SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of July
22, 2004, by and among Xxxxx Technologies, Inc., a Utah corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and 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 each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company in the aggregate, up to $7,000,000 million of Preferred
Stock, and Warrants, on the Closing Date.
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: (a) capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) 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).
"Actual Minimum" means, as of any date, the maximum aggregate number
of shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares
issuable upon exercise or conversion in full of all Warrants and shares of
Preferred Stock, ignoring any conversion or exercise limits set forth therein,
and assuming that any previously unconverted shares of Preferred Stock are
held until the third anniversary of the Closing Date and all dividends are
paid in shares of Common Stock until such third anniversary, subject to the
limitation on the number of shares of Common Stock issuable hereunder set
forth in Section 5(a)(iii) of the Certificate of Designation.
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 144
under the Securities Act. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate of such
Purchaser.
"Certificate of Designation" means the Certificate of Designation to
be filed prior to the Closing by the Company with the Secretary of State of
Delaware, in the form of Exhibit A attached hereto.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties thereto,
and all conditions precedent to (i) each Purchaser's obligations to pay the
Subscription Amount have been satisfied or waived (ii) and the Company's
obligations to deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.01 per share, and any securities into which such common stock shall
hereinafter been reclassified into.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
"Company Counsel" means Xxxxxxx X. Xxxxxxxxxx, Esq., Suite 205, 455
East 000 Xxxxx Xxxxxx, Xxxx Xxxx Xxxx, Xxxx 00000.
"Disclosure Schedules" means the Disclosure Schedules of the Company
delivered concurrently herewith.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in substantially
the form of Exhibit E hereto executed and delivered contemporaneously with
this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any
stock or option plan duly adopted by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose, (b) (i)
securities upon the exercise of or conversion of any securities issued
hereunder, convertible securities, options or warrants issued and outstanding
on the date of this Agreement, provided that such securities have not been
amended since the date of this Agreement to increase the number of such
securities and (ii) any securities issued on the same terms, prices and
conditions provided for hereunder provided such issuance does not exceed, in
the aggregate among all such issuances, including hereunder, $7 million and
provided further any such issuance is placed by vFinance (as defined in
Section 3.2(f)) and is consummated within 45 days of the date hereof; and (c)
securities issued pursuant to acquisitions or strategic transactions, provided
any such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business
of the Company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the Company
is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Losses" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including without limitation costs of
preparation and reasonable attorneys' fees.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Preferred Stock" means the up to 7,000 shares of the Company's
Series B Convertible Preferred Stock issued hereunder having the rights,
preferences and privileges set forth in the Certificate of Designation.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and each Purchaser, in the
form of Exhibit B.
"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 Underlying 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 Stock, the Warrants and the
Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Set Price" shall have the meaning ascribed to such term in the
Certificate of Designations.
"Stated Value" means $1,000 per share of Preferred Stock.
"Subscription Amount" shall mean, as to each Purchaser, the amount
to be paid for the Preferred Stock purchased hereunder as specified below such
Purchaser's name on the signature page of this Agreement, in United States
Dollars.
"Subsidiary" means any subsidiary of the Company that is required to
be listed in Schedule 3.1(a).
"Trading Day" means any day during which the Trading Market shall be
open for business.
"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
Over-the-Counter Bulletin Board, the American Stock Exchange, the New York
Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market.
"Transaction Documents" means this Agreement, the Certificate of
Designation, the Warrants, the Registration Rights Agreement, the Escrow
Agreement and any other documents or agreements executed in connection with
the transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock, upon exercise of the Warrants and issued
and issuable in lieu of the cash payment of dividends on the Preferred Stock.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the primary
Trading Market on which the Common Stock is then listed or quoted as reported
by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02
p.m. Eastern Time) using the VAP function; (b) if the Common Stock is not then
listed or quoted on the Trading Market and if prices for the Common Stock are
then reported in the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock
so reported; or (c) in all other cases, the fair market value of a share of
Common Stock as determined by a nationally recognized-independent appraiser
selected in good faith by Purchasers holding a majority of the principal
amount of Shares then outstanding.
"Warrants" means the Common Stock Purchase Warrants, in the form of
Exhibit C, delivered to the Purchasers at the Closing in accordance with
Section 2.2 hereof, which warrants shall be exercisable immediately upon
issuance for a term of 3 years.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from the
Company, severally and not jointly with the other Purchasers, and the Company
shall issue and sell to each Purchaser, (a) shares of Preferred Stock with an
aggregate Stated Value equal to such Purchaser's Subscription Amount; and (b)
the Warrants as determined pursuant to Section 2.2(a). The aggregate number
of shares of Preferred Stock sold hereunder shall be up to 7,000.
The aggregate Subscription Amount shall be no less than $2,000,000 and no more
than $7,000,000. Upon satisfaction of the conditions set forth in Section
2.2, the Closing shall occur at the offices of the Escrow Agent or such other
location as the parties shall mutually agree.
2.2 Conditions to Closing. The Closing is subject to the satisfaction or
waiver by the party to be benefited thereby of the following conditions:
(a) The Company shall have delivered or caused to be delivered to
each Escrow Agent the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of shares of Preferred
Stock equal to such Purchaser's Subscription Amount divided by the Stated
Value, registered in the name of such Purchaser;
(iii) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 25% of such
Purchaser's Subscription Amount divided by the Set Price, with an exercise
price equal to 120% of the average of the 5 VWAPs immediately prior to the
date hereof, subject to adjustment as set forth therein;
(iv) a legal opinion of Company Counsel, in the form of Exhibit
D attached hereto, addressed to each Purchaser;
(v) the Escrow agreement duly executed by the Company; and
(vi) the Registration Rights Agreement duly executed by the
Company.
(b) At the Closing, each Purchaser shall have delivered or caused to
be delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account as specified in writing by the Company;
(iii) the Escrow agreement duly executed by the Purchaser; and
(iv) the Registration Rights Agreement duly executed by such
Purchaser.
(c) All representations and warranties of the other party contained
herein shall remain true and correct as of the Closing Date and all covenants
of the other party shall have been performed if due prior to such date.
(d) From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior
to the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported by
such service, or on any Trading Market, nor shall a banking moratorium have
been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity of such magnitude in its effect
on, or any material adverse change in, any financial market which, in each
case, in the reasonable judgment of each Purchaser, makes it impracticable or
inadvisable to purchase the shares of Preferred Stock at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the Disclosure Schedules which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries of
the Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe
for or purchase securities. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is in
violation or default of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects 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")
and no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out
its obligations hereunder or thereunder. The execution and delivery of each
of the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby or thereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action
is required by the Company other than Required Approvals. Each of the
Transaction Documents has been (or upon delivery will be) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and general principles of
equity. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, by-laws
or other organizational or charter documents except where such violation could
not, individually or in the aggregate, constitute a Material Adverse Effect.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Securities
and the consummation by the Company of the other transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals, conflict with
or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected, or (iv) conflict with or violate
the terms of any agreement by which the Company or any Subsidiary is bound or
to which any property or asset of the Company or any Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is 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 filings required under Section 4.9,
(ii) the filing with the Commission of the Registration Statement, (iii) the
application(s) to each applicable Trading Market for the listing of the
Underlying Shares for trading thereon in the time and manner required thereby,
(iv) the filing with the Commission of a Form D pursuant to Commission
Regulation D, and (v) applicable Blue Sky filings (collectively, the "Required
Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens. The Company has reserved from its duly authorized
capital stock a number of shares of Common Stock for issuance of the
Underlying Shares at least equal to the Actual Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such filing
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and pursuant
to the conversion or exercise of outstanding Common Stock Equivalents
outstanding or as described in recent Form D filings with the Commission. No
Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible
or exchangeable into shares of Common Stock. The issue and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the issuance
and sale of the shares of Preferred Stock. Except as disclosed in the SEC
Reports, there are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company's capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any
of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the "SEC Reports") on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As
of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods
involved ("GAAP"), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with
the Commission, (iii) the Company has not altered its method of accounting,
(iv) the Company has not declared or made any dividend or distribution of cash
or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans. The
Company does not have pending before the Commission any request for
confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default
by the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties
is bound (whether or not such default or violation has been waived), (ii) is
in violation of any order of any court, arbitrator or governmental body, or
(iii) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state and local laws applicable to its business except in each case as could
not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and clear
of all Liens, except for Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held
under lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries
are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). Neither the Company nor any Subsidiary has received a
written notice that the Intellectual Property Rights used by the Company or
any Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
the Company and the Subsidiaries are engaged. To the best of Company's
knowledge, such insurance contracts and policies are accurate and complete.
Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary (other
than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000 other than (i)
for payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its subsidiaries, is made known to the certifying officers by others
within those entities, particularly during the period in which the Company's
most recently filed periodic report under the Exchange Act, as the case may
be, is being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the date prior to
the filing date of the most recently filed periodic report under the Exchange
Act (such date, the "Evaluation Date"). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company's
internal controls (as such term is defined in Item 307(b) of Regulation S-K
under the Exchange Act) or, to the Company's knowledge, in other factors that
could significantly affect the Company's internal controls.
(s) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the 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.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the shares of Preferred
Stock, will not be or be an Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(v) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any securities
of the Company.
(w) Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(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. The Company has
not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is, and has no
reason to believe that it will not in the foreseeable future continue to be,
in compliance with all such listing and maintenance requirements.
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is
or could become applicable to the Purchasers as a result of the Purchasers and
the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that, neither the Company nor
any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with respect
to such representations and warranties and do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth
in Section 3.2 hereof.
(z) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes
of the Securities Act or which could violate any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of the Trading Market.
(aa) Solvency/Indebtedness. Based on the financial condition of the
Company as of the Closing Date: (i) the fair saleable market value of the
Company's assets exceeds the amount that will be required to be paid on or in
respect of the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash,
would be sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to
believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For
the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of $50,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary
is in default with respect to any Indebtedness.
(bb) Tax Status. The Company and each of its Subsidiaries has made
or filed all federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries
has set aside on its books provisions reasonably adequate for the payment of
all unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal, statue or
local tax. None of the Company's tax returns is presently being audited by
any taxing authority.
(cc) No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor, to the knowledge of the Company, any of
its directors or officers (i) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to the sale of the Preferred Stock or the Warrants,
or (ii) made any offers or sales of any security or solicited any offers to
buy any security under any circumstances that would require registration of
the Preferred Stock, the Underlying Shares or the Warrants under the
Securities Act or made any "directed selling efforts" as defined in Rule 902
of Regulation S.
(dd) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any corrupt funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(ee) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that the Purchasers are acting solely in
the capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is
merely incidental to the Purchasers' purchase of the Securities. The Company
further represents to each Purchaser that the Company's decision to enter into
this Agreement has been based solely on the independent evaluation of the
Company and its representatives.
(ff) Seniority. As of the date of this Agreement, no other equity
of the Company is senior to the Preferred Stock in right of payment, whether
with respect to interest or upon liquidation or dissolution, or otherwise.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of
the date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is party has been duly
executed by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
(b) Investment Intent. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof, has no present
intention of distributing any of such Securities and has no arrangement or
understanding with any other persons regarding the distribution of such
Securities (this representation and warranty not limiting such Purchaser's
right to sell the Securities pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws).
Such Purchaser is acquiring the Securities hereunder in the ordinary course of
its business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants, it will be either: (i) an "accredited investor" as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a "qualified institutional buyer" as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has
so evaluated the merits and risks of such investment. Such Purchaser is able
to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(e) 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.
(f) Restrictions on Short Sales. The Purchaser represents and
warrants that, during the period beginning on the date on which vFinance
Investments, Inc. ("vFinance"), placement agent for the Company, first
contacted such Purchaser regarding a transaction contemplated by this
Agreement (and involving the Company) and ending on the Closing Date, neither
it nor any Affiliate (as defined below) of such Purchaser has engaged in any
"short sales" (as such term is defined in Rule 3b-3 promulgated under the
Exchange Act) of the Common Stock. The Purchaser further agrees that neither
Purchaser nor any Person over whom such Purchaser has control shall engage in
any "short sales" of the Common Stock on or before the issuance of the press
release described in Section 4.4. The restrictions in this Section 3.2(f)
shall not apply to any Affiliate of the Purchaser to the extent that such
Affiliate is acting in the capacity of a broker-dealer executing unsolicited
third party transactions.
For the purposes of this clause (f), an "Affiliate" of any specified
Purchaser means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such specified
Purchaser. For the purposes of this definition, "control" means the power to
direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the
Company or to an Affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
and shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under
the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is required
by this Section 4.1(b), of the following legend on any certificate evidencing
Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] [CONVERTIBLE]] 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 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 AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to
a financial institution that is an "accredited investor" as defined in Rule
501(a) under the Securities Act and who agrees to be bound by the provisions
of this Agreement and the Registration rights Agreement and, if required under
the terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge.
At the appropriate Purchaser's expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.
(c) Certificates evidencing Underlying Shares shall not contain any
legend (including the legend set forth in Section 4.1(b)): (i) while a
registration statement (including the Registration Statement) covering the
resale of such Underlying Shares is effective under the Securities Act, or
(ii) following any sale of such Underlying Shares pursuant to Rule 144, or
(iii) if such Securities are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the Staff
of the Commission). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective Date if
required by the Company's transfer agent to effect the removal of the legend
hereunder. If all or any shares of Preferred Stock or any portion of a
Warrant is converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Underlying Shares,
or if such Underlying Shares may be sold under Rule 144(k) or if such legend
is not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations thereof) then such Underlying Shares shall
be issued free of all legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent of a
certificate representing Securities issued with a restrictive legend (such
date, the "Legend Removal Date"), deliver or cause to be delivered to such
Purchaser a certificate representing such Underlying Shares that is free from
all restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages and
not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP on
the date such Securities are submitted to the Company's transfer agent)
delivered for removal of the restrictive legend and subject to this Section
4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5)
Trading Days after such damages have begun to accrue) for each Trading Day
after the Legend Removal Date until such certificate is delivered. Nothing
herein shall limit such Purchaser's right to pursue actual damages for the
Company's failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an
exemption therefrom.
(f) Until the date that each Purchaser holds less than 20% of the
shares of Preferred Stock initially purchased hereunder by such Purchaser, the
Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in interest of the shares of Preferred Stock.
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. Upon the
request of any Purchaser, the Company shall deliver to such Purchaser a
written certification of a duly authorized officer as to whether it has
complied with the preceding sentence. 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 each Purchaser and make publicly
available in accordance with Rule 144(c) such information as is required for
each Purchaser to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities
may reasonably request, all to the extent required from time to time to enable
such Person to sell such Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or
sale of the Securities in a manner that would require the registration under
the Securities Act of the sale of the Securities to the Purchasers or that
would be integrated with the offer or sale of the Securities for purposes of
the rules and regulations of any Trading Market such that it would require
shareholder approval prior to the closing of such other transaction unless
shareholder approval is obtained before the closing of such subsequent
transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue a press
release or file a Current Report on Form 8-K, in each case reasonably
acceptable to each vFinance disclosing the material terms of the transactions
contemplated hereby. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the
prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with respect to any
press release of the Company, which consent shall not unreasonably be
withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (i) as required by federal securities law in connection with the
registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii).
4.5 Shareholders Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any
Purchaser is an "Acquiring Person" under any shareholders rights plan or
similar plan or arrangement in effect or hereafter adopted by the Company, or
that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchasers.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.
4.6 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any
Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto
such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
4.7 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables, capital lease obligations, and accrued expenses in the ordinary
course of the Company's business and prior practices), to redeem any Company
equity or equity-equivalent securities or to settle any outstanding
litigation.
4.8 Intentionally Omitted.
4.9 Indemnification of Purchasers. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or
in the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder
of the Company who is not an Affiliate of such Purchaser, with respect to any
of the transactions contemplated by the Transaction Documents (unless such
action is based upon a breach of such Purchaser's representation, warranties
or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance and, as to clause (b) only, not with respect to
costs and expenses). If any action shall be brought against any Purchaser
Party in respect of which indemnity may be sought pursuant to this Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of its
own choosing. Any Purchaser Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been
specifically authorized by the Company in writing, (ii) the Company has failed
after a reasonable period of time to assume such defense and to employ counsel
or (iii) in such action there is, in the reasonable opinion of such separate
counsel, a material conflict on any material issue between the position of the
Company and the position of such Purchaser Party. The Company will not be
liable to any Purchaser Party under this Agreement (i) for any settlement by
an Purchaser Party effected without the Company's prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but only
to the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party's breach of any of the representations, warranties, covenants
or agreements made by the Purchasers in this Agreement or in the other
Transaction Documents.
4.10 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents in
such amount as may be required to fulfill its obligations in full under the
Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than 130% of (i) the
Actual Minimum on such date, minus (ii) the number of shares of Common Stock
previously issued pursuant to the Transaction Documents, then the Board of
Directors of the Company shall use commercially reasonable efforts to amend
the Company's certificate or articles of incorporation to increase the number
of authorized but unissued shares of Common Stock to at least the Actual
Minimum at such time (minus the number of shares of Common Stock previously
issued pursuant to the Transaction Documents), as soon as possible and in any
event not later than the 75th day after such date; provided that the Company
will not be required at any time to authorize a number of shares of Common
Stock greater than the maximum remaining number of shares of Common Stock that
could possibly be issued after such time pursuant to the Transaction
Documents.
(c) The Company shall: (i) in the time and manner required by the
Trading Market, prepare and file with such Trading Market an additional shares
listing application covering a number of shares of Common Stock at least equal
to the Actual Minimum on the date of such application, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing on
the Trading Market as soon as possible thereafter, (iii) provide to each
Purchaser evidence of such listing, and (iv) use reasonable efforts to
maintain the listing of such Common Stock on such Trading Market or another
Trading Market.
(d) If, on any date, the Company is listed on a different Trading
Market, then the Company shall take the necessary actions to list all of the
Underlying Shares and Warrant Shares on such Trading Market as soon as
reasonably possible.
4.11 Conversion and Exercise Procedures. The form of Election to
Purchase included in the Warrants and the forms of Conversion Notice included
in the Certificate of Designation set forth the totality of the procedures
required in order to exercise the Warrants or convert the Preferred Stock. No
additional legal opinion or other information or instructions shall be
necessary to enable each Purchaser to exercise their Warrants or convert their
Preferred Stock. The Company shall honor exercises of the Warrants and
conversions of the Preferred Stock and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in the
Transaction Documents. The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including its obligation to issue the Underlying Shares pursuant to
the Transaction Documents, are unconditional and absolute and not subject to
any right of set off, counterclaim, delay or reduction, regardless of the
effect of any such dilution or any claim the Company may have against any
Purchaser and regardless of the dilutive effect that such issuance may have on
the ownership of the other stockholders of the Company.
4.12 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. 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.
4.13 Participation in Future Financing. For as long as the Preferred
Stock remains outstanding, upon any financing by the Company of its Common
Stock or Common Stock Equivalents (a "Subsequent Financing"), each Purchaser
shall have the right to participate in up to 100% of such Subsequent
Financing. At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of its
intention to effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice
shall ask such Purchaser if it wants to review the details of such financing
(such additional notice, a "Subsequent Financing Notice"). Upon the request
of a Purchaser, and only upon a request by such Purchaser, for a Subsequent
Financing Notice, the Company shall promptly, but no later than 1 Trading Day
after such request, deliver a Subsequent Financing Notice to such Purchaser.
The Subsequent Financing Notice shall describe in reasonable detail the
proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or
similar document relating thereto. If by 6:30 p.m. (New York City time) on
the 5th Trading Day after all of the Purchasers have received the Pre-Notice,
notifications of the Purchasers of their willingness to participate in the
Subsequent Financing (or to cause their designees to provide) is, in the
aggregate, less than the total amount of the Subsequent Financing, then the
Company may effect the remaining portion of such Subsequent Financing on the
terms and to the Persons set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such 5th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not elect
to participate. The Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.13, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within 60 Trading Days after the date of the initial Subsequent
Financing Notice. In the event the Company receives responses to Subsequent
Financing Notices from Purchasers seeking to purchase more than the aggregate
amount of the Subsequent Financing, each such Purchaser shall have the right
to purchase their Pro Rata Portion (as defined below) of the Subsequent
Financing. "Pro Rata Portion" is the ratio of (x) the Subscription Amount of
a participating Purchaser and (y) the sum of the aggregate Subscription Amount
of all participating Purchasers. Notwithstanding the foregoing, this Section
4.13 shall not apply in respect of an Exempt Issuance.
4.14 Future Financings. From the date hereof until 180 days after the
Effective Date, other than as contemplated by this Agreement, neither the
Company nor any Subsidiary (with respect to Common Stock Equivalents) shall
issue or sell any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock. Notwithstanding anything herein to
the contrary, the 180 day period set forth in this Section 4.14 shall be
extended for the number of Trading Days during such period in which (i)
trading in the Common Stock is suspended by any Trading Market, or (ii)
following the Effective Date, the Registration Statement is not effective or
the prospectus included in the Registration Statement may not be used by each
Purchaser for the resale of the Underlying Shares. Notwithstanding anything
to the contrary herein, this Section 4.14 shall not apply in respect of an
Exempt Issuance. In addition to the limitations set forth herein, from the
date hereof until such time as no Purchaser holds any of the Securities, the
Company shall be prohibited from effecting or enter into an agreement to
effect any Subsequent Financing involving any security which is not a Junior
Security as defined in the Certificate of Designation, or any "Variable Rate
Transaction" or an "MFN Transaction" (each as defined below). The term
"Variable Rate Transaction" shall mean a transaction in which the Company
issues or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (A) at a conversion, exercise or exchange rate
or other price that is based upon and/or varies with the trading prices of or
quotations for the shares of Common Stock at any time after the initial
issuance of such debt or equity securities, or (B) with a conversion, exercise
or exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business
of the Company or the market for the Common Stock. The term "MFN Transaction"
shall mean a transaction in which the Company issues or sells any securities
in a capital raising transaction or series of related transactions which
grants to an investor the right to receive additional shares based upon future
transactions of the Company on terms more favorable than those granted to such
investor in such offering.
4.15 Compliance with the Securities Laws. Each Purchaser, severally and
not jointly with the other Purchasers, understands and acknowledges that the
Commission currently takes the position that coverage of short sales of shares
of the Common Stock "against the box" with the Underlying Shares purchased
hereunder prior to the Effective Date 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 Corporate Finance.
Accordingly, each Purchaser hereby agrees not to use any of the Underlying
Shares to cover any short sales made prior to the Effective Date. Such
Purchaser agrees to comply with the requirements of Regulation M, if
applicable, with respect to the sale of the Securities by the Purchaser. Such
Purchaser hereby confirms its understanding that it may not cover short sales
made prior to the Effective Date with Securities registered for resale on the
Registration Statement. The Purchaser acknowledges that it does not intend to
cover short positions made by it before the Effective Date with Securities
held by it and registered on the Registration Statement.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. At the Closing, the Company shall reimburse
vFinance $20,000 for its legal fees and expenses (less the sum of $5,000
previously paid). The Company shall deliver, prior to the Closing, a completed
and executed copy of the Closing Statement, attached hereto as Annex A.
Except as otherwise set forth in this Agreement, each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The
Company shall pay all stamp and other taxes and duties levied in connection
with the sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits
and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall
be deemed given and effective on the earliest of (a) the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number specified on the signature page prior to 5:30 p.m. (New York City time)
on a Trading Day and an electronic confirmation of delivery is received by the
sender, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than
5:30 p.m. (New York City time) on any Trading Day, (c) three Trading Days
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice
is required to be given. The addresses for such notices and communications
are those set forth on the signature pages hereof, or such other address as
may be designated in writing hereafter, in the same manner, by such Person.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser.
Any Purchaser may assign any or all of its rights under this Agreement to any
Person to whom such Purchaser assigns or transfers any Securities, provided
such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the "Purchasers".
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person, except as otherwise set forth in Section 4.9.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed
by and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys' fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.
5.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable.
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 both
parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid
and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile
signature page were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a
valid and enforceable provision that is a reasonable substitute therefor, and
upon so agreeing, shall incorporate such substitute provision in this
Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of the Preferred Stock or
exercise of the Warrant, the Purchaser shall be required to return any shares
of Common Stock subject to such conversion or exercise notice.
5.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. The applicants for a new certificate
or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Securities.
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of each
Purchaser 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.
5.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document.
Each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for
any other Purchaser to be joined as an additional party in any proceeding for
such purpose. Each Purchaser has been represented by its own separate legal
counsel in their review and negotiation of the Transaction Documents. For
reasons of administrative convenience only, Purchasers and their respective
counsel have chosen to communicate with the Company through FW. FW does not
represent the Purchasers but only vFinance. The Company has elected to
provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do
so by the Purchasers.
5.17 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding
the fact that the instrument or security pursuant to which such partial
liquidated damages or other amounts are due and payable shall have been
canceled.
[SIGNATURE PAGE FOLLOWS]
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.
XXXXX TECHNOLOGIES, INC. Address for Notice:
By:/s/ Xxxxx X. Xxxxxxxxx
Name: Xxxxx X. Xxxxxxxxx
Title: CEO
With a copy to (which shall not constitute notice):
Wire Instructions:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO RSTG 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 Signatory:
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as
above):
Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
