EXHIBIT 4.4
SSP SOLUTIONS, INC.
PURCHASE AGREEMENT
8.0% SUBORDINATED CONVERTIBLE NOTES
December 17, 2001
To each Investor Named in
Exhibit A Hereto Executing
its Acceptance Hereof
Gentlemen:
The undersigned, SSP Solutions, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with you as follows:
1. AUTHORIZATION, FORM AND ISSUANCE OF 8.0% SUBORDINATED CONVERTIBLE
NOTES; CLOSING.
1.1 AUTHORIZATION AND FORM. The Company has authorized the
issuance, execution, sale and delivery to you and the other investors listed in
Exhibit A (collectively the "Investors" and individually an "Investor") of 8.0%
Subordinated Convertible Notes ("Notes") in an aggregate original principal
amount of $2,500,000. Certain capitalized terms used herein are defined in
Section 8. The Notes shall be unsecured obligations of the Company,
subordinated, as set forth in Section 7 of the Notes, only to the Senior Debt
(as defined in the Notes) and senior in right of payment of principal and
interest to all debt obligations of the Company not constituting Senior Debt,
whether now or hereafter authorized or outstanding. The Notes shall be in the
form of Exhibit B. The Notes shall be signed by an officer of the Company who
has been authorized by the Company to execute and deliver this Agreement and the
Notes.
1.2 CLOSING; PAYMENT. Subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and covenants
contained herein, as of the date hereof (the "Closing Date"), the Company hereby
sells to you and issues to you or to your nominee, and you hereby purchase from
the Company for the purchase price set forth next to your name in Exhibit A, a
Note in the original principal amount set forth next to your name in Exhibit A,
dated the Closing Date and payable to the order of you or your nominee, as
specified in Exhibit A. The purchase price shall be paid by certified or
official bank check or by wire transfer of immediately available funds against
delivery of the Note to be purchased by you. The consummation of the
transactions contemplated hereby shall occur simultaneously with the execution
hereof and is hereinafter called the "Closing."
1.3 DELIVERIES BY THE COMPANY. On the Closing Date, the Company
shall deliver or cause to be delivered to the Investors each of the following
items:
1.3.1 NOTES. The Notes in the original principal amounts
set forth next to each Investor's name in Exhibit A.
1.3.2 GOOD STANDING CERTIFICATE. A certificate as to the
good standing of the Company from the Secretary of State of Delaware
dated within three days prior to the Closing Date.
1.3.3 SECRETARY CERTIFICATE. A certificate of the Secretary
of the Company, in form and substance satisfactory to counsel to the
Investors, dated as of the Closing Date, certifying on behalf of the
Company to the accuracy and completeness of the Company's then current
Certificate of Incorporation and Bylaws, resolutions authorizing the
transactions described in this Agreement, and approving the form of
this Agreement and the Notes.
1.3.4 COMPLIANCE CERTIFICATE. A certificate of the
President of the Company, dated as of the Closing Date, certifying that
all representations and warranties of the Company contained in Section
2 are true and correct as of the Closing Date and all covenants,
agreements, undertakings and obligations to be performed or complied
with by the Company as of or prior to the Closing, unless waived in
writing, have been duly performed or complied with by the Company in
accordance with the terms of this Agreement.
1.3.5 OTHER INSTRUMENTS. Such other instruments, documents
or information as the Investors may reasonably request in connection
with this Agreement and the transactions contemplated hereby, in form
and substance reasonably satisfactory to the Investors.
1.4 DELIVERIES BY THE INVESTORS. On the Closing Date, the
Investors shall deliver or cause to be delivered to the Company each of the
following items:
1.4.1 PURCHASE PRICE. Payment of the purchase price set
forth next to each Investor's name in Exhibit A by certified or
official bank check or by wire transfer of immediately available funds
pursuant to the Company's instructions provided at least one day prior
to the Closing Date.
1.4.2 OTHER INSTRUMENTS. Such other instruments, documents
or information as the Company shall reasonably request in connection
with this Agreement and the transactions contemplated hereby, in form
and substance reasonably satisfactory to the Company.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
2.1 ORGANIZATION AND QUALIFICATION OF THE COMPANY; SUBSIDIARIES.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Company has all requisite
corporate power and authority to own its Property and to carry on its business
as presently conducted or proposed to be conducted and to carry on its business
as presently conducted and as proposed to be conducted and to carry out the
transactions contemplated by this Agreement. The Company is qualified to do
business in each of the jurisdictions in which the character of its Property or
the nature of its activities makes such
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qualification in such jurisdictions necessary, except where the failure to so
qualify would not have a material adverse effect on its business taken as a
whole (a "Material Adverse Effect"). Except as disclosed in Schedule 2.1, the
Company has no Subsidiaries and does not own of record or beneficially any
securities of any corporation or any instrument or investment in any
partnership, association, corporation, limited liability company, fund or
business entity.
2.2 CAPITAL STOCK.
(a) The authorized capital stock of the Company consists
of 100,000,000 shares of common stock, $.01 par value ("Common Stock"),
and 5,000,000 shares of preferred stock, $.01 par value ("Preferred
Stock"). There are issued and outstanding 20,630,754 shares of Common
Stock and no shares of Preferred Stock. There are no shares of Common
Stock held by the Company as treasury stock. All of the issued and
outstanding shares of Common Stock are duly authorized, validly issued,
fully paid, non-assessable, are without, and were not issued in
violation of, any preemptive rights, and were not issued in violation
of federal or state securities laws.
(b) No other class of capital stock of the Company is
issued or outstanding, and except as set forth on Schedule 2.2(b),
there are no options, warrants, calls, subscriptions, conversion or
other rights, agreements or commitments obligating the Company to issue
any additional shares of capital stock of the Company or any other
securities convertible into, exchangeable for or evidencing the right
to subscribe for any shares of capital stock of the Company, or any
other security of the Company. There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to the
Company.
(c) Except as set forth on Schedule 2.2(c), there are no
voting agreements, voting trust agreements, registration rights
agreements, proxies or stockholder or similar agreements relating to
the capital stock of the Company. Except as set forth on Schedule
2.2(c), the Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of
its capital stock.
(d) The Company has a sufficient number of shares of
Common Stock authorized and duly reserved for issuance upon conversion
of the Notes. At all times while the Notes are outstanding, the Company
will maintain an adequate reserve of duly authorized shares of Common
Stock to enable it to perform its obligations under this Agreement and
the Notes, and in no circumstances shall such reserved and available
shares of Common Stock be less than the number of shares of Common
Stock which would be issuable upon conversion of the Notes (the
"Underlying Shares"). When issued in accordance with the terms of this
Agreement and the Notes, the Underlying Shares will be duly authorized,
validly issued, fully paid and non-assessable.
2.3 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Exchange Act
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
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Documents") for the three years preceding the date of this Agreement (or such
shorter period as the Company was required by law to file such material). The
Company has delivered to the Investors or their representatives true and
complete copies of any SEC Documents that were not filed electronically via
XXXXX. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Investors which is not included in the SEC Documents contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
2.4 CHANGES. Except as disclosed in the SEC Documents, since
December 31, 2000, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company, except changes in the
ordinary course of the Company's business which have not had, in the
aggregate, a Material Adverse Effect;
(b) any damage, destruction or loss of any of the
Company's Property which has had or is reasonably likely to have a
Material Adverse Effect;
(c) any waiver by the Company of a valuable right or of a
material debt owed to it; or
(d) any other event or condition of any character which
has had or is reasonably likely to have a Material Adverse Effect.
2.5 CERTAIN TRANSACTIONS. Except as set forth on Schedule 2.5:
(a) The Company is not indebted, either directly or
indirectly, to any of its directors or executive officers or to their
respective spouses or children, in any amount in excess of $50,000,
other than for payment of salary for services rendered and reasonable
expenses; none of such directors and executive officers or any members
of their immediate families, are indebted to the Company in an amount
in excess of $50,000 or have any direct or indirect ownership interest
in any firm or corporation with which the
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Company is affiliated or with which the Company has a business
relationship which is material to the Company, or any firm or
corporation which competes with the Company. The Company is not a
guarantor or indemnitor of any indebtedness of any other Person. There
are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates, or any
affiliate thereof.
(b) The Company has not at any time since December 31,
2000 (i) declared or paid any dividends or authorized or made any
distribution upon or with respect to any class or series of its capital
stock, (ii) made any loans or advances to any Person, other than
ordinary advances for travel expenses or (iii) sold, exchanged or
otherwise disposed of any of its assets or rights, other in the
ordinary course of the Company's business.
(c) For the purposes of subsection (a) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same Person
(including Persons the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(d) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under
its Certificate of Incorporation or Bylaws that has had or is
reasonably likely to have a Material Adverse Effect on the Company's
business as now conducted or its Property or its financial condition.
2.6 TAX MATTERS. All federal, state and local tax returns and tax
reports required to be filed by the Company have been filed with the appropriate
government agencies in all jurisdictions in which such returns and reports are
required to be filed. The Company has paid all taxes and other assessments that
have become due.
2.7 TITLE TO PROPERTIES. The Company has good title to its
Property, and, except as set forth in Schedule 2.7, none of such Property is
subject to any mortgage, pledge, security interest, lien or other encumbrance.
The Company owns or leases all of the material tangible assets that are required
to operate its business as currently conducted.
2.8 MATERIAL CONTRACTS AND COMMITMENTS. All the material
contracts, agreements and instruments to which the Company is a party or by
which any of its Property is bound (the "Material Contracts") are valid, binding
and in full force and effect in all material respects, and are valid, binding
and enforceable by the Company in accordance with their respective terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. The Company is not in material
default under any Material Contract nor, to the Company's knowledge, is any
other party to such contract in material default. Neither the execution,
delivery and performance of and compliance with this Agreement and the Notes and
the transactions contemplated hereby and thereby will conflict with or
constitute, with or without the passage of time and giving of notice, a default
under any Material Contract.
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2.9 INTELLECTUAL PROPERTY. The Company has sufficient title and
ownership of or has duly licensed for use all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted without any conflict
with or infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, other than
licenses entered into in the ordinary course of the Company's business nor is
the Company bound by or a party to any exclusive options, licenses or agreements
of any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other Person. The Company is not in violation or infringement
of, and by conducting its business as currently conducted, would not violate or
infringe, any of the patents, trademarks, service marks, trade names,
significant non-administrative copyrights or trade secrets or other proprietary
rights of any other Person, and the Company is not otherwise aware of any such
alleged violations, infringement, violations or possible violations. The Company
is not aware of any violation or infringement by a third party of any of the
Company's patents, licenses, trademarks, service marks, trade names, copyrights,
trade secrets, know-how or other proprietary rights and processes. The Company
is not, nor does it believe it is or will be necessary to utilize any inventions
of any of its officers, directors, consultants, independent contractors or
employees (each, individually a "Staff Member") (or people it currently intends
to hire) made prior to their employment or engagement by the Company, or
otherwise made outside the scope of such Staff Member's employment or engagement
with the Company.
2.10 GOVERNMENTAL CONSENT, ETC. No consent, approval or
authorization of or designation, declaration or filing with any state or federal
governmental authority on the part of the Company is required in connection with
the valid execution, delivery and performance of this Agreement and the Notes,
or the consummation of any other transaction contemplated hereby or thereby or
by the exhibits hereto and thereto.
2.11 LITIGATION, ETC. Except as set forth on Schedule 2.11, there
are no actions, proceedings or investigations pending or, to the Company's
knowledge, threatened against the Company before any court or before any
administrative agency or administrative officer and the Company has not violated
any federal, state or local laws, regulations or orders.
2.12 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its Property
that might be damaged or destroyed. The Company has in full force and effect
products liability and errors and omissions insurance in amounts customary for
companies similarly situated.
2.13 KEY EMPLOYEES. The Company is not aware that any of its
officers or key employees, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing.
2.14 PERMITS. The Company has all franchises, permits, licenses and
similar authority necessary for the conduct of its business as presently
conducted by it and as proposed to be conducted by it in the six month period
following the Closing Date. The Company is not in default under any such
franchises, permits, licenses, or other similar authority.
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2.15 ENVIRONMENTAL AND SAFETY LAWS. To the Company's knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and no material
expenditures have been or are reasonably likely to be required in order to
comply with any such existing statute, law or regulation.
2.16 EMPLOYEES; ERISA.
(a) Set forth in Schedule 2.16 is a true and complete
list and summary description of all bonus, pension, stock option, stock
purchase, benefit, welfare, profit sharing, retirement, disability,
vacation, severance, hospitalization, insurance, incentive, deferred
compensation and other similar fringe or employee benefit plans, funds,
programs or arrangements, all employment contracts or executive
compensation agreements, written or oral (collectively, "Plans"), in
each of the foregoing cases which cover, are maintained for the benefit
of, or relate to any or all employees of the Company, and any or all
employees of any member of the Company's controlled group (the
"Controlled Entities") as described in Sections 414(b), (c), (m) and
(o) of the Code (such plans, funds, programs, arrangements, contracts
and agreements set forth on Schedule 2.16 being collectively referred
to herein as the "Employee Plans"). Each of the Employee Plans and,
with respect to each Employee Plan, the Company, each Controlled Entity
and each administrator of any Employee Plan is in compliance, in form
and operation, with the requirements provided by any and all statutes,
orders or governmental rules or regulations currently in effect
applicable to such Employee Plans, including the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Code. None
of the Employee Plans are subject to Title IV of ERISA, Section 302 of
ERISA or Section 412 of the Code and neither the Company nor any
Controlled Entity has ever maintained or contributed to any Plan
subject to the foregoing Title and Sections. Except as set forth in
Schedule 2.16, the Company does not have any liability and there are no
claims pending or to the Company's knowledge other existing facts or
circumstances which could give rise to any liability of the Company or
create any lien with respect to any of the Property of the Company
and/or any of the Subsidiaries with respect to the establishment,
operation or administration of any of the Employee Plans. Without
limiting the foregoing, (a) the Company's knowledge neither the Company
nor any Controlled Entity or Employee Plan has ever engaged in a
"prohibited transaction" (as defined under Section 406 of ERISA), and
(b) the Company and each Controlled Entity have paid in full, subject
only to normal retrospective adjustments in the ordinary course, all
insurance premiums with regard to each Employee Plan for periods ending
on or before the Closing. The consummation of the transactions
contemplated by this Agreement will not give rise to any liability of
the Company or create any lien with respect to the Property of the
Company and/or any of the Subsidiaries with respect to the
establishment, operation or administration of any of the Employee
Plans. Neither the Company nor any Controlled Entity maintains,
contributes to, or has any liability for medical, health, life, or
other welfare benefits for present or future terminated employees
(other than any welfare benefits provided in compliance with the
Consolidated Omnibus Budget Reconciliation Act of 1985 or other similar
law). Neither the Company nor any Controlled Entity is obligated to
contribute to any pension plans that are Multiemployer Plans (within
the meaning of Section 4001(a)(3) of ERISA) and neither the Company nor
any Controlled Entity is or ever has been obligated to contribute to
any Multiemployer
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Plans. Any Employee Plan intending to qualify under Section 401(k) of
the Code does so qualify. To the Company's knowledge, all Employee
Plans covered by ERISA, maintained by or contributed by the Company
and/or any of the Subsidiaries or any Controlled Entity are in
compliance with all applicable law, including any reporting
requirements. To the Company's knowledge, neither the Company nor any
Controlled Entity has engaged in any transaction prohibited by Section
4975 of the Code or Section 406 of ERISA which could subject the
Company or any Controlled Entity or any other person who the Company
may have an obligation to indemnify to any material tax or penalty
imposed under Section 4975 of the Code, Section 502 of ERISA or any
similar statute, regulation, ordinance, order or decree.
(b) None of the employees of the Company is represented
by any labor union, and there is no strike, shutdown, organizational
drive, boycott or similar labor action currently pending and/or (to the
Company's best knowledge) threatened with respect to the Company.
2.17 BINDING EFFECT. This Agreement has been duly authorized,
executed and delivered by the Company and, as of the Closing Date, the Notes
have been duly authorized, executed and delivered by the Company, and this
Agreement constitutes the legal, valid and binding obligations of the Company
and, as of the Closing Date, the Notes constitute the legal, valid and binding
obligations of the Company, each enforceable in accordance with its terms except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or by equitable principle relating to or limiting creditor's rights
generally.
2.18 FULL DISCLOSURE. To the Company's knowledge, no written
statement furnished by or on behalf of the Company to you in connection with the
negotiation of the sale of the Notes, including this Agreement and the attached
schedules, contains any untrue statement of a material fact or omits a material
fact necessary to make the statements contained therein or herein, taken as a
whole, not misleading. To the Company's knowledge, there is no fact that the
Company has not disclosed to you in writing which could reasonably be expected
to have a Material Adverse Effect on the ability of the Company to perform its
obligations under this Agreement or the Notes.
2.19 EXTENT OF OFFERING. Neither the Company nor any agent acting
on its behalf has sold or offered to sell any or all of the Notes or any similar
securities so as to bring the offer or sale of the Notes within the provisions
of Section 5 of the Securities Act, and neither the Company nor any agent acting
on its behalf will offer or sell the Notes or any securities similar to the
Notes so as to bring the offer or sale of the Notes within such provisions.
2.20 OUTSTANDING INDEBTEDNESS. As of the date of this Agreement,
the Company has no outstanding indebtedness other than as set forth on Schedule
2.20.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR.
3.1 INVESTMENT INTENT, ETC. You represent and warrant that you are
acquiring the Notes and the securities issuable upon conversion of the Notes
purchased or otherwise acquired hereunder for your own account for investment
and not with a view to, or for sale or other
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disposition in connection with, any distribution thereof, nor with any present
intention of selling or otherwise disposing of the same.
3.2 SOPHISTICATION, FINANCIAL STRENGTH, ACCESS, ETC. You
represent, warrant and acknowledge that you are an Accredited Investor (as that
term is defined in Rule 501 promulgated by the SEC under the Securities Act),
that you have such knowledge and experience in business and financial matters as
to be capable of evaluating the merits and risks of the investment contemplated
to be made hereunder, and that you were not formed or organized for the specific
purpose of investing in the Company; that you understand that such investment
bears a high degree of risk and could result in a total loss of your investment;
that your principal place of business is the address set forth on Exhibit A; and
that you have sufficient financial strength to hold the same as an investment
and to bear the economic risks of such investment (including possible loss of
such investment) for an indefinite period of time. You acknowledge that you are
fully informed that the Notes and the securities issuable upon conversion of the
Notes being sold to you hereunder are being sold pursuant to a private offering
exemption under the Securities Act and are not being registered under the
Securities Act or under the securities or blue sky laws of any state or foreign
jurisdiction; that the Notes must be held indefinitely unless they are
subsequently registered under the Securities Act and any applicable state
securities or blue sky laws, or unless an exemption from registration is
available thereunder; and that, except as specifically set forth herein, the
Company has no obligation to register the Notes or the Underlying Shares. You
represent and warrant that you have been given the opportunity to ask questions
of, and receive answers from, the officers of the Company concerning the terms
and conditions of this offering and the other matters pertaining to this
investment, and, to your knowledge, have received all information you have
requested from the Company and consider necessary or appropriate for deciding
whether to invest.
3.3 AUTHORIZATION. You represent and warrant that, as of the
Closing Date, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein have been duly authorized
by you. The fulfillment of and compliance with the terms of this Agreement by
you will not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, or (iii) result in a violation
of, breach of or default under (a) any law, statute, rule or regulation to which
you are subject or (b) any agreement, instrument, order, judgment or decree to
which you are a party, bound or subject.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees that on the date hereof and thereafter
so long as any Note is outstanding:
4.1 SELECTION OF INDEPENDENT AUDITORS. The Company will retain
KPMG LLP as its independent auditors or another independent public accounting
firm that is either of nationally-recognized standing or approved by the holders
of the outstanding Notes.
4.2 PUNCTUAL PAYMENT. The Company will duly and punctually pay the
principal of, and interest on, each of the Notes in accordance with the terms of
this Agreement and the Notes.
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4.3 BUSINESS, FRANCHISES, ETC. The Company will limit its business
to the performance of activities in the ordinary course of a business at the
Company's stage of development and do or cause to be done all things necessary
to enable it to carry on such business and to preserve and keep in full force
and effect its corporate existence. The Company will take all reasonable action
to qualify as a foreign corporation or otherwise obtain all necessary licenses,
permits, consents and certifications in order to conduct its business in each
jurisdiction where the character of its Property or the nature of its activities
makes such qualification necessary.
4.4 INSPECTION OF PROPERTY. The Company will permit any holder of
Notes or any Person reasonably designated by any such holder of Notes, upon
reasonable notice and during normal business hours, from time to time to (i)
visit and inspect any of the Properties of the Company, (ii) examine the
corporate and financial records of the Company and make copies thereof or
extracts therefrom, and (iii) discuss the affairs, finances and accounts of the
Company with the officers of the Company, for the purpose of monitoring such
holder's investment in the Company. Each Investor acknowledges that he may
obtain information relating to the Company's suppliers, customers, services,
products or business that is of a confidential and proprietary nature
("Confidential Information"). Each Investor hereby agrees not to disclose any
such Confidential Information to any third party without the prior written
consent of the Company unless required by law or unless such Confidential
Information has theretofore been made publicly available by any person other
than the Investor.
4.5 PAYMENT OF TAXES. The Company will pay and discharge promptly,
or cause to be paid and discharged promptly, when due and payable, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or upon any of its Property or upon any part thereof, as well as all
claims of any kind (including claims for labor, materials and supplies) which,
if unpaid, might become a lien upon any of its Property; provided, however, that
the Company shall not be required to pay any such tax, assessment, charge, levy
or claim if the amount, applicability or validity thereof is being contested in
good faith with due diligence and by appropriate proceedings and if the Company
shall have set aside on its books reserves (segregated to the extent required by
generally accepted accounting principles) reasonably deemed by it adequate with
respect thereto.
4.6 COMPLIANCE WITH LAWS. The Company will comply, in all material
respects, with all provisions of its Certificate of Incorporation and Bylaws,
all applicable laws, regulations, orders and decrees of the United States and
foreign authorities, all states and municipalities, and agencies and
instrumentalities of the foregoing, in respect of the conduct of its business
and the ownership of its Property and any provision of any contract, agreement,
indenture, mortgage, lien, lease, sublease or arbitration award to which the
Company is a party, by which it is bound or to which any of its Property is
subject, except to the extent that the Company's obligation to comply with any
of the foregoing is being contested in good faith with due diligence and by
appropriate proceedings.
4.7 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of
account in which full and correct entries will be made of all its
business transactions pursuant to a system
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of accounting established and administered in accordance with generally
accepted accounting principles consistently applied, and will set aside
on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
(b) The Company will timely file all reports required to
be filed with the SEC pursuant to the Exchange Act.
(c) If the Company or a successor to the Company is no
longer required to file reports with the SEC pursuant to the Exchange
Act, as long as any Note is outstanding, the Company shall:
(i) As soon as practicable after the end of each
fiscal year of the Company, and in any event within 90 days
thereafter, the Company will furnish each holder of the Notes
a balance sheet of the Company and its subsidiaries (if any)
as at the end of such fiscal year, and a statement of income
and a statement of cash flows of the Company and its
subsidiaries (if any), for such year, all prepared in
accordance with generally accepted accounting principles
consistently applied and in each case in comparative form the
figures for the previous fiscal year, all in reasonable
detail, and with respect to only the holders of the Notes,
together with management's discussion and analysis. Such
financial statements shall be accompanied by a report and
opinion thereon by independent public accountants of national
standing selected by the Company's Board of Directors; and
(ii) The Company will furnish to each holder of
the Notes, as soon as practicable after the end of the first,
second and third quarterly accounting periods in each fiscal
year of the Company, and in any event within 45 days
thereafter, a balance sheet of the Company and its
subsidiaries (if any) as of the end of each such quarterly
period, and a statement of income and a statement of cash
flows of the Company and its subsidiaries (if any), for such
period and for the current fiscal year to date, prepared in
accordance with generally accepted accounting principles, with
the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been
made, together with management's discussion and analysis.
4.8 RESTRICTED ACTIVITIES. Except in the ordinary course of the
Company's business, or as otherwise expressly contemplated by this Agreement, so
long as any Note is outstanding the Company will not without the consent of the
holders of a majority in principal amount of the Notes then outstanding:
(a) declare or pay any dividends, either in cash or
property on its capital stock and all other equity securities and all
debt securities of the Company which are junior in rights and
liquidation preferences to the Notes ("Junior Securities");
(b) directly or indirectly purchase, redeem or retire any
of its Junior Securities, except as pursuant to any agreement set forth
on Schedule 2.2(c); or
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(c) make any other distribution, either directly or
indirectly, in respect of Junior Securities.
4.9 SUBSEQUENT EQUITY FINANCING. Within six months after the date
of this Agreement, the Company shall use its best efforts to complete a
Qualified Financing (as defined in the Notes).
5. TRANSFER OF NOTES.
The Notes shall not be transferable except upon the conditions
specified in this Section 5, which conditions, among other things, are intended
to ensure compliance with the provisions of the Securities Act and state
securities and blue sky laws in respect of the transfer thereof.
5.1 RESTRICTIVE LEGENDS.
(a) Unless and until otherwise permitted by this Section
5, each Note and each certificate representing Underlying Shares issued
to you, your nominee or any subsequent transferee of a Note or
Underlying Shares shall be stamped or otherwise imprinted with a legend
in substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
ACT OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD OR OFFERED
FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
COVERING THE SECURITIES BEING SOLD UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND SUCH STATE LAWS AS MAY BE APPLICABLE, OR
A WRITTEN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER
OR SALE MAY BE EFFECTED WITHOUT THE REGISTRATION OF THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE APPLICABLE STATE SECURITIES LAWS."
(b) The Underlying Shares shall not contain the legend
set forth above if the conversion of such Notes occurs at any time
while a registration statement relating to the Underlying Shares is
effective under the Securities Act or, if there is not an effective
registration statement relating to the Underlying Shares at such time,
if in a written opinion of counsel reasonably acceptable to the
Company, such counsel determines that such legend is not required under
the applicable requirements of the Securities Act. The Company agrees
that it will provide each Investor, upon request, with a certificate or
certificates representing Underlying Shares free from such legend at
such time as such legend is no longer required pursuant to this Section
5.
5.2 TRANSFER UNDER SECURITIES ACT. Any Investor may resell or
transfer the Notes (and upon conversion thereof, any of the Underlying Shares)
at his discretion provided that such
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transfer is in compliance with the provisions of the Securities Act and state
securities and blue sky laws.
6. REGISTRATION RIGHTS.
The Company covenants and agrees as follows:
6.1 DEMAND REGISTRATION.
(a) If the Company at any time receives a written request
from the Investors with respect to at least 50% of the Registrable
Securities then held by or issuable to the Investors (or such lesser
number of Registrable Securities as would result in an aggregate
offering price to the public of at least $1,000,000), then the Company
shall:
(i) within ten days of the receipt thereof, give
written notice of such request to all Investors; and
(ii) prepare and file, as soon as practicable,
and in any event within 90 days of the initial request, and
use its best efforts to effect the registration under the
Securities Act of all Registrable Securities that the
Investors request to be registered (subject to the limitations
of subsection 6.1(b)).
(b) If the Investors initiating the registration request
hereunder (the "Initiating Investors") intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their
request made pursuant to subsection 6.1(a). The underwriter will be
selected by the Company and shall be reasonably acceptable to a
majority in interest of the Initiating Investors. In that event, the
right of any Investors to include its Registrable Securities in such
registration shall be conditioned upon such Investors participation in
such underwriting and the inclusion of such Investors' Registrable
Securities in the underwriting (unless otherwise mutually agreed by a
majority in interest of the Initiating Investors and such Investor) to
the extent provided herein. All Investors proposing to distribute their
securities through such underwriting shall (together with the Company
as provided in subsection 6.1(e)), if requested by the underwriter or
underwriters, enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this Section 6.1, if the
underwriter advises the Initiating Investors in writing that marketing
factors require a limitation of the number of shares to be
underwritten, then the Initiating Investors shall so advise all
Investors of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable
Securities that may be included in the underwriting shall be allocated
first, among all Initiating Investors, in proportion (as nearly as
practicable) to the amount of Registrable Securities of the Company
owned by each Initiating Investor as compared to the other Initiating
Investors participating in the offering, second, to the Company, and
third, among all other Investors who have requested to participate
pursuant to Section 6.2 in accordance with the priorities set forth in
Section 6.2.
(c) Notwithstanding the foregoing right of the Investors
to request registration, if the Company furnishes to Investors
requesting a registration statement
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pursuant to this Section 6.1, a certificate signed by the President of
the Company stating (i) that in the good faith judgment of the Board of
Directors of the Company, it would be materially detrimental to the
Company and its stockholders for such registration statement to be
filed and (ii) that it is therefore essential to defer the filing of
such registration statement, then the Company shall have the right to
defer taking action with respect to such filing for a period of not
more than 60 days after receipt of the request of the Initiating
Investors; provided, however, that the Company may not utilize this
right more than twice in any twelve-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to
this Section 6.1:
(i) After the Company has effected one
registration pursuant to this Section 6.1 and, except as
provided by Section 6.6, such registration has been declared
or ordered effective;
(ii) During the 180 day period after the
effective date of the registration statement relating to the
filing of a registration statement filed pursuant to
subsection 6.1(a); or
(iii) If the Initiating Investors propose to
dispose of shares of Registrable Securities that may be
immediately registered on Form S-3 pursuant to a request made
pursuant to Section 6.3.
6.2 COMPANY REGISTRATION.
(a) If (but without any obligation pursuant to this
Agreement to do so) the Company proposes to register (including for
this purpose, a registration effected by the Company for stockholders)
any of its stock or other securities under the Securities Act in
connection with the public offering of such securities solely for cash
(other than a registration on Form X-0, Xxxx X-0 or any other form that
would not permit registration of the Registrable Securities, the
Company shall, at such time, promptly give each Investor written notice
of such registration at least 20 days prior to filing a registration
statement relating to such registration. Upon the written request of
each Investor given within 20 days after mailing of such notice by the
Company, the Company shall use its best efforts to cause to be
registered under the Securities all of the Registrable Securities that
each such Investor has requested to be registered.
(b) In connection with any offering involving an
underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 6.2 to include any of the
Investors' securities in such underwriting unless they accept the terms
of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters
determine, in their sole discretion, will not jeopardize the success of
the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities to be sold
that the underwriters determine in their sole discretion
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is compatible with the success of the offering, then the Company shall
be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of
the offering, the securities (including Registrable Securities) so
included to be apportioned (i) first, to the Initiating Investors, if
any, (ii) second, to the Company, and (iii) third, thereafter pro rata
among the Investors. With respect to subclause (iii), any underwriters
cutback shall be in proportion (as nearly as practicable) to the total
number of shares of Registrable Securities that the Investors have
requested be registered in the offering. For purposes of the foregoing
concerning apportionment, for any Investor that is a partnership,
limited liability company or corporation, the partners, members,
retired partners, retired members and stockholders of such holder, or
the estates and family members of any such partners, members, retired
partners and retired members and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling
stockholder," and any pro rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
6.3 FORM S-3 REGISTRATION. If the Company receives from any
Investor or Investors written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by or issuable to
such Investor or Investors, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Investor; and
(b) as soon as practicable, and in any event within 45
days of the initial request, file a registration statement covering the
Registrable Securities entitled to inclusion in such registration, and
effect such registration and all such qualifications and compliances as
may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Investor's or Investors'
Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Investor
or Investors joining in such request as are specified in a written
request given within 15 days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated
to effect any such registration, qualification or compliance, pursuant
to this Section 6.3: (1) if Form S-3 is not available for such offering
by the Investors or (2) if the Investors, together with the holders of
any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and other
securities, if any, entitled to inclusion at an aggregate price to the
public of less than $500,000. Registrations effected pursuant to this
Section 6.3 shall not be counted as demands for registration or
registrations effected pursuant to Sections 6.1 or 6.2, respectively.
6.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 6 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
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(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective, and,
upon the request of the Investors of a majority of the Registrable
Securities registered thereunder, keep such registration statement
effective for a period of up to 120 days or until the distribution
contemplated in the Registration Statement has been completed;
provided, however, that (i) such 120 day period shall be extended for a
period of time equal to the period the Investor refrains from selling
any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and
(ii) in the case of any registration of Registrable Securities on Form
S-3 which are intended to be offered on a continuous or delayed basis,
such 120 day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities
are sold or may immediately be sold under SEC Rule 144 during any 90
day period (and no Investor owns more than 1% of the Company's
outstanding stock), provided that Rule 415, or any successor rule under
the Securities Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Securities
Act governing the obligation to file a post-effective amendment permit,
in lieu of filing a post-effective amendment which (A) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (B)
reflects facts or events representing a material or fundamental change
in the information set forth in the registration statement, the
incorporation by reference (in the registration statement) of
information required to be included in (A) and (B) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of
the Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to the Investors such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of
Registrable Securities owned by or issuable to them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Investors; provided that the Company shall
not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be
required by law.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter of such
offering. Each Investor participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
-16-
(f) Notify each holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(g) Cause all Registrable Securities registered pursuant
to this Section 6 to be listed on each exchange or included for trading
on any interdealer quotation system on which similar securities issued
by the Company are then listed or included.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to this Section 6 and a
CUSIP number for all such Registrable Securities, in each case not
later than the effective date of such registration.
(i) Furnish, at the request of any Investor requesting
registration of Registrable Securities pursuant to this Section 6, on
the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to
this Section 6, if such securities are being sold through underwriters,
or, if such securities are not being sold through underwriters, on the
date that the registration statement with respect to such securities
becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters, if any,
and to the Investors requesting registration of Registrable Securities
and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Investors requesting registration of
Registrable Securities.
6.5 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 6 with
respect to the Registrable Securities of any selling Investor that such Investor
shall furnish to the Company such information regarding himself or itself, the
Registrable Securities held by him, and the intended method of disposition of
such securities as shall be required to effect the registration of such selling
shareholder's Registrable Securities.
6.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 6.1, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 6.1 if the
registration request is subsequently withdrawn at the request of the Investors
holding a majority of the Registrable Securities (in which case the Initiating
Investors shall bear such expenses), unless the Investors of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 6.1; provided further, however, that if at the time of such
withdrawal, the Investors have
-17-
learned of a material adverse change in the assets, financial condition or
business of the Company, or in the market price of the Common Stock, from that
known to the Investors at the time of their request and have withdrawn the
request with reasonable promptness following disclosure by the Company of such
material adverse change, then the Investors shall not be required to pay any of
such expenses and shall retain their rights pursuant to Section 6.1).
6.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 6.2 for each Investor, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto, but excluding underwriting discounts and
commissions relating to Registrable Securities.
6.8 EXPENSES OF FORM S-3 REGISTRATION. The Company shall bear and
pay all expenses incurred in connection with each registration requested
pursuant to Section 6.3, including (without limitation) all registration,
filing, qualification, printer's and accounting fees and counsel for the
Company, but excluding any underwriters' discounts or commissions associated
with Registrable Securities.
6.9 DELAY OF REGISTRATION. No Investor shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 6.
6.10 INDEMNIFICATION. If any Registrable Securities are included in
a registration statement under this Section 6:
(a) The Company will indemnify and hold harmless each
Investor, any underwriter (as defined in the Securities Act) for such
Investor and each Person, if any, who controls such Investor or
underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law; and the
Company will promptly pay to each such Investor, underwriter or
controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 6.10 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably
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withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Investor,
underwriter or controlling person.
(b) Each selling Investor, severally and not jointly,
will indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter, any other shareholder selling
securities in such registration statement and any controlling person of
any such underwriter or other Investor, against any losses, claims,
damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Investor
expressly for use in connection with such registration; and each such
Investor will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this
subsection 6.10(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that
the indemnity agreement contained in this subsection 6.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of the Investor, which consent shall not be unreasonably withheld;
provided that in no event shall any indemnity under this subsection
6.10(b) exceed the net proceeds from the offering received by such
Investor.
(c) Promptly after receipt by an indemnified party under
this Section 6.10 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this Section 6.10, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by
the indemnifying party, if (in the reasonable opinion of counsel for
the indemnified party) representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 6.10, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 6.10.
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(d) If the indemnification provided for in this Section
6.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim,
damage, or expense referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party hereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of
such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party
on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability,
claim, damage, or expense as well as any other relevant equitable
considerations; provided that in no event shall any contribution by an
Investor hereunder exceed the net proceeds from the offering received
by such Investor. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission. The
parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.10(d) were determined by pro
rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this
Section 6.10(d), no Investor shall be required to contribute any amount
in excess of the dollar amount of the proceeds received by such
Investor (net of any underwriting discount) upon the sale of the
Registrable Securities giving rise to such contribution obligation. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was guilty of such fraudulent representation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control. For purposes of
this subsection 6.10(e), the failure of the underwriting agreement to
address or include any provision regarding indemnification or
contribution shall not be deemed to be a conflict.
(f) The obligations of the Company, on the one hand, and
the Investors, on the other, under this Section 6.10 shall survive the
completion of any offering of Registrable Securities in a registration
statement under this Section 6, and otherwise.
6.11 REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time permit a Investor
to sell securities of the Company to the public without registration or pursuant
to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144;
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(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act,
as is necessary to enable the Investors to utilize Form S-3 for the
sale of their Registrable Securities, such action to be taken as soon
as practicable after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its
securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act; and
(d) furnish to any Investor, so long as the Investor owns
any Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting
requirements of SEC Rule 144, the Securities Act and the Exchange Act,
or that it qualifies as a registrant whose securities may be resold
pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy
of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such
other information as may be reasonably requested in availing any
Investor of any rule or regulation of the SEC which permits the selling
of any such securities without registration or pursuant to such form.
6.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights of each Investor
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by such Investor to any transferee or assignee of all
or a portion of the Notes or the Underlying Shares if: (i) such Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such assignment
or transfer, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to such registration
rights are being transferred or assigned, (iii) following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws and (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this Section 6.12, the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions of this
Agreement. The rights to assignment shall apply to such Investor's (and to
subsequent) successors and assigns.
6.13 "MARKET STAND-OFF" AGREEMENT. Notwithstanding anything else in
this Agreement to the contrary, the Investors, on behalf of themselves and any
assignees, hereby agree that, for a period of 90 days following the effective
date of a registration statement of the Company filed under the Securities Act
as described in Section 6.2(a), they shall not, directly or indirectly, sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of, whether
through a derivation transaction or any other method of disposing of the
economic benefits (other than to donees who agree to be similarly bound), any
Registrable Securities held by them at any time during such period, except
Common Stock included in such registration; provided, however, that such
agreement shall not apply unless (i) the standoff has been requested by the
underwriters of the Company's securities and (ii) the officers and directors of
the Company and holders of 1% or more of the Company's outstanding securities
are similarly bound with regard to the offering. In
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order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the securities of the Company held by each party to
this Agreement (and the shares or securities of every other person subject to
the foregoing restriction) until the end of such period.
6.14 EFFECT OF CONVERSION. If the Notes are automatically converted
in accordance with Section 8.1(a) of the Notes in connection with a Qualified
Financing (as defined in the Notes) in which registration rights are granted to
the participants in the Qualified Financing (including the Investors), then the
provisions of this Section 6 shall automatically terminate upon the closing of
that Qualified Financing, and the Investors shall thereafter be entitled to the
registration rights granted in that Qualified Financing.
7. LIABILITY.
The obligations of each Investor hereunder are several and not joint
and no Investor shall have any liability on account of any default of another
Investor.
8. DEFINITIONS.
The following terms shall have the following meanings herein:
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form S-3" means such form under the Act as in effect on the date
hereof or any registration form under the Act subsequently adopted by the SEC,
which permits inclusion or incorporation of substantial information by reference
to other documents filed by the Company with the SEC.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a trust, an unincorporated organization or a governmental
organization or any agency or political subdivision thereof.
"Property" means any interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Register," "registered," and "registration" refer to a registration
effected by preparing and finding a registration statement or similar document
in compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"Registrable Securities" means the Company's Common Stock, issuable or
issued upon conversion of the Notes.
The number of shares of "Registrable Securities then outstanding" shall
be determined by the number of shares of Common Stock outstanding that are, and
the number of shares of Common Stock issuable pursuant to then convertible
securities which are, Registrable Securities.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
"Stock" includes any and all shares, interest or other equivalents
(however designated) of, or participations in, corporate stock.
"Subsidiary" means any entity more than 50% of whose outstanding Voting
Securities shall at the time be owned directly or indirectly by the Company or
by one or more Subsidiaries or by the Company and one or more Subsidiaries.
"Voting Securities" as applied to the securities of any entity means
securities of any class or series (however designated) having ordinary voting
power for the election of members of the board of directors (or other governing
body) of such entity, other than securities having such power only by reason of
the happening of a contingency.
9. MISCELLANEOUS.
9.1 BROKERS; INDEMNIFICATION. Each party to this Agreement will
indemnify, defend and hold the other harmless from any claim, demand, liability
for, or expense in connection with, any broker's or finder's fees or commissions
from any person acting on behalf of the Company or the Investors, as the case
may be, in connection with this Agreement or the issuance and sale of the Notes.
9.2 AMENDMENT AND WAIVER.
(a) Any term, covenant, agreement or condition contained
in this Agreement may be amended only by written instruments signed by
you and the Company and compliance with any term, covenant, agreement
or condition in this Agreement may be waived (either generally or in
particular instances and either retroactively or prospectively) only in
writing by the holders of a majority in principal amount of the Notes
then outstanding; provided, however, that the written consent of all
holders of the Notes then outstanding shall be required for any
amendment or waiver relating to or regarding the terms regarding
payment of the Notes.
(b) Any waiver of any term, covenant, agreement or
condition contained in this Agreement shall not be deemed a waiver of
any other term, covenant, agreement or condition, and any waiver of any
default in any such term, covenant, agreement or condition shall not be
deemed a waiver of any later default thereof or of any other term,
covenant, agreement or condition.
9.3 LOST, STOLEN, DESTROYED OR MUTILATED SECURITIES. Upon receipt
by the Company of evidence satisfactory to it of the loss, theft, destruction or
mutualization of any Note and, in case of loss, theft or destruction, receipt of
indemnity satisfactory to the Company, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Note, if mutilated, the Company will make, and deliver, in lieu of such
Note, a new Note, with identical terms. Any Note made and delivered in
accordance with the provisions of this Section 9.3 shall be dated as of the date
of the Note in lieu of which such new Note is made and delivered. If you are the
beneficial owner of such lost, stolen or destroyed Note, then your affidavit
setting forth the fact of loss, theft or destruction and your beneficial
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ownership of such Note at the time of such loss, theft or destruction shall be
accepted as satisfactory evidence thereof, and no sureties shall be required as
a condition to execution and delivery of a new Note other than your written
agreement to indemnify the Company and its directors, officers and agents. The
term "outstanding" when used in this Agreement with reference to securities as
of any particular time shall not include Notes in lieu of which a new Note has
been made and delivered by the Company in accordance with the provisions of this
Section 9.3.
9.4 REPRESENTATIONS AND WARRANTIES TO SURVIVE. All
representations, warranties and covenants contained herein or made in writing by
any party in connection herewith shall survive the execution and delivery of
this Agreement and the issuance and sale of Notes hereunder but shall not apply
to periods subsequent to the fifth anniversary of the Closing Date.
9.5 SEVERABILITY. If any court or any governmental authority or
agency declares all or any part of any Section of this Agreement to be unlawful
or invalid, such unlawfulness or invalidity shall not serve to invalidate any
other Section of this Agreement, and in the event that only a portion of any
Section is so declared to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate the balance of such Section.
9.6 INVESTIGATION OF THE COMPANY. You or your counsel may, at your
expense, at any time prior to the Closing, during normal business hours, make
such reasonable investigation of the Company and the Property and business of
the Company as you or your counsel deem necessary or advisable, but such
investigation shall not affect the representations, warranties and covenants of
the Company contained herein or made pursuant hereto.
9.7 SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements of the parties contained herein shall, except as
otherwise provided herein, be binding upon and inure to the benefit of their
respective successors and assigns and, with respect to natural persons, their
respective heirs and personal representatives. The Company shall not assign this
Agreement or any portion thereof without the prior written consent of all
holders of the Notes then outstanding. The Investors may assign this Agreement
or any portion thereof at their discretion without the prior written consent of
the Company.
9.8 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given upon the earlier of delivery thereof if
by hand or upon receipt if sent by mail (registered or certified mail, postage
prepaid, return receipt requested) or on the second next business day after
deposit if sent by a recognized overnight delivery service or upon transmission
if sent by telecopy or facsimile transmission (with request of assurance of
receipt in a manner customary for communication of such type) as follows:
If to an Investor, to the address set forth below such Investor's name
in Exhibit A or at such other address as the Investor may designate to the
Company in writing.
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If to the Company, to:
SSP Solutions, Inc.
00000 Xxxxxxxxxx Xxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telecopy: (000) 000-0000
9.9 GOVERNING LAW. The validity, meaning and effect of this
Agreement and the Notes shall be determined in accordance with the laws of
Illinois applicable to contracts made and to be performed in that state.
9.10 WAIVER OF JURY TRIAL. The Company and each of the Investors
hereby irrevocably and unconditionally waives any and all rights to trial by
jury with respect to any legal proceeding arising out of or relating to this
Agreement, the Notes or any other instrument or document delivered hereunder or
any transaction contemplated thereby.
9.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
9.12 ENTIRE AGREEMENT. This Agreement, together with the Exhibits
and Schedules hereto, constitutes the entire agreement among the parties hereto
with respect to the subject matter hereof and supersedes all prior discussions,
understandings, negotiations and agreements with respect thereto.
9.13 PUBLICITY. The Company and the Investors shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated by this Agreement and neither the
Company nor the Investors shall issue any such press release or otherwise make
any such public statement without the prior consent of the other, which consent
shall not be unreasonably withheld or delayed, except that no prior consent
shall be required if such disclosure is required by law, in which case the
disclosing party shall provide the other parties with prior notice of such
public statement.
9.14 PAYMENT OF EXPENSES. The Company agrees to pay all reasonable
out-of-pocket expenses (including the reasonable fees and expenses of counsel)
incurred by you (i) in connection with the preparation, execution and delivery
of this Agreement and the Notes, and any waiver, amendment or consent by you
relating thereto, and (ii) in successfully enforcing this Agreement or the
Notes.
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If you agree with the foregoing, please sign the form of acceptance
below and return this Agreement to the Company, whereupon this Agreement will
become and evidence a binding agreement between the Company and you as of the
date first above written.
Very truly yours,
SSP Solutions, Inc.
By:/s/ Xxxxxxx Xxxxx
_________________________________________
Xxxxxxx Xxxxx, President
By:/s/ Xxxxxx X. Xxxxxx
_________________________________________
Xxxxxx X. Xxxxxx, Chief Financial Officer
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The terms of the foregoing Purchase Agreement are approved and accepted
by the undersigned as of the date first above written.
/s/ Xxxxxxx X. Xxxxxxx
____________________________________________
Xxxxxxx X. Xxxxxxx
/s/ Xxxxxx X. Xxxxxxx
____________________________________________
Xxxxxx X. Xxxxxxx
/s/ Xxxx Xxxx
____________________________________________
Xxxx Xxxx
/s/ Xxxxx Xxxxxxx
____________________________________________
Xxxxx Xxxxxxx
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EXHIBIT A
Principal Amount of
Investor Note to be Purchased
-------- --------------------
Xxxxxxx X. Xxxxxxx $1,500,000
c/o Xxxxxxx Xxxxx & Company
000 Xxxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
Xxxxxx X. Xxxxxxx $ 375,000
c/o SSP Solutions, Inc.
00000 Xxxxxxxxxx Xxxx
Xxxxxx, Xxxxxxxxxx 00000
Telecopy: (000) 000-0000
Xxxx Xxxx $ 375,000
c/o SSP Solutions, Inc.
00000 Xxxxxxxxxx Xxxx
Xxxxxx, Xxxxxxxxxx 00000
Telecopy: (000) 000-0000
Xxxxx Xxxxxxx $ 250,000
000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxxxxx 00000
Telecopy: (000) 000-0000
TOTAL $2,500,000
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