San Holdings, Inc., a
Colorado corporation (the “Company”),
up to
[_____________________] shares (the “Warrant
Shares”)
of
Common Stock, no par value per share, of the Company (the “Common
Stock”).
The
purchase price of one share of Common Stock (the “Exercise
Price”)
under
this Warrant shall be [$0.30/$0.50], subject to adjustment hereunder. The
Exercise Price and the number of Warrant Shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. Capitalized
terms
used and not otherwise defined herein shall have the meanings set forth in
that
certain Securities Purchase Agreement (the “Purchase
Agreement”),
dated
April 18, 2006, among the Company and the purchasers signatory thereto.
1. Title
to Warrant.
Prior
to the Termination Date and subject to compliance with applicable laws and
Section 7 of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
by the
Holder in person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed. The
transferee shall sign an investment letter in form and substance reasonably
satisfactory to the Company.
2. Authorization
of Shares.
The
Company covenants that all Warrant Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant will, upon exercise of
the
purchase rights represented by this Warrant, be duly authorized, validly
issued,
fully paid and nonassessable and free from all taxes, liens and charges in
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).
3. Exercise
of Warrants.
(a) Exercise
of the purchase rights represented by this Warrant may be made at any time
or
times on or after the Initial Exercise Date and on or before the Termination
Date by delivery to the Company of the Notice of Exercise Form, surrender
of
this Warrant and payment of the aggregate Exercise Price (or such other office
or agency of the Company as it may designate by notice in writing to the
registered Holder at the address of such Holder appearing on the books of
the
Company). Certificates for shares purchased hereunder shall be delivered
to the
Holder within five (5) Trading Days from the delivery to the Company of the
Notice of Exercise Form, surrender of this Warrant and payment of the aggregate
Exercise Price as set forth above (“Warrant
Share Delivery Date”).
This
Warrant shall be deemed to have been exercised on the date the Exercise Price
is
received by the Company. The Warrant Shares shall be deemed to have been
issued,
and Holder or any other person so designated to be named therein shall be
deemed
to have become a holder of record of such shares for all purposes, as of
the
date the Warrant has been exercised by payment to the Company of the Exercise
Price and all taxes required to be paid by the Holder, if any, pursuant to
Section 5 prior to the issuance of such shares, have been paid in full. If
the
Company fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares or indicating the issuance of such Warrant
Shares on the stock ledger of the Company maintained by the Company or its
transfer agent pursuant to this Section 3(a) by the Warrant Share Delivery
Date,
then the Holder will have the right to rescind such exercise.
(b) If
this
Warrant shall have been exercised in part, the Company shall, at the time
of
delivery of the certificate or certificates representing Warrant Shares,
deliver
to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant
shall
in all other respects be identical with this Warrant.
(c) If
at any
time after one year from the date of issuance of this Warrant there is no
effective Registration Statement registering the resale of the Warrant Shares
by
the Holder, this Warrant may also be exercised at such time by notice delivered
to the Company by means of a “cashless exercise” in which the Holder shall be
entitled to receive a certificate for the number of Warrant Shares equal
to the
quotient obtained by dividing [(A-B) (X)] by (A), where:
(A)
= the
closing price on the Trading Day immediately preceding the date of such
election;
(B)
= the
Exercise Price of this Warrant, as adjusted; and
2
(X)
= the
number of Warrant Shares issuable upon exercise of this Warrant in accordance
with the terms of this Warrant by means of a cash exercise rather than
a
cashless exercise.
(d) Except
with respect to Sun Solunet, LLC, the Holder shall not be entitled to exercise
this Warrant into shares of Common Stock that would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the then
outstanding number of shares of Common Stock on such date. For the purposes
of
the immediately preceding sentence, beneficial ownership shall be determined
in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 promulgated thereunder.
4. No
Fractional Shares or Scrip.
No
fractional shares or scrip representing fractional shares shall be issued
upon
the exercise of this Warrant. As to any fraction of a share which Holder
would
otherwise be entitled to purchase upon such exercise, the Company shall pay
a
cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.
5. Charges,
Taxes and Expenses.
Issuance of certificates for Warrant Shares shall be made without charge
to the
Holder for any issue or transfer tax or other incidental expense in respect
of
the issuance of such certificate, all of which taxes and expenses shall be
paid
by the Company, and such certificates shall be issued in the name of the
Holder
or in such name or names as may be directed by the Holder; provided, however,
that in the event certificates for Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto and an investment
letter duly executed by the Holder in form and substance reasonably acceptable
to the Company; and the Company may require, as a condition thereto, the
payment
of a sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing
of Books.
The
Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms hereof.
7. Transfer,
Division and Combination.
(a) Subject
to compliance with any applicable securities laws and the conditions set
forth
in Sections 1 and 7(e) hereof and to the provisions of Section 4.1 of the
Purchase Agreement, this Warrant and all rights hereunder are transferable,
in
whole or in part, upon surrender of this Warrant at the principal office
of the
Company, together with a written assignment of this Warrant substantially
in the
form attached hereto duly executed by the Holder or its agent or attorney
and
funds sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the Company
shall
execute and deliver a new Warrant or Warrants in the name of the assignee
or
assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly
be
cancelled. A Warrant, if properly assigned, may be exercised by a new holder
for
the purchase of Warrant Shares without having a new Warrant issued.
(b) This
Warrant may be divided or combined with other Warrants upon presentation
hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to
be issued, signed by the Holder or its agent or attorney. Subject to compliance
with Section 7(a), as to any transfer which may be involved in such division
or
combination, the Company shall execute and deliver a new Warrant or Warrants
in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
3
(c) The
Company shall prepare, issue and deliver at its own expense (other than transfer
taxes) the new Warrant or Warrants under this Section 7.
(d) The
Company agrees to maintain, at its aforesaid office, books for the registration
and the registration of transfer of the Warrants.
(e) If,
at
the time of the surrender of this Warrant in connection with any transfer
of
this Warrant, the transfer of this Warrant shall not be registered pursuant
to
an effective registration statement under the Securities Act and under
applicable state securities or blue sky laws, the Company may require, as
a
condition of allowing such transfer (i) that the Holder or transferee of
this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel
(which opinion shall be in form, substance and scope customary for opinions
of
counsel in comparable transactions) to the effect that such transfer may
be made
without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable
to
the Company and (iii) that the transferee be an “accredited investor” as defined
in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the
Securities Act or a qualified institutional buyer as defined in Rule 144A(a)
under the Securities Act.
8. No
Rights as Shareholder until Exercise.
This
Warrant does not entitle the Holder to any voting rights or other rights
as a
shareholder of the Company prior to the exercise hereof. Upon the surrender
of
this Warrant and the payment of the aggregate Exercise Price (or by means
of a
cashless exercise), the Warrant Shares so purchased shall be and be deemed
to be
issued to such Holder as the record owner of such shares as of the close
of
business on the later of the date of such surrender or payment.
9. Loss,
Theft, Destruction or Mutilation of Warrant.
The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to
it,
and upon surrender and cancellation of such Warrant or stock certificate,
if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant
or
stock certificate.
10. Saturdays,
Sundays, Holidays, etc.
If the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall be a Saturday, Sunday or a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day not a Saturday, Sunday or legal holiday.
11. Adjustments
of Exercise Price and Number of Warrant Shares, Stock Splits,
etc.
The
number and kind of securities purchasable upon the exercise of this Warrant
and
the Exercise Price shall be subject to adjustment from time
to time upon the happening of any of the following. In case the Company shall
(i) pay a dividend in shares of Common Stock or make a distribution in shares
of
Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater
number of shares, (iii) combine its outstanding shares of Common Stock into
a
smaller number of shares of Common Stock, or (iv) issue any shares of its
capital stock in a reclassification of the Common Stock, then the number
of
Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to receive
the
kind and number of Warrant Shares or other securities of the Company which
it
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the Holder shall thereafter be entitled to purchase the number
of
Warrant Shares or other securities resulting from such adjustment at an Exercise
Price per Warrant Share or other security obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
that
are purchasable pursuant hereto immediately after such adjustment. An adjustment
made pursuant to this paragraph shall become effective immediately after
the
effective date of such event retroactive to the record date, if any, for
such
event.
4
12. Reorganization,
Reclassification, Merger, Consolidation or Disposition of Assets.
In case
the Company shall reorganize its capital, reclassify its capital stock,
consolidate or merge with or into another corporation (where the Company
is not
the surviving corporation or where there is a change in or distribution with
respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of its property, assets or business to another corporation and, pursuant
to the terms of such reorganization, reclassification, merger, consolidation
or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property
of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation (“Other
Property”),
are
to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right thereafter to receive, upon exercise
of
this Warrant, the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder
of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume
the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and
all
the obligations and liabilities hereunder, subject to such modifications
as may
be deemed appropriate (as determined in good faith by resolution of the Board
of
Directors of the Company) in order to provide for adjustments of Warrant
Shares
for which this Warrant is exercisable which shall be as nearly equivalent
as
practicable to the adjustments provided for in this Section 12. For purposes
of
this Section 12, “common stock of the successor or acquiring corporation” shall
include stock of such corporation of any class which is not preferred as
to
dividends or assets over any other class of stock of such corporation and
which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of
stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe
for
or purchase any such stock. The foregoing provisions of this Section 12 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
5
13. Issuance
of Additional Stock.
If the
Company shall, at any time through the two year anniversary of the date that
the
Registration Statement is declared effective by the Commission, issue any
rights, warrants, options or other securities convertible into or exchangeable
for Common Stock (collectively, “Additional
Stock”)
without consideration or for a consideration per share less than the Exercise
Price (including by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise), the Exercise
Price in effect immediately prior to each such issuance shall forthwith be
reduced to an amount equal to such lower purchase price for such Additional
Stock (or in the case of options and similar securities, the consideration
received for the option and to be received upon exercise of such option),
or, if
for no consideration, $.001; provided,
however,
that
none of the following shall constitute Additional Stock: (a) shares of Common
Stock; (b) rights, warrants, options or other securities convertible into
or
exchangeable for Common Stock, issued or issuable to employees, consultants
or
directors of the Company for the primary purpose of soliciting or retaining
their employment or services directly or pursuant to a stock option plan
or
restricted stock plan approved by the Board of Directors of the Company and
(c)
shares of Common Stock of the Company issuable upon exercise of rights,
warrants, options or other securities convertible into or exchangeable for
Common Stock outstanding as of the date hereof.
14. Notice
of Adjustment.
Whenever the number of Warrant Shares or number or kind of securities or
other
property purchasable upon the exercise of this Warrant or the Exercise Price
is
adjusted, as herein provided, the Company shall give notice thereof to the
Holder, which notice shall state the number of Warrant Shares (and other
securities or property) purchasable upon the exercise of this Warrant and
the
Exercise Price of such Warrant Shares (and other securities or property)
after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made.
15. Notice
of Corporate Action.
If at
any time:
(a) the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or any right
to
subscribe for or purchase any evidences of its indebtedness, any shares of
stock
of any class or any other securities or property, or to receive any other
right,
or
(b) there
shall be any capital reorganization of the Company, any reclassification
or
recapitalization of the capital stock of the Company or any consolidation
or
merger of the Company with, or any sale, transfer or other disposition of
all or
substantially all the property, assets or business of the Company to, another
corporation or,
(c) there
shall be a voluntary or involuntary dissolution, liquidation or winding up
of
the Company;
6
then,
in
any one or more of such cases, the Company shall give to Holder (i) at least
10
days’ prior written notice of the date on which a record date shall be selected
for such dividend, distribution or right or for determining rights to vote
in
respect of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, liquidation or winding up, and (ii) in the case
of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10
days’
prior written notice of the date when the same shall take place. Such notice
in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution
or
right, the date on which the holders of Common Stock shall be entitled to
any
such dividend, distribution or right, and the amount and character thereof,
and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of
which
the holders of Common Stock shall be entitled to exchange their Warrant Shares
for securities or other property deliverable upon such disposition, dissolution,
liquidation or winding up. Each such written notice shall be sufficiently
given
if addressed to Holder at the last address of Holder appearing on the books
of
the Company and delivered in accordance with Section 19(d).
16. Authorized
Shares.
The
Company covenants that the Company shall call a shareholder meeting for purposes
of increasing its authorized capital in an amount sufficient to provide for
the
exercise of all outstanding Warrants of the Company. Until such time as the
Company has so increased its authorized capital each Holder shall each be
entitled to exercise the Warrants held by them on a pro rata basis with the
other Holders, weighted on the basis of the respective Subscription Amounts
paid
to the Company by each Holder. If such increase in authorized capital is
not
authorized by the earlier of (i) the date that the registration statement
relating to the Common Stock underlying the Preferred Stock and the Warrants
is
effective, or (ii) 150 days from the date the Company first receives funds
from
the escrow account established pursuant to the Purchase Agreement (each an
“Event”), then on the date on which such Event occurs (the “Event Date”), the
Company shall pay to each Holder an amount in cash, as partial liquidated
damages and not as a penalty, equal to 2.0% of the aggregate purchase price
paid
by such Holder pursuant to the Purchase Agreement, and on each monthly
anniversary of each such Event Date until cured, provided however,
if the
Company is otherwise paying liquidated damages pursuant to that certain
Registration Rights Agreement between the Company and the purchasers signatory
thereto, then no liquidated damages shall be due pursuant to this Paragraph
16.
The Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing
stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. Subject
to
this Paragraph 16, the Company will take all such reasonable action as may
be
necessary to assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of
the Trading Market upon which the Common Stock may be listed.
Except
and to the extent as waived or consented to by the Holder, the Company shall
not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms
of this
Warrant, but will at all times in good faith assist in the carrying out of
all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder
as
set forth in this Warrant against impairment. Without limiting the generality
of
the foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior
to
such increase in par value, (b) take all such action as may be necessary
or
appropriate in order that the Company may validly and legally issue fully
paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c)
use
commercially reasonable efforts to obtain all such authorizations, exemptions
or
consents from any public regulatory body having jurisdiction thereof as may
be
necessary to enable the Company to perform its obligations under this Warrant.
7
Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
17. Registration
Rights.
The
Holder of this Warrant and/or the Warrant Shares and any transferee hereof
and
thereof shall be entitled to the benefit of such registration rights in respect
of the Warrant Shares as are set forth in the Registration Rights Agreement.
18. Redemption.
(a) The
Company may redeem all (but not less than all) of this Warrant at any time,
at
the price of $.01 per Warrant Share (issuable under this Warrant), upon notice
referred to in Section 18(b), provided that (i) the Warrant Shares have been
registered for resale by means of the Registration Statement as defined in
the
Purchase Agreement or any other registration statement; (ii) the Registration
Statement is current and effective at the time the aforementioned notice
is sent
and through the redemption period; and (iii) the closing sales price of the
Common Stock has been at least 200% of the then Exercise Price of the Warrants
for 20 consecutive Trading Days ending within two Trading Days of the notice
of
redemption as referred to in Section 18(b) below.
(b) In
the
event the Company shall elect to redeem this Warrant, the Company shall fix
a
date for the redemption (the “Redemption
Date”)
and
mail a notice of redemption by first class mail, postage prepaid, not less
than
30 days from the date fixed for redemption to the Holder of this Warrant
at such
Holder’s last address as it appears on the books of the Company. Any notice
mailed in the manner herein provided shall be conclusively presumed to have
been
duly given whether or not the registered Holder received such notice. The
notice
of redemption shall specify (i) the redemption price, (ii) the date fixed
for
redemption, (iii) the place where the Warrant is to be delivered and the
redemption price paid and (iv) that the right to exercise the Warrant shall
terminate at 5:00 P.M. New York City on the Business Day immediately preceding
the Redemption Date. No failure to mail such notice nor any defect therein
or in
the mailing thereof shall affect the validity of the proceedings for such
redemption except as to a Holder (A) to whom notice was not mailed or (B)
whose
notice was defective. An affidavit of the Secretary of the Company that notice
of redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
8
(c) The
Warrant may be exercised in accordance with Section 3 of this Warrant at
any
time after notice of redemption shall have been given by the Company pursuant
to
Section 18(b) hereof and until the Business Day immediately preceding the
Redemption Date. On and after the Redemption Date, the Holder of this Warrant
shall have no further rights except to receive, upon surrender of the Warrant,
the redemption price.
19. Miscellaneous.
(a) Jurisdiction.
All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of
the
Purchase Agreement.
(b) Restrictions.
The
Holder acknowledges that the Warrant Shares acquired upon the exercise of
this
Warrant, if not registered, will have restrictions upon resale imposed by
state
and federal securities laws.
(c) Nonwaiver
and Expenses.
No
course of dealing or any delay or failure to exercise any right hereunder
on the
part of Holder shall operate as a waiver of such right or otherwise prejudice
Holder's rights, powers or remedies, notwithstanding all rights hereunder
terminate on the Termination Date. If the Company willfully and knowingly
fails
to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall
be
sufficient to cover any reasonable out-of-pocket costs and expenses incurred
by
Holder in collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder.
(d) Notices.
Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.
(e) Limitation
of Liability.
No
provision hereof, in the absence of any affirmative action by Holder to exercise
this Warrant or purchase Warrant Shares, and no enumeration herein of the
rights
or privileges of Holder, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
(f) Remedies.
Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of
the
provisions of this Warrant and hereby agrees to waive the defense in any
action
for specific performance that a remedy at law would be adequate.
(g) Successors
and Assigns.
Subject
to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and permitted assigns of Holder.
The provisions of this Warrant are intended to be for the benefit of all
Holders
from time to time of this Warrant and shall be enforceable by any such Holder
or
holder of Warrant Shares.
9
(h) Amendment.
This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.
(i) Severability.
Wherever possible, each provision of this Warrant shall be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
(j) Headings.
The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
IN
WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
2nd day
of March, 2006.
SAN
HOLDINGS, INC.
By:_____________________________________
Name:
Title:
10
Exhibit
E
Form
of $0.50 Warrant
See
Exhibit D
Exhibit
F
Form
of Lock-Up Agreements
[INTENTIONALLY
OMITTED; Incorporated by reference to Exhibit F of Exhibit 10.01 to the
Company’s Current Report on Form 8-K filed March 8, 2006]
Exhibit
G
Form
of Credit Support Termination Agreement
[INTENTIONALLY
OMITTED; Incorporated by reference to Exhibit G of Exhibit 10.01 to the
Company’s Current Report on Form 8-K filed March 8, 2006]
Exhibit
H
Form
of Purchaser Questionnaire
PURCHASER
AGREEMENT AND QUESTIONNAIRE
SAN
Holdings, Inc.
0000
Xxxxxxx Xxxxx
Xxxxx
000
Xxxxxxxxx,
XX 00000
|
|
Purchase of Units of San Holdings, Inc. |
1. Purchase
of Units.
(a) In accordance with the terms of the Securities Purchase
Agreement, dated April 18, 2006 (the “Securities Purchase Agreement”), among SAN
Holdings, Inc., a Colorado corporation (the “Company”) and each of the
purchasers identified on the signature pages thereto, the undersigned (the
“Prospective Purchaser”) desires to purchase Units (as defined below) from the
Company in the amount and at the price set forth in the Securities Purchase
Agreement. A “Unit” consists of (i) one share of Series A Preferred Stock of the
Company, (ii) one Common Stock Purchase Warrant, which shall have an exercise
price equal to $0.30 per share and shall be exercisable for a period of five
years into 166,667 shares of common stock of the Company, and (iii) one Common
Stock Purchase Warrant, which shall have an exercise price equal to $0.50
per
share and shall be exercisable for a period of five years into 166,667 shares
of
common stock of the Company. Capitalized terms not defined in this Purchaser
Agreement and Questionnaire (the “Agreement”) shall have the meaning assigned to
such terms in the Securities Purchase Agreement.
(b) The
Prospective Purchaser acknowledges that the issuance of Units to the Prospective
Purchaser will be subject to (i) the representations and warranties of the
Prospective Purchaser contained herein and in the Securities Purchase Agreement
and (ii) all information regarding the Prospective Purchaser supplied to
the
Company in connection with the purchase of Units being correct and complete
as
of the Closing Date. By execution of this Agreement, the Prospective Purchaser
represents and warrants that all information supplied to the Company in
connection with the purchase of Units is correct and complete as of the Closing
Date and that the Company is relying on all of the representations and
warranties of the Prospective Purchaser for purposes of complying with the
securities laws.
2. Representations
and Warranties.
The
Prospective Purchaser hereby represents and warrants to, and agrees with,
the
Company as follows:
(a) The
Prospective Purchaser has been provided with and has carefully reviewed the
Securities Purchase Agreement describing the Units and has made such further
investigation of the Company and has been furnished such information with
respect to the Company as the Prospective Purchaser deems necessary to evaluate
the merits and risks involved with an investment in the Units.
(b) The
Prospective Purchaser has had an opportunity to meet with representatives
of the
Company and to ask questions and receive answers regarding an investment
in the
Units and has asked any question the Prospective Purchaser desired to ask
and
has received answers with respect to such questions to the full satisfaction
of
the Prospective
Purchaser. To the extent the Prospective Purchaser deemed it necessary, the
Prospective Purchaser has further
consulted the Prospective Purchaser’s own attorney, accountant or other business
or financial advisor regarding legal, business, tax and other issues relating
to
the offer of the Units and is not relying on the Company or any of its officers,
directors, employees, agents or lawyers with respect to the legal, business,
tax
and other issues related to the tax, economic and related considerations
of an
investment in the Units.
(b) The
Prospective Purchaser is an “accredited investor” as defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
“Securities Act”), and has such knowledge and experience in financial and
business matters necessary to be capable of evaluating the merits and the
risks
of the investment in the Units. The Prospective Purchaser certifies that
the
Prospective Purchaser is an “accredited investor” because the Prospective
Purchaser is (check
as many as apply):
:__________: A
bank as
defined in section 3(a)(2) of the Securities Act, or a savings and loan
association or other institution as defined in section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity; a
broker
or dealer registered pursuant to section 15 of the Securities Exchange Act
of
1934; an insurance company as defined in section 2(a)(13) of the Securities
Act;
an investment company registered under the Investment Company Act of 1940
or a
business development company as defined in section 2(a)(48) of such Act;
a Small
Business Investment Company licensed by the U.S. Small Business Administration
under section 301(c) or (d) of the Small Business Investment Act of 1958;
a plan
established and maintained by a state, its political subdivisions or an agency
or instrumentality of a state or its political subdivisions for the benefit
of
its employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is made by a plan fiduciary,
as
defined in section 3(21) of such Act, which is either a bank, savings and
loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that
are
“accredited investors.”
:__________: A
private
business development company as defined in section 202(a)(22) of the Investment
Advisers Act of 1940;
:__________: An
organization described in Section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not
formed
for the specific purpose of acquiring the Units offered, with total assets
in
excess of $5,000,000;
:__________: A
director or an executive officer of the Company;
:__________: A
natural
person whose individual net worth as of the date hereof (including the net
worth
of the Prospective Purchaser's spouse if the Prospective Purchaser is married)
exceeds $1,000,000;
:__________: A
natural
person who had an individual income that exceeded $200,000 or joint income
with
his or her spouse in excess of $300,000 in each of the two most recent years
and
reasonably expects that in the current year
his
or her or their income will reach the same level. For purposes of this document,
the term "income" shall mean adjusted gross income reported or to be reported
on
a federal income tax return, increased by (i)
any
deductions
for long-term capital gains (under Section 1202 of the Internal Revenue Code
(the "Code"), (ii) any deductions for depletion (pursuant to Section 601
et
seq.
of the
Code), (iii) any exclusions of interest (pursuant to Section 103 of the Code)
and (iv) any losses of a partnership allocated to the undersigned as an
individual limited partner (as reported in Schedule E of Form
1040);
:__________: A
trust,
with total assets in excess of $5,000,000, not formed for the specific purpose
of acquiring the Units offered, whose purchase is directed by a sophisticated
person as described in Section 230.506(b)(2)(ii); and
:__________: An
entity
in which all of the equity owners are “accredited investors.”
(c) The
Prospective Purchaser has conducted its own due diligence review or
investigation of the Company and the Units prior to making any investment
in the
Units and agrees and acknowledges that neither the Company nor the Company’s
attorneys have conducted a due diligence review or investigation independently
verifying any of the representations contained in the Securities Purchase
Agreement or in any other document previously provided to the Prospective
Purchaser.
(d) The
Prospective Purchaser has no need for liquidity with respect to the Units,
is
able to bear the economic risks of an investment in the Units for an indefinite
period and is able to afford a complete loss of such investment.
(e) The
Prospective Purchaser recognizes that an investment in the Units involves
significant risks. Prior to investing, potential investors are urged to review
carefully the information contained in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2005 that was filed with the Securities
and Exchange Commission (the “Commission”), including the discussion of certain
of investment risks set forth under “RISK FACTORS.”
(f) The
Prospective Purchaser understands the following concerning the
Units:
(i) That
the
Units have not been registered under the Securities Act or registered or
qualified under any applicable state securities laws and the Company is not
obligated to register or qualify such Units;
(ii) That
the
Units are subject to the transfer restrictions contained in the Securities
Purchase Agreement and may be sold or otherwise transferred only in a
transaction that is in accordance with Rule 144 under the Securities Act
or
another exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act;
(iii) That
the
Units have not been approved or disapproved by the Commission or any state
securities commission, nor has the Commission nor any state securities
commission passed upon the accuracy or adequacy of the Securities Purchase
Agreement;
(iv) That
any
Units will bear a legend in substantially the following form, except as
otherwise specifically provided in the Securities Purchase
Agreement:
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.
(g) The
Units
are being purchased solely for the Prospective Purchaser’s own account for
investment purposes only and not for the account of any other person and
not for
distribution, assignment or resale to others.
(h) The
sale
of the Units is subject to the provisions of and the Prospective Purchaser
is
required to execute the Securities Purchase Agreement and this Agreement
in
order to make an investment in the Units.
(i) The
Prospective Purchaser understands that there are substantial restrictions
on
transfers of the Units set forth in the Securities Purchase Agreement and,
accordingly, there is no established market for the Units and that none will
develop. Therefore, the Prospective Purchaser understands and acknowledges
that
it must bear the economic risk of an investment in the Units for an indefinite
period of time.
(j) The
Prospective Purchaser understands that the Prospective Purchaser must comply
with all applicable legal requirements relating to an investment in the Units
and is responsible for obtaining all consents, authorizations or other approvals
required for the purchase of the Units. The Company assumes no responsibility
for such compliance.
(k) If
this
Agreement is executed by an entity, the Prospective Purchaser represents
and
warrants that this Agreement has been duly authorized by all necessary corporate
action of the Prospective Purchaser and this Agreement will constitute the
valid, binding and enforceable agreement of the Prospective Purchaser and
the
execution of this Agreement and a purchase of Units will not violate any
agreement to which the Prospective Purchaser is a party. The Prospective
Purchaser agrees that it will have no right to rescind this
Agreement.
(l) All
information which the Prospective Purchaser has provided to the Company
concerning the Prospective Purchaser is correct and complete as of the date
set
forth at the end of this Agreement, and if there should be any material adverse
change in such information prior to the Closing Date, the Prospective Purchaser
will immediately provide the Company with such information.
3. Indemnification.
The
Prospective Purchaser agrees to indemnify and hold harmless the Company and
each
of its respective agents, officers, directors and affiliates from and against
all damages, losses, costs and expenses (including reasonable attorneys’ fees)
which they or any of them may incur by reason of the failure of the Prospective
Purchaser to fulfill any of the terms and conditions of this Agreement or
the
Securities Purchase Agreement, or by reason of any breach of the representations
and warranties made by the Prospective Purchaser herein or in any other document
provided by the Prospective Purchaser to the Company.
4. Miscellaneous.
(a) The Prospective Purchaser agrees not to transfer or assign this
Agreement or any of the Prospective Purchaser’s interest herein without the
prior written consent of the Company. The Prospective Purchaser agrees that
it
may not cancel, terminate or revoke this Agreement or any other agreement
of the
Prospective Purchaser made hereunder and that this Agreement shall be binding
upon the Prospective Purchaser’s successors and assigns.
(b) Notwithstanding
any of the representations, warranties, acknowledgments or agreements made
in
this Agreement by the Prospective Purchaser, the Prospective Purchaser does
not
thereby or in any other manner waive any rights granted to it under federal
or
state securities laws.
(c) This
Agreement constitutes the entire agreement among the parties hereto with
respect
to the subject matter hereof and this Agreement may be amended only in writing
and executed by all parties.
(d) This
Agreement shall be enforced, governed and construed in all respects in
accordance with the laws of the State of New York.
(e)
The
Prospective Purchaser understands and agrees that the Company reserves the
right
to reject the proposed purchase by the Prospective Purchaser for the Units
in
its sole and absolute discretion, notwithstanding the deposit of the purchase
price in the Escrow Account.
(f) Upon
request from the Company, the Prospective Purchaser agrees to promptly provide
such information and to execute and deliver such documents as reasonably
may be
necessary to comply with any and all laws and regulations to which the Company
is subject.
[The
remainder of this page intentionally left blank]
5. Purchaser
Information.
Please
provide the following information regarding the Prospective Purchaser (please
print information exactly as it should appear in the Company’s
records):
a. Name:_________________________________________________________
b. Taxpayer
Identification Number:_____________________________________
c. Address:______________________________________________________
_______________________________________________________
_______________________________________________________
d. If
Prospective Purchaser is an entity, name and title of contact person:
e. Telephone
number: (
)__________________________________________
f. Facsimile
number: (
)____________________________________________
g. E-mail
address: _________________________________________________
h. Number
of
Units being purchased:___________________________________
i. Subscription
Amount for Units: $____________________________________
Date:
________ __, 2006
If
an Individual, execute this block:
PURCHASER
By___________________________
PrintName:_____________________
__________________________
If
executing this Agreement jointly, execute these
blocks:
PURCHASER
By_____________________________
PrintName:_______________________
___________________________
CO-PURCHASER
By_____________________________
Print
Name:______________________
___________________________
If
an entity, execute this block:
PURCHASING
COMPANY
By_____________________________
Name:__________________________
Title:___________________________
Name
of
Company:_________________
Type
of
Entity:____________________
Date
of
Organization:_______________
State
of
Organization:_______________
