SECURITIES PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “Agreement”) is dated
as of June 30, 2010 among OmniReliant Holdings, Inc., a Nevada corporation (the
“Company”), and
Vicis Capital Master Fund, a sub-trust of the Vicis Capital Series Master Trust,
a unit trust organized and existing under the laws of the Cayman Islands (the
“Purchaser”).
RECITALS:
WHEREAS, the Purchaser is the holder of
a demand promissory note, dated June 4, 2010, issued by the Company in a
principal amount of $1,500,000 (the “Bridge
Note”)
WHEREAS, pursuant to the terms and
conditions of this Agreement, the Company wishes to issue and sell to the
Purchaser, and the Purchaser wishes to purchase and acquire from the Company:
(a) 5,000,000 shares (the “Series G Preferred
Shares”) of the Company’s Series G Convertible Preferred Stock, par value
$.00001 per share (the “Series G Preferred
Stock”), with such terms, rights, and preferences as set forth in the
Certificate of Designation for the Series G Preferred Stock set forth in Exhibit A attached
hereto and; (b) a warrant in the form attached hereto as Exhibit B (the “Warrant” and,
together with the Series G Preferred Stock, the “Securities”) to
purchase 50,000,000 shares of Common Stock, par value $.00001 per share (the
“Common
Stock”), of the Company at an exercise price of ten cents ($0.10) per
share, in exchange for $3,500,000 (the “Cash Payment”) and
surrender of the Bridge Note for cancellation.
WHEREAS, the Purchaser is the holder of
a warrant to purchase 70,000,000 shares of Common Stock of the Company at an
exercise price of $0.2029 per share (the “Existing
Warrant”).
WHEREAS, the Existing Warrant is
subject to certain anti-dilution protections (the “Ratchet Protections”)
that require the Company to reduce the exercise price of the Existing Warrant in
the event that the Company is deemed to issue its Common Stock in certain
transactions for a price less than the exercise price of the Existing
Warrant.
WHEREAS, the Purchaser’s acquisition of
the Warrant hereunder triggers the Ratchet Provisions in the Existing Warrant,
and the Company has agreed to reduce the exercise price of the Existing Warrant
as hereinafter set forth.
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 Purchaser agree as
follows:
ARTICLE
I
DEFINITIONS
1.1 Definitions. In
addition to the terms defined elsewhere in this Agreement, the following terms
have the meanings indicated in this Section
1.1:
“Affiliate” means any
Person that, directly or indirectly through one (1) 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.
“Bridge Note” shall
have the meaning set forth in the Recitals hereto.
“Business Day” means
any day except Saturday, Sunday, any day which shall be a federal legal holiday
in the United States or any day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.
“Cash Payment” shall
have the meaning set forth in the Recitals hereto.
“Certificate of
Designations” means the Certificate of Designations for the Series G
Preferred Stock attached hereto as Exhibit
A.
“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)
the Purchaser’s obligations to pay the Cash Payment and to deliver the Common
Shares and (ii) the Company’s obligations to deliver the Securities have been
satisfied or waived.
“Commission” means the
U.S. Securities and Exchange Commission.
“Common Stock” shall
have the meaning set forth in the Recitals hereto, and shall include any other
class of securities into which such securities may hereafter be reclassified or
changed.
“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 exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any Indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto.
“Conversion Shares”
means the shares of Common Stock issuable upon conversion of the Preferred
Shares.
“Disclosure Schedules”
shall have the meaning ascribed to such term in Section 3.1.
“Discussion Time”
shall have the meaning ascribed to such term in Section 3.2.
“Default Notice” shall
have the meaning assigned to such term in Section 5.1(a)(i).
“Delivery Date” shall
have the meaning assigned to such term in Section 4.1(d).
“Event of Default”
shall have the meaning assigned to such term in Section 5.1(a).
“Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt Issuance”
means issuance by the Company of: (a) shares of Common Stock or options to
purchase Common Stock issued to employees, officers, directors or consultants of
the Company pursuant to any stock or option plan duly adopted by unanimous vote
of the members of the Board of Directors of the Company or a committee of all
the independent directors established for such purpose, (b) securities issued
upon the exercise or exchange of or conversion of any Securities issued
hereunder and/or other securities (including the securities set forth on Schedule 3.1(g))
exercisable or exchangeable for or convertible into shares of Common Stock
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 or to decrease the exercise, exchange or
conversion price of any such securities, (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the directors,
provided that 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, as determined by a majority of the directors, 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, (d) Management Options and (e) securities
to shareholders of a target company in connection with a Spin-off
Transaction.
“Existing Warrant”
shall have the meaning ascribed to such term in the Recitals
hereof.
“GAAP” shall have the
meaning ascribed to such term in Section 3.1 hereof.
“Guaranty Agreement”
shall have the meaning set forth in Section 2.2 hereof.
“Guarantor Security
Agreement” shall have the meaning set forth in Section 2.2
hereof.
“Indebtedness” means,
without duplication (i) all indebtedness for borrowed money, (ii) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business), (iii) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments,
(iv) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness created
or arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (vi) all monetary
obligations under any leasing or similar arrangement which, in connection with
generally accepted accounting principles, consistently applied for the periods
covered thereby, is classified as a capital lease, (vii) all indebtedness
referred to in clauses (i) through (vi) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any mortgage, Lien, pledge, change, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by any Person, even though the Person which owns such assets or
property has not assumed or become liable for the payment of such indebtedness,
and (viii) all Contingent Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (i) through
(vii) above.
“Intellectual Property
Rights” shall have the meaning ascribed to such term in Section 3.1
hereof.
“Lien” means any
mortgage, lien, pledge, charge, security interest, preemptive right, right of
first refusal, or other restriction or encumbrance, or any interest or title of
any vendor, lessor, lender or other secured party under any conditional sale or
other title retention agreement or any capital lease, upon or with respect to
any property or asset of the Company or any subsidiary.
“Majority Holders”
shall have the meaning ascribed to such term in Section 4.14
hereof.
“Management Options”
means options to purchase (a) up to an aggregate of 12.5% of the shares of
Common Stock of the Company as of the date hereof on a fully diluted basis
issued to executives, consultants, employees and agents of the Company
(including options issued to Xxxxxx XxXxxxx, Xxxxxxx Xxxxxxx, Xxxxxxxxxxx
Xxxxxxxx and Xxxxxx Xxxxx to acquire shares of Common Stock of the Company
pursuant to their employment or consulting agreements, as the case may be,
referenced in Section 2.4(b)(v) hereof) and (b) shares of common stock of
Designer Liquidator, Inc. and/or OmniResponse, Inc. issued to Xxxxxx XxXxxxx,
Xxxxxxx Xxxxxxx, Xxxxxxxxxxx Xxxxxxxx and Xxxxxx Xxxxx, as the case may be,
granted pursuant to their employment or consulting agreements, as the case may
be, referenced in Section 2.4(b)(v) hereof and provided that such options, by
their terms: (a) vest two (2) years from the date of issue; and (b) become
exercisable only after payment by the Company of the Special Preferred
Distribution in full to holders of Series G Preferred Stock or as otherwise
contemplated by the terms of the Certificate of Designation.
“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)
hereof.
“Permitted
Indebtedness” shall have the meaning assigned to such term in Section
4.14(d).
“Permitted Liens”
shall have the meaning assigned to such term in Section 4.14(c).
“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 Shares”
shall have the meaning ascribed to such term in the Recitals
hereto.
“Pre-Notice” shall
have the meaning ascribed to such term in Section 4.9(b) hereof.
“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
Statement” shall have the meaning ascribed to such term in Section
5.1(a)(ii).
“Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).
“Required Minimum”
means, as of any date, 110% of 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 the Warrant (including a reasonable reserve for underlying
shares issuable as payment of dividends), ignoring any conversion or exercise
limits set forth therein.
“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.
“Securities” shall
have the meaning set forth in the Recitals hereto.
“Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated hereunder.
“Security Agreement”
shall have the meaning set forth in Section 2.2 hereof.
“Short Sales” shall
include all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act (but shall not be deemed to include the location and/or reservation
of borrowable shares of Common Stock).
“Series A Preferred
Stock” means the Series A Convertible Preferred Stock of the Company and
such designations, preferences and limitations as set forth in the Certificate
of Designation, Preferences and Rights of Series A Convertible Preferred Stock
filed with the State of Nevada on November 22, 2006.
“Series B Preferred
Stock” means the Series B Convertible Preferred Stock of the Company and
such designations, preferences and limitations as set forth in the Certificate
of Designation, Preferences and Rights of Series B Convertible Preferred Stock
filed with the State of Nevada on May 25, 2007.
“Series C Preferred
Stock” means the Series C Convertible Preferred Stock of the Company and
such designations, preferences and limitations as set forth in the Certificate
of Designation, Preferences and Rights of Series C Convertible Preferred Stock
filed with the State of Nevada on October 17, 2007 and amended on July 22,
2009.
“Series D Preferred
Stock” means the Series D Convertible Preferred Stock of the Company and
such designations, preferences and limitations as set forth in the Certificate
of Designation, Preferences and Rights of Series D Convertible Preferred Stock
filed with the State of Nevada on April 30, 2008 and amended on July 22,
2009.
“Series E Preferred
Stock” means the Series E Preferred Stock of the Company and such
designations, preferences and limitations as set forth in the Certificate of
Designation, Preferences and Rights of Series E Preferred Stock filed with the
State of Nevada on August 27, 2009.
“Series F Preferred
Stock” means the Series F Preferred Stock of the Company and such
designations, preferences and limitations as set forth in the Certificate of
Designation, Preferences and Rights of Series F Preferred Stock filed with the
State of Nevada on February 12, 2009 and amended on July 22, 2009.
“Series G Preferred
Shares” shall have the meaning ascribed to such term in the Recitals
hereto.
“Series G Preferred
Stock” shall have the meaning ascribed to such term in the Recitals
hereto.
“Special Preferred
Distribution” shall have the meaning assigned to such term in the
Certificate of Designations.
“Spin-off
Transaction” means a transaction whereby certain Subsidiaries, assets,
brands and/or lines of business of the Company or a Subsidiary may be spun-off
and merged with and into a public shell company.
“Subsequent Financing”
shall have the meaning ascribed to such term in Section 4.9(a)
hereof.
“Subsequent Financing
Notice” shall have the meaning ascribed to such term in Section 4.9(b)
hereof.
“Subsidiary” means any
wholly-owned subsidiary of the Company as set forth on Schedule
3.1(a).
“subsidiary” means,
for purposes of Articles IV and V, each Subsidiary and any subsidiary of the
Company acquired or formed after the date hereof.
“Trading Day” means a
day on which the Common Stock is traded on a Trading Market.
“Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq Capital Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market, the OTC
Bulletin Board, or “Pink Sheets” published by Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting
prices).
“Transaction
Documents” means this Agreement, the Certificate of Designations, the
Security Agreement, the Guaranty Agreement, the Guarantor Security Agreement,
the Warrant, and any other documents or agreements executed in connection with
the transactions contemplated hereunder.
“VWAP” of a share of
Common Stock as of a particular date (the “Determination Date”) shall mean the
price determined by the first of the following clauses that applies: (a) if
shares of Common Stock are traded on a national securities exchange (an
“Exchange”), the weighted average of the closing sale price of a share of the
Common Stock of the Company on the last five (5) Trading Days prior to the
Determination Date reported on such Exchange as reported in The Wall Street
Journal (weighted with respect to the trading volume with respect to each such
day); (b) if shares of Common Stock are not traded on an Exchange but trade in
the over-the-counter market and such shares are quoted on the National
Association of Securities Dealers Automated Quotations System (“NASDAQ”), the
weighted average of the closing sale price of a share of the Common
Stock of the Company on the last five (5) Trading Days prior to the
Determination Date reported on NASDAQ as reported in The Wall Street Journal
(weighted with respect to the trading volume with respect to each such day); (c)
if such shares are an issue for which last sale prices are not reported on
NASDAQ, the average of the closing sale price, in each case on the last five (5)
Trading Days (or if the relevant price or quotation did not exist on any of such
days, the relevant price or quotation on the next preceding Business Day on
which there was such a price or quotation) prior to the Determination Date as
reported by the Over the Counter Bulletin Board (the “OTCBB”), or any other
successor organization; (d) if no closing sales price is reported for the Common
Stock by the OTCBB or any other successor organization for such day, the average
of the closing sale price, in each case on the last five (5) Trading Days (or if
the relevant price or quotation did not exist on any of such days, the relevant
price or quotation on the next preceding business day on which there was such a
price or quotation) prior to the Determination Date as reported
by the "pink sheets" by the Pink Sheets, LLC, or any successor
organization, (e) if no closing sales price is reported for the Common Stock by
the OTCBB or any other successor organization for such day, then the average of
the high and low bid and asked price of any of the market makers for the Common
Stock as reported on the OTCBB or in the "pink sheets" by the Pink
Sheets, LLC on the last five (5) Trading Days; or (e) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the holder and reasonably acceptable to the
Company.
“Warrant” shall have
the meaning set forth in the Recitals hereto.
“Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II
PURCHASE
AND SALE; SHARE EXCHANGE
2.1 Purchase and
Sale. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company wishes to issue and sell to the
Purchaser, and the Purchaser wishes to acquire from the Company, the Securities
in exchange for the Cash Payment and the cancellation of the Bridge
Note. The Purchaser shall deliver to the Company: (a) the Bridge Note
for cancellation, and (b) the Cash Payment via wire transfer or a certified
check immediately available funds, and the Company shall deliver to the
Purchaser the Securities and the other items set forth in Section 2.3 issuable
at the Closing. Upon satisfaction of the conditions set forth in
Sections 2.3
and 2.4, the
Closing shall occur at such location as the parties shall mutually
agree.
2.2 Company Security
Documents.
(a) Security
Agreement. All of the obligations of the Company under the
Preferred Shares shall be secured by a lien on all the personal property and
assets of the Company now existing or hereinafter acquired granted pursuant to a
security agreement dated of even date herewith between the Company and the
Purchaser in the form attached hereto as Exhibit E (“Security
Agreement”).
(b) Guaranty. All
of the obligations of the Company under the Preferred Shares shall be guaranteed
pursuant to a guaranty agreement in the form attached hereto as Exhibit F (“Guaranty Agreement”)
by each of the Subsidiaries of the Company set forth on Schedule 2.2(b)
hereto.
(c) Guarantor Security
Documents. All of the obligations of each Subsidiary under its
Guaranty Agreement shall be secured by a lien on all the personal property and
assets of such Subsidiary now existing or hereinafter acquired granted pursuant
to a guarantor security agreement dated of even date herewith between such
Subsidiary and the Purchaser in the form attached hereto as Exhibit G (“Guarantor Security
Agreement”).
2.3 Closing
Deliveries.
(a) On
the Closing Date, the Company shall deliver or cause to be delivered to the
Purchaser the following:
(i) this
Agreement duly executed by the Company;
(ii) Certificate(s),
registered in the name of the Purchaser, representing the Preferred
Shares;
(iii) the
Warrant, in the name of the Purchaser and in the form of Exhibit B attached
hereto, to purchase 50,000,000 shares of Common Stock, with an exercise price
equal to ten cents ($0.10);
(iv) The
Registration Rights Agreement in the form of Exhibit C hereto (the
“Registration Rights
Agreement”), executed by the Company;
(v) The
Security Agreement in the form of Exhibit D hereto,
executed by the Company;
(vi) The
Guaranty Agreement in the form of Exhibit E attached
hereto executed by each Subsidiary;
(vii) The
Guarantor Security Agreement in the form of Exhibit F attached
hereto, executed by each Subsidiary;
(viii) An
opinion of counsel to the Company, dated the date of the Closing, substantially
in the form of Exhibit
G hereto, with such exceptions and limitations as shall be reasonably
acceptable to counsel to the Purchaser;
(ix) A
letter from an executive officer of the Company confirming that the exercise
price of the Existing Warrant has been reduced to ten cents ($0.10) per
share;
(x) A
Certificate of Good Standing from the state of incorporation of the Company and
each wholly-owned Subsidiary; and
(xi) A
certificate of an officer of the Company, dated such Closing Date, certifying
(i) the fulfillment of the conditions specified in Sections 2.3(a)(i) and
2.3(a)(ii) of this Agreement, (ii) the Board resolutions approving this
Agreement and the transactions contemplated hereby, (iii) the articles of
incorporation and bylaws of the Company, each as amended as of such Closing
Date; (iv) the names of each officer and director of the Company as of such
Closing Date; and (v) such other matters as the Purchaser shall reasonably
request.
(b) On
the Closing Date, the Purchaser shall deliver or cause to be delivered to the
Company the following:
(i) this
Agreement duly executed by such Purchaser;
(ii) the
Bridge Note for cancellation; and
(iii) the
Cash Payment by wire transfer to the account as specified in writing by the
Company;
2.4 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Purchaser contained herein;
(ii) all
obligations, covenants and agreements of the Purchaser required to be performed
at or prior to the Closing Date shall have been performed; and
(iii) the
delivery by the Purchaser of the items set forth in Section 2.3(b) of
this Agreement.
(b) The
obligations of the Purchaser hereunder in connection with the Closing are
subject to the following conditions being met:
(i) the
representations and warranties made by the Company herein shall be true and
correct when made, and shall be true and correct on the Closing Date with the
same force and effect as if they had been made on and as of the Closing
Date;
(ii) all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing Date shall have been performed;
(iii) neither
the Company nor the Purchaser shall be subject to any order, decree or
injunction of a court or administrative agency of competent jurisdiction that
prohibits the transactions contemplated hereby or would impose any material
limitation on the ability of the Purchaser to exercise full rights of ownership
of the Securities, and at the time of the Closing, the purchase of the
Securities to be purchased by the Purchaser hereunder shall be legally permitted
by all laws and regulations to which the Purchaser and the Company are
subject;
(iv) the
delivery by the Company of the items set forth in Section 2.3(a) of
this Agreement;
(v) the
Company shall have entered into employment or consulting agreements with each of
Xxxxxx XxXxxxx, Xxxxxxx Xxxxxxx, Xxxxxxxxxxx Xxxxxxxx and Xxxxxx Xxxxx
containing terms reasonably acceptable to the Purchaser;
(vi) The
Company shall have filed the Certificate of Designations with the Secretary of
State of Nevada; and
(vii) there
shall have been no Material Adverse Effect with respect to the
Company.
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 delivered to the Purchaser
concurrently herewith (the “Disclosure
Schedules”) which Disclosure Schedules shall be deemed a part hereof and
to qualify any representation or warranty otherwise made herein to the extent of
such disclosure, the Company hereby makes the representations and warranties set
forth below to Purchaser.
(a) Subsidiaries. All
of the direct and indirect wholly-owned 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.
(b) Organization and
Qualification. The Company and each of 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 corporate 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. The Company and each of 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 condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse
Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
corporate 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 and thereunder. Except as set forth on Schedule 3.1(c), the
execution and delivery of each of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of the
Company and no further action is required by the Company, its board of directors
or its stockholders in connection therewith other than in connection with the
Required Approvals. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
(d) No
Conflicts. Except as set forth on Schedule 3.1(d), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the other transactions contemplated
hereby and 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; 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. Except as set forth on Schedule 3.1(e), the Company
is not required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing with the Commission of the
Registration Statement and the declaration of its effectiveness by the
Commission, (ii) the notice and/or application(s) to each applicable Trading
Market for the issuance and sale of the Securities and the listing of the
Warrant Shares for trading thereon in the time and manner required thereby, and
(iii) the filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws (collectively, the
“Required
Approvals”).
(f) Issuance of the
Securities. The 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 other than restrictions on transfer provided for in the Transaction
Documents or under applicable securities laws. The Warrant Shares,
when issued in accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of the
Warrant Shares at least equal to the Required Minimum on the date
hereof.
(g) Capitalization. Immediately
before the Closing, the authorized capital stock of the Company consists of: (i)
400,000,000 shares of Common Stock, of which 159,073,323 shares are issued and
outstanding and, as of March 31, 2010, (A) no shares of Common Stock are held in
treasury, (B) 4,096,840 shares are reserved for issuance upon conversion of the
Series C Convertible Preferred Stock, (C) 80,238,209 shares are reserved for
issuance upon the conversion, exchange, or exercise of the warrants identified
on Schedule
3.1(g) attached hereto, (D) 3,463,951 shares are reserved for issuance
upon the conversion of the Series E Convertible Preferred Stock; and (ii)
100,000,000 shares of Preferred Stock, of which 3,000 shares have been
designated as “Series A Convertible Preferred Stock,” 0 of which are issued and
outstanding, none of which are held in treasury, or reserved for issuance, 1,000
shares have been designated as “Series B Convertible Preferred Stock,” 0 of
which are issued and outstanding, and none of which are held in treasury, or
reserved for issuance, 10,309,564 shares have been designated as “Series C
Convertible Preferred Stock, 1,024,210 shares of which are issued and
outstanding, and none of which are held in treasury, or reserved for issuance,
and 7,000,000 shares have been designated as “Series D Convertible Preferred
Stock, 0 shares of which are issued and outstanding, and none of which are held
in treasury, or reserved for issuance; 13,001,000 shares have
been designated as “Series E Convertible Preferred Stock, 2,909,720 shares of
which are issued and outstanding, and none of which are held in treasury, or
reserved for issuance; and 10,000,000 shares have been designated as Series F
Convertible Preferred Stock, of which 0 are currently issued and outstanding,
and none of which are held in treasury, or reserved for
issuance. Except as set forth on Schedule 3.1(g), 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 or as set forth on Schedule 3.1(g),
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable 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 Common Stock Equivalents. Except as set forth on Schedule 3.1(g), the
issuance 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
Purchaser) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of 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. Except as set forth
on Schedule
3.1(g), 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 Securities. Except as set forth on Schedule 3.1(g),
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. Except as set forth on Schedule 3.1(h), the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company 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 or regulation to file such material) (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, 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, as applicable, 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 the light of the circumstances under which they were made, not
misleading. Except as set forth on Schedule 3.1(h), 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
a subsequent SEC Report filed prior to the date hereof,
(i) there
has been no Material Adverse Effect, and no event or circumstance has occurred
or exists with respect to the Company or its businesses, properties, operations
or financial condition, which, under the Exchange Act, Securities Act, or rules
or regulations of any Trading Market, required or requires public disclosure or
announcement by the Company, but which has not been so publicly announced or
disclosed;
(ii) the
Company has not:
(A) issued
any capital stock, notes, bonds or other securities or any right, options or
warrants with respect thereto, except pursuant to the exercise or conversion of
securities outstanding as of such date;
(B) borrowed
any amount in excess of $100,000 or incurred or become subject to any other
liabilities in excess of $100,000 (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal year, as adjusted to
reflect the current nature and volume of the business of the
Company;
(C) discharged
or satisfied any Lien or encumbrance in excess of $100,000 or paid any
obligation or liability (absolute or contingent) in excess of $100,000, other
than current liabilities paid in the ordinary course of business;
(D) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements so
to purchase or redeem, any shares of its capital stock;
(E) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, in each case in excess of $100,000, except in the ordinary course of
business;
(F) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business;
(G) suffered
any material losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;
(H) made
any changes in employee compensation except in the ordinary course of business
and consistent with past practices;
(I) made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;
(J) entered
into any material transaction outside the ordinary course of
business;
(K) made
charitable contributions or pledges in excess of $10,000;
(L) suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;
(M) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment;
(N) altered
its method of accounting, except to the extent required by GAAP; or
(O) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
(j) Litigation. Except
as set forth on Schedule 3.1(j) or as set
forth in the SEC Reports, there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor, to the
best of the knowledge of the Company, 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.
To the knowledge of the Company, there has not been, and there is not pending or
threatened in writing, any investigation by the Commission involving the Company
or any current director or executive 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 under the
Securities Act. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened in writing against or involving
the Company or any of its properties or assets, which individually or in the
aggregate, would reasonably be expected to have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions,
awards or decrees of any court, arbitrator or governmental or regulatory body
against the Company or any executive officers or directors of the Company in
their capacities as such, which individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
(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 or any Subsidiary which could reasonably be expected to result in a
Material Adverse Effect. None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such employee’s relationship
with the Company, and neither the Company nor any of its Subsidiaries is a party
to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and, to the knowledge of the Company, the continued employment of each
such executive officer does not subject the Company or any of its Subsidiaries
to any liability with respect to any of the foregoing matters. To the
knowledge of the Company, the Company and its Subsidiaries are in compliance
with all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(l) Compliance. Except
as set forth on Schedule 3.1(l),
neither the Company nor any Subsidiary (i) is in material 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, and (iii) to the knowledge of the
Company, 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 and all such laws that affect the
environment, except in each case as could not have or reasonably be expected to
result in a Material Adverse Effect.
(m) Regulatory
Permits. Except as set forth in Schedule 3.1(m)
hereto, the Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not have or reasonably be expected to result in a Material Adverse
Effect (“Material
Permits”), are in material compliance with all terms and conditions of
each such Material Permit, 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 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, Liens for the payment
of federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties and Liens set forth on Schedule
3.1(n). Any real property and facilities held under lease by
the Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in compliance
and which do not interfere with the use made and proposed to be made of such
property and buildings by the Company or any Subsidiary. Except as
set forth in Schedule
3.1(n), the Company and each Subsidiary have good and marketable title to
all personal property owned by them, in each case free and clear of all
Liens.
(o) Patents and
Trademarks. Except as set forth on Schedule 3.1(o), the
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received
a notice (written or otherwise) that the Intellectual Property Rights used by
the Company or any Subsidiary violate or infringe upon the rights of any Person
unless such notice has been resolved without a Material Adverse Effect. 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. The Company and its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of all of their intellectual properties, except where failure to do so
could not, individually or in the aggregate, reasonably be expecting to have a
Material Adverse Effect.
(p) Insurance. Except
as set forth in Schedule 3.1(p)
hereto, 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, including, but not limited to, directors and officers
insurance coverage at least equal to $2,000,000. 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 or as
set forth on Schedule
3.1(q) and with the exception of any transaction contemplated in or
related to the Transaction Documents, none of the officers or directors of the
Company or any Subsidiary and, to the knowledge of the Company, none of the
employees of the Company or any Subsidiary 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, other than
(i) for payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company or a Subsidiary and
(iii) for other employee benefits, including stock option or stock grant
agreements under any stock plans of the Company.
(r) No Disagreements with
Auditors and Lawyers. To the knowledge of the Company, there
are no material disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the auditors and
lawyers formerly or presently employed by the Company.
(s) Certain
Fees. Except as set forth on Schedule 3.1(s), 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 the Transaction Documents. Except as set forth on
Schedule
3.1(s), the Purchaser 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 the Transaction Documents.
(t) Private
Placement. Assuming the accuracy of the Purchaser’s
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 Purchaser as contemplated hereby.
(u) Investment Company.
The Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, 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. Other than as set forth on Schedule 3.1(v) or as
set forth in the SEC Reports, no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.
(w) Disclosure. All
disclosure furnished by or on behalf of the Company to the Purchaser regarding
the Company, its business and the transactions contemplated hereby, including
the Disclosure Schedules to this Agreement, is true and correct and does 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 Purchaser has not made any representations or
warranties with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2
hereof.
(x) No Integrated
Offering. Assuming the accuracy of the Purchaser’s representations and
warranties set forth in Section 3.2, neither
the Company, nor any of its affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act.
(y) Solvency. Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the fair saleable 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 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 liabilities 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 not
taken, nor does it have any intention to take, any steps to seek protection
pursuant to any bankruptcy or reorganization law of any jurisdiction within one
(1) year from the Closing Date. The Company does not have any
knowledge, nor has it received any written notice, that any of its creditors
intend to initiate involuntary bankruptcy proceedings, nor does it have any
knowledge of any fact that, as of the date hereof, would reasonably lead a
creditor to do so.
(z) Indebtedness and Other
Contracts. Except as disclosed in Schedule 3.1(z)
attached hereto, neither the Company nor any Subsidiary (a) has any
outstanding Indebtedness, (b) is a party to any contract, agreement or
instrument, the violation of which, or default under, by any other party to such
contract, agreement or instrument would result in a Material Adverse Effect,
(c) is in violation of any term of or in default under any contract,
agreement or instrument relating to any Indebtedness, except where such
violations and defaults would not result, individually or in the aggregate, in a
Material Adverse Effect, or (d) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect.
(aa) Tax Status.
The Company has timely filed all tax returns, reports,
declarations, statements, and other information required by law to be filed with
or supplied to any taxing authority with respect to the Taxes (as defined below)
owed by the Company (the “Tax
Returns”). All Taxes due and payable on or before the Closing
have been paid or will be paid prior to the time they become
delinquent. All Taxes that the Company is or was required by law to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper governmental entity. The
Company has not been advised (a) that any of the Tax Returns have been or are
being examined or audited as of the date hereof, (b) that any such examination
or audit is currently threatened or contemplated, or (c) of any deficiency in
assessment or proposed judgment to its Taxes. The Company has no
knowledge of any liability for any Taxes to be imposed upon its properties or
assets as of the date of this Agreement that are not adequately provided for on
the Balance Sheet. The Company has delivered or made available to the
Investor true and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies filed by, assessed against or agreed to
by the Company in the past three years. The Company has never been a
member of a consolidated or affiliated group of corporations filing a
consolidated or combined income Tax Return, nor does the Company have any
liability for Taxes of any other person or entity. The Company is not
a party to any tax allocation or sharing arrangement or tax indemnity
agreement. For purposes of this Agreement, the term “Taxes” shall mean all
taxes, charges, fees, levies, or other similar assessments or liabilities,
including, without limitation, income, gross receipts, ad valorem, premium,
value-added, excise, real property, personal property, sales, use, transfer,
withholding, employment, payroll, and franchise taxes imposed by the United
States of America or any other governmental entity, and any interest, fines,
penalties, assessments, or additions to tax resulting from, attributable to or
incurred in connection with any tax or any contest or dispute
thereof.
(bb) No General
Solicitation. Neither the Company nor any person acting on behalf of the
Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchaser.
(cc) Acknowledgment Regarding
Purchaser’s Purchase of Securities. The Company acknowledges
and agrees that the Purchaser is acting solely in the capacity of an arm’s
length purchaser with respect to the Transaction Documents and the transactions
contemplated thereby. 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 the Transaction Documents and the
transactions contemplated thereby and any advice given by Purchaser or any of
their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchaser’s purchase of the Securities. The Company further
represents to Purchaser that the Company’s decision to enter into this Agreement
and the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.
(dd) Acknowledgement Regarding
Purchaser’s Trading Activity. Anything in this Agreement or
elsewhere herein to the contrary notwithstanding, it is understood and
acknowledged by the Company (i) that the Purchaser has not been asked to agree,
nor has Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term; (ii)
that past or future open market or other transactions by the Purchaser,
including Short Sales, and specifically including, without limitation, Short
Sales or “derivative” transactions, before or after the closing of this or
future private placement transactions, may negatively impact the market price of
the Company’s publicly-traded securities; (iii) that Purchaser, and
counter-parties in “derivative” transactions to which any such Purchaser is a
party, directly or indirectly, presently may have a “short” position in the
Common Stock, and (iv) that Purchaser shall not be deemed to have any
affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and
acknowledges that (a) Purchaser may engage in hedging activities at
various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Warrant Shares
deliverable with respect to Securities are being determined and (b) such hedging
activities (if any) could reduce the value of the existing stockholders' equity
interests in the Company at and after the time that the hedging activities are
being conducted. The Company acknowledges that such aforementioned
hedging activities do not constitute a breach of any of the Transaction
Documents.
(ee) Manipulation of
Price. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) except as set forth on Schedule 3.1(ff) or
private transactions not involving a market maker, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the securities of the
Company or (iii) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company, other
than, in the case of clauses (ii) and (iii), compensation paid to the Company’s
placement agent in connection with the placement of the Securities.
(ff) Ranking of Preferred
Shares. No capital stock or other security issued by the
Company is senior to the Preferred Shares in right of payment, whether with
respect of payment of redemptions, interest, damages or upon liquidation or
dissolution or otherwise.
3.2 Representations and
Warranties of the Purchaser. Purchaser hereby
represents and warrants as of the date hereof and as of the Closing Date to the
Company as follows:
(a) Organization;
Authority. 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 hereunder and
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
Purchaser. Each Transaction Document to which it is a party has been
duly executed by Purchaser, and when delivered by Purchaser in accordance with
the terms hereof, will constitute the valid and legally binding obligation of
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) Own
Account. 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 in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting such Purchaser’s right to sell
the Securities pursuant to a registration statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Purchaser is
acquiring the Securities hereunder in the ordinary course of its
business.
(c) Purchaser
Status. At the time 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
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. 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. 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. 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) Short Sales and
Confidentiality Prior To The Date Hereof. Other than the
transaction contemplated hereunder, Purchaser has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
Purchaser, executed any disposition, including Short Sales, in the securities of
the Company during the period commencing from the time that Purchaser first
received a term sheet (written or oral) from the Company or any other Person
setting forth the material terms of the transactions contemplated hereunder
until the date hereof (“Discussion
Time”). Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of Purchaser's assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to
other Persons party to this Agreement, Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this
transaction).
(g) Risk
Factors. Purchaser hereby agrees and acknowledges that it has
been informed of the following: (i) there are factors relating to the subsequent
transfer of any Securities acquired hereunder that could make the resale of such
Securities difficult; and (ii) there is no guarantee that Purchaser will realize
any gain from the purchase of the Securities. The purchase of the
Securities involves a high degree of risk and is subject to many
uncertainties. These risks and uncertainties may adversely affect the
Company’s business, operating results and financial condition. In
such an event, the trading price for the Common Stock could decline
substantially and Purchaser could lose all or part of its
investment.
(h) Due
Diligence. Purchaser hereby agrees and acknowledges that
Purchaser has had an opportunity to meet with representatives of the Company and
to ask questions and receive answers to Purchaser’s satisfaction regarding the
Company’s proposed business and the Company’s financial condition in order to
assist Purchaser in evaluating the merits and risks of purchasing the
Securities. All material documents and information pertaining to the
Company and the purchase of Securities hereunder that have been requested by
Purchaser have been made available to Purchaser.
(i) Certain
Fees. Purchaser has not employed any broker or finder or
incurred any liability for any brokerage or investment banking fees,
commissions, finders’ structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
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 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 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.
(b) The
Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a
legend on any of the Securities in the following form:
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[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. THIS SECURITY AND THE SECURITIES ISSUABLE
UPON [EXERCISE] [CONVERSION] OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
(c) The
Company acknowledges and agrees that 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, if required under the terms of such arrangement, 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, provided, however, the Company may require the Purchaser to
provide to the Company an opinion of counsel selected by the Purchaser and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company to the effect that such transfer
or pledge does not require registration of such transferred or pledged
Securities under the Securities Act. At 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, 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.
(d) Certificates
evidencing the Conversion Shares and Warrant Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof), (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act,
(ii) following any sale of such Conversion Shares or Warrant Shares
pursuant to Rule 144, (iii) if such Conversion Shares or Warrant Shares are
eligible for sale under Rule 144 by the Purchaser without limitation as to
volume or manner of sale, 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 of a
registration statement covering such Conversion Shares or Warrant Shares, if
required by the Company’s transfer agent, to effect the removal of the legend
hereunder. If all or any portion of the Preferred Shares or a Warrant
is exercised at a time when there is an effective registration statement to
cover the resale of the Conversion Shares or the Warrant Shares, such Conversion
Shares and Warrant Shares, as the case may be, shall be issued free of all
legends. The Company agrees that following the effective date of the
registration statement covering Conversion Shares or Warrant Shares or at such
time as such legend is no longer required under this Section, it will, no later
than five (5) Trading Days following the delivery by the Purchaser to the
Company or the Company’s transfer agent of a certificate representing Conversion
Shares or Warrant Shares, as the case may be, issued with a restrictive legend
(such date, the “Delivery Date”),
deliver or cause to be delivered to the Purchaser a certificate representing
such Securities that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. Whenever a certificate representing the
Conversion Shares or Warrant Shares is required to be issued to the Purchaser
without a legend, in lieu of delivering physical certificates representing the
Conversion Shares or Warrant Shares, provided the Company’s transfer agent is
participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer program, the Company shall use its reasonable best efforts
to cause its transfer agent to electronically transmit the Conversion Shares or
Warrant Shares to the Purchaser by crediting the account of such Purchaser’s
Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system (to the
extent not inconsistent with any provisions of this Agreement).
(e) Liquidated
Damages. The Company understands that a delay in the delivery
of unlegended certificates for the Conversion Shares or the Warrant Shares as
set forth in Section 4.1 hereof beyond the Delivery Date could result in
economic loss to the Purchaser. If the Company fails to deliver to a
Purchaser such shares via DWAC or a certificate or certificates pursuant to this
Section hereunder by the Delivery Date, the Company shall pay to the
Purchaser, in cash, as partial liquidated damages and not as a penalty, for each
$500 of Conversion Shares or Warrant Shares (based on the closing price of the
Common Stock reported by the principal Trading Market on the date such
Securities are submitted to the Company’s transfer agent) subject to Section
4.1, $10 per Trading Day (increasing to $15 per Trading Day five (5) Trading
Days after such damages have begun to accrue and increasing to $20 per Trading
Day ten (10) 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 the 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 the 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.
(f) Sales by the
Purchaser. The Purchaser agrees that the removal of the
restrictive legend from certificates representing Securities as set forth in
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.
4.2 Acknowledgment of
Dilution. 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 without limitation its obligation to
issue the Warrant 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.
4.3 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 Purchaser.
4.4 Shareholder Rights
Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, by any other Person, that Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that 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 Purchaser.
4.5 Use of
Proceeds. Except as set forth on Schedule 4.5 attached
hereto, 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 in the
ordinary course of the Company’s business and prior practices, including
attorney’s and professional fees), to redeem any Common Stock or Common Stock
Equivalents or to settle any outstanding litigation.
4.6 Reimbursement. If
Purchaser becomes involved in any capacity in any Proceeding by or against any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Purchaser to or with any
other stockholder), solely as a result of Purchaser’s acquisition of the
Securities from the Company under this Agreement, the Company will reimburse
Purchaser for its reasonable legal and other expenses (including the cost of any
investigation preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such
Person. The Company also agrees that neither the Purchaser nor any
such Affiliates, partners, directors, agents, employees or controlling persons
shall have any liability to the Company or any Person asserting claims on behalf
of or in right of the Company solely as a result of acquiring the Securities
under this Agreement.
4.7
(i) Indemnification of
Purchaser.
(a) Subject
to the provisions of this Section 4.7(i), the
Company will indemnify and hold Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls Purchaser (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (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 untrue representation, misrepresentation,
breach of warranty or non-fulfillment of any covenant, agreement or other
obligation by or of the Company or any subsidiary contained in any Transaction
Document or in any certificate, document, or instrument delivered by the Company
to the Purchaser; or (b) any action instituted against any Purchaser Party, or
any of their respective affiliates, by any stockholder of the Company who is not
an affiliate of such Purchaser Party, solely as a result of such Purchaser’s
acquisition of the Securities pursuant to this Agreement (unless such action is
based upon a breach of such Purchaser’s representations, 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).
(b) The
Purchaser shall promptly notify the Company of any claim, demand, action or
proceeding for which indemnification will be sought under this Agreement;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the Company of its obligations
under this Section 4.7 except to the extent that the Company is actually
prejudiced by such failure to give notice.
(c) In
case any such action, proceeding or claim is brought against any Purchaser Party
in respect of which indemnification is sought hereunder, the Company shall be
entitled to participate in and, unless in the reasonable, good-faith judgment of
the Purchaser a conflict of interest between it and the Company exists with
respect to such action, proceeding or claim (in which case the Company shall be
responsible for the reasonable fees and expenses of one separate counsel for the
Purchaser Parties), to assume the defense thereof with counsel reasonably
satisfactory to the Purchaser. If the Company elects to defend any such action
or claim, then the Purchaser Parties shall be entitled to participate in such
defense (but not control) with counsel of their choice at their sole cost and
expense (except that the Company shall remain responsible for the reasonable
fees and expenses of one separate counsel for the Purchaser Parties in the event
in the reasonable, good-faith judgment of the Purchaser a conflict of interest
between the Purchaser Parties and the Company exists).
(d) In
the event that the Company advises the Purchaser Parties that it will contest
such a claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the Purchaser Parties may, at their option,
defend, settle or otherwise compromise or pay such action or
claim. In any event, unless and until the Company elects in writing
to assume and does so assume the defense of any such claim, proceeding or
action, the Purchaser Parties’ costs and expenses arising out of the defense,
settlement or compromise of any such action, claim or proceeding shall be losses
subject to indemnification hereunder.
(e) The
parties shall cooperate fully with each other in connection with any negotiation
or defense of any such action or claim and shall furnish to the other party all
information reasonably available to such party which relates to such action or
claim. Each party shall keep the other party fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto.
(f) Notwithstanding
anything in this Section 4.7 (i) to
the contrary, the Company shall not, without the Purchaser’s prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on any Purchaser Party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Purchaser Parties of a release from all
liability in respect of such claim. The indemnification obligations
to defend the Purchaser Parties required by this Section shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when the loss is incurred, so long as the Purchaser Parties
shall refund such moneys if it is ultimately determined by a court of competent
jurisdiction that such party was not entitled to indemnification. The
indemnity agreements contained herein shall be in addition to (i) any cause
of action or similar rights of the Purchaser Parties against the Company or
others, and (ii) any liabilities the Company may be subject to pursuant to
applicable law.
(ii)
Indemnification of the
Company.
(a) Subject
to the provisions of this Section 4.7 (ii), the
Purchaser will indemnify and hold Company and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
“Company
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 (“Losses”) that any
such Company Party may suffer or incur as a result of or relating to a breach of
any warranty or representation of the Purchaser contained in this Agreement or
any non-fulfillment of any covenant, agreement or other obligation by or of the
Purchaser contained in this Agreement; provided that, the Purchaser shall not
have any indemnification obligation under this Section 4.7(ii) to the extent
Losses are caused by or attributable to, in whole or in part, a breach of the
Company’s representations, warranties or covenants under the Transaction
Documents, a violation by the Company or a subsidiary of applicable law, or any
conduct by the Company or a subsidiary which constitutes fraud, gross
negligence, willful misconduct or malfeasance; and further provided that the
Purchaser’s aggregate liability hereunder shall not exceed the amount of the
Cash Payment.
(b) The
Company shall promptly notify the Purchaser of any claim, demand, action or
proceeding for which indemnification will be sought under this Agreement;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the Purchaser of its
obligations under this Section except to the extent that the Purchaser is
actually prejudiced by such failure to give notice.
(c) In
case any such action, proceeding or claim is brought against any Company Party
in respect of which indemnification is sought hereunder, the Purchaser shall be
entitled to participate in and, unless in the reasonable, good-faith judgment of
the Company a conflict of interest between it and the Purchaser exists with
respect to such action, proceeding or claim (in which case the Purchaser shall
be responsible for the reasonable fees and expenses of one separate counsel for
the Company Parties), to assume the defense thereof with counsel reasonably
satisfactory to the Company. If the Purchaser elects to defend any such action
or claim, then the Company Parties shall be entitled to participate in such
defense (but not control) with counsel of their choice at their sole cost and
expense (except that the Purchaser shall remain responsible for the reasonable
fees and expenses of one separate counsel for the Company Parties in the event
in the reasonable, good-faith judgment of the Company a conflict of interest
between the Company Parties and the Purchaser exists).
(d) In
the event that the Purchaser advises the Company Parties that it will contest
such a claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the Company Parties may, at their option, defend,
settle or otherwise compromise or pay such action or claim. In any
event, unless and until the Purchaser elects in writing to assume and does so
assume the defense of any such claim, proceeding or action, the Company Parties’
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder.
(e) The
parties shall cooperate fully with each other in connection with any negotiation
or defense of any such action or claim and shall furnish to the other party all
information reasonably available to such party which relates to such action or
claim. Each party shall keep the other party fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto.
(f) Notwithstanding
anything in this Section 4.7 (ii) to
the contrary, the Purchaser shall not, without the Company’s prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on any Company Party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Company Parties of a release from all liability
in respect of such claim. The indemnification obligations to defend
the Company Parties required by this Section shall be made by periodic payments
of the amount thereof during the course of investigation or defense, as and when
the loss is incurred, so long as the Company Parties shall refund such moneys if
it is ultimately determined by a court of competent jurisdiction that such party
was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (i) any cause of action or similar
rights of the Company Parties against the Purchaser or others, and (ii) any
liabilities the Purchaser may be subject to pursuant to applicable
law.
4.8 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 the Required Minimum on such date, 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
Required Minimum at such time, as soon as possible and in any event not later
than the 90th day after such date.
4.9 Participation in Future
Financing.
(a) From
the date hereof until the date that is the one (1) year anniversary of the
Closing Date, upon any issuance by the Company of Common Stock or Common Stock
Equivalents or by any subsidiary of like-kind securities (a “Subsequent
Financing”), Purchaser shall have the pro-rata right to participate in
the Subsequent Financing on the same terms, conditions and price provided for in
the Subsequent Financing.
(b) At
least ten (10) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to Purchaser a written notice of its intention to
effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing
Notice”). Upon the request of Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver a
Subsequent Financing Notice to 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
or Persons through or with whom such Subsequent Financing is proposed to be
effected, and attached to which shall be a term sheet or similar document
relating thereto.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 10th Trading Day after the Purchaser has received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing, the amount of
the Purchaser’s participation, and that the Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser
as of such 10th Trading Day, such Purchaser shall be deemed to have notified the
Company that it does not elect to participate.
(d) If
by 5:30 p.m. (New York City time) on the 10th Trading Day after the Purchaser
has received the Pre-Notice, notifications by Purchaser of its willingness to
participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent
Financing, then the Company may effect the remaining portion of such Subsequent
Financing on the terms and with the Persons set forth in the Subsequent
Financing Notice.
(e) Notwithstanding
the foregoing, this Section 4.9 shall not
apply in respect of (i) an Exempt Issuance and(ii) shares of Common Stock issued
solely in connection with dividends required to be paid under the terms and
conditions of the Series E Convertible Preferred Stock.
4.10 Variable Rate
Transactions. From the date hereof until the twelve (12) month
anniversary of the Closing Date, the Company shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Financing involving a
“Variable Rate Transaction,” 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 at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations in the public secondary market
for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the Company may
sell securities at a future determined price.
4.11 Form D; Blue Sky
Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of Purchaser. The Company shall take such action
as the Company shall reasonably determine is necessary in order to obtain an
exemption for, or to qualify the Securities for, sale to the Purchaser at the
Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of Purchaser.
4.12 Short Sales and
Confidentiality After The Date Hereof. The Purchaser covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time and ending at the time that the transactions contemplated
by this Agreement are first publicly announced. The Purchaser
covenants that until such time as the transactions contemplated by this
Agreement are publicly disclosed by the Company, such Purchaser will maintain
the confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this
transaction). Notwithstanding the foregoing, no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in Short
Sales in the securities of the Company after the time that the transactions
contemplated by this Agreement are first publicly announced.
4.13 Additional Affirmative
Covenants of the Company. The Company hereby covenants and
agrees, so long as any share of Series G Preferred Stock remains outstanding, as
follows:
(a) Maintenance of Corporate
Existence. The Company shall and shall cause its subsidiaries
to, maintain in full force and effect its corporate existence, rights and
franchises and all material terms of licenses and other rights to use licenses,
trademarks, trade names, service marks, copyrights, patents or processes owned
or possessed by it and necessary to the conduct of its business, except where
the failure to maintain such corporate existence, rights, franchises, licenses
and rights to use licenses, trademarks, trade names, service marks, copyrights,
patents or processes would not (i) result in a Material Adverse Effect or (ii)
materially adversely affect the rights of Purchaser under any Transaction
Document.
(b) Maintenance of
Properties. The Company shall and shall cause its subsidiaries
to, keep each of its properties necessary to the conduct of its business in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company shall and shall cause its
subsidiaries to at all times comply with each material provision of all material
leases to which it is a party or under which it occupies property.
(c) Payment of
Taxes. The Company shall and shall cause its subsidiaries to,
promptly pay and discharge, or cause to be paid and discharged when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, assets, property or business of the Company
and its subsidiaries; provided, however, that any such tax, assessment, charge
or levy need not be paid if the validity thereof shall be contested timely and
in good faith by appropriate proceedings, if the Company or its subsidiaries
shall have set aside on its books adequate reserves with respect thereto, and
the failure to pay shall not be prejudicial in any material respect to the
holders of the Securities, and provided, further, that the Company or its
subsidiaries will pay or cause to be paid any such tax, assessment, charge or
levy forthwith upon the commencement of proceedings to foreclose any Lien which
may have attached as security therefor.
(d) Payment of
Indebtedness. The Company shall, and shall cause its
subsidiaries to, pay or cause to be paid when due all Indebtedness incident to
the operations of the Company or its subsidiaries (including, without
limitation, claims or demands of workmen, materialmen, vendors, suppliers,
mechanics, carriers, warehousemen and landlords) which, if unpaid might become a
Lien (except for Permitted Liens) upon the assets or property of the Company or
its subsidiaries, except where the Company (or its subsidiary, as the case may
be) disputes the payment of such Indebtedness in good faith by appropriate
proceedings.
(e) Maintenance of
Insurance. The Company shall and shall cause its subsidiaries
to, keep its assets which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by theft, fire, explosion
and other risks customarily insured against by companies in the line of business
of the Company or its subsidiaries, in amounts sufficient to prevent the Company
and its subsidiaries from becoming a co-insurer of the property insured; and the
Company shall and shall cause its subsidiaries to maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated or as may be required by law,
including, without limitation, general liability, fire and business interruption
insurance, and product liability insurance as may be required pursuant to any
license agreement to which the Company or its subsidiaries is a party or by
which it is bound.
(f) Notice of Adverse
Change. The Company shall promptly give notice to all holders
of any Securities (but in any event within seven (7) days) after becoming aware
of the existence of any condition or event which constitutes, or the occurrence
of, any of the following:
(i) any
event of noncompliance by the Company or its subsidiaries under this Agreement
in any material respect;
(ii) the
institution of an action, suit or proceeding against the Company or any
subsidiary before any court, administrative agency or arbitrator, including,
without limitation, any action of a foreign government or instrumentality,
which, if adversely decided, would result in a Material Adverse Effect whether
or not arising in the ordinary course of business; or
(iii) any
information relating to the Company or any subsidiary which would reasonably be
expected to result in a material adverse effect on its inability to perform its
obligations of under any Transaction Document.
(iv) Any
notice given under this Section 7.7 shall specify the nature and period of
existence of the condition, event, information, development or circumstance, the
anticipated effect thereof and what actions the Company has taken and/or
proposes to take with respect thereto.
(g) Compliance With
Agreements. The Company shall and shall cause its subsidiaries
to comply in all material respects, with the terms and conditions of all
material agreements, commitments or instruments to which the Company or any of
its subsidiaries is a party or by which it or they may be bound.
(h) Other
Agreements. The Company shall not enter into any agreement in
which the terms of such agreement would restrict or impair the right or ability
to perform of the Company under any Transaction Document.
(i) Compliance With
Laws. The Company shall and shall cause each of its
subsidiaries to duly comply in all material respects with any material laws,
ordinances, rules and regulations of any foreign, federal, state or local
government or any agency thereof, or any writ, order or decree, and conform to
all valid requirements of governmental authorities relating to the conduct of
their respective businesses, properties or assets.
(j) Protection of Licenses,
etc. The Company shall and shall cause its subsidiaries to,
maintain, defend and protect to the best of their ability licenses and
sublicenses (and to the extent the Company or a subsidiary is a licensee or
sublicensee under any license or sublicense, as permitted by the license or
sublicense agreement), trademarks, trade names, service marks, patents and
applications therefor and other proprietary information owned or used by it or
them, (except where the failure to defend and protect such licenses and
sublicenses would not (i) result in a Material Adverse Effect or (ii) materially
adversely affect the rights of Purchaser under any Transaction Document) and
shall keep duplicate copies of any licenses, trademarks, service marks or
patents owned or used by it, if any, at a secure place selected by the
Company.
(k) Accounts and Records;
Inspections.
(i) The
Company shall keep true records and books of account in which full, true and
correct entries will be made of all dealings or transactions in relation to the
business and affairs of the Company and its subsidiaries in accordance with GAAP
applied on a consistent basis.
(ii) The
Company shall permit each holder of any Securities or any of such holder’s
officers, employees or representatives during regular business hours of the
Company, upon reasonable notice and as often as such holder may reasonably
request, to visit and inspect the offices and properties of the Company and its
subsidiaries and to make extracts or copies of the books, accounts and records
of the Company or its subsidiaries at such holder’s expense.
(iii) Nothing
contained in this Section shall be construed to limit any rights which a holder
of any Securities may otherwise have with respect to the books and records of
the Company and its subsidiaries, to inspect its properties or to discuss its
affairs, finances and accounts
(l) Maintenance of
Office. The Company will maintain its principal office at the
address of the Company set forth in the signature page to this Agreement where
notices, presentments and demands in respect of this Agreement and any of the
Securities may be made upon the Company, until such time as the Company shall
notify the holders of the Securities in writing, at least thirty (30) days prior
thereto, of any change of location of such office.
(m) Payment of the Preferred
Share Dividends. The Company shall pay the dividends on, and
redeem, the Preferred Shares, in the time, the manner and the form as provided
in the applicable Certificate of Designations.
(n) SEC Reporting
Requirements. For so long as the Purchaser beneficially owns
any of the Securities, and until such time as all the Conversion Shares and
Warrant Shares are saleable by the Purchaser without restriction as to volume or
manner of sale under Rule 144 under the Securities Act, the Company shall, once
it has filed a registration statement pursuant to the Registration Rights
Agreement, timely file all reports required to be filed with the Commission
pursuant to the Exchange Act, and the Company shall not terminate its status as
an issuer required to file reports under the Exchange Act even if the Exchange
Act or the rules and regulations thereunder would permit such
termination. As long as the Purchaser owns Securities, Conversion
Shares or Warrant Shares, the Company will prepare and furnish to the Purchaser
and make publicly available in accordance with Rule 144 or any successor rule
such information as is required for the Purchaser to sell the Securities under
Rule 144 without regard to the volume and manner of sale
limitations. The Company further covenants that it will take such
further action as any holder of Securities, Conversion Shares or Warrant Shares
may reasonably request, all to the extent required from time to time to enable
such Person to sell such Securities, Conversion Shares or Warrant Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 or any successor rule thereto.
(o) Listing
Maintenance. The Company hereby agrees to use best efforts to
maintain the listing or trading of the Common Stock on a Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application all of the
Conversion Shares and Warrant Shares, and will take such other action as is
necessary to cause all of the Conversion Shares and Warrant Shares to be listed
on such other Trading Market as promptly as possible. The Company
will take all action reasonably necessary to continue the listing and trading of
its Common Stock on, and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of, each such
Trading Market on which the Company’s Common Stock is listed or
trades.
(p) Implementation of Series G
Preferred Stockholders’ Rights to Elect Directors. Promptly after
Closing, the Company shall take the following actions:
(q) Take
such action at any such time as necessary to implement or effectuate the rights
of holders of Series G Preferred Stock to elect members of the Board of
Directors as set forth in the Certificate of Designation for the Series G
Preferred Stock beginning with the first meeting of the stockholders of the
Company following Closing; and
(r) if
necessary, expand the current size of the Board and all of the Board’s standing
committees by two (2) members and appoint the person(s) who will be designated
by the Purchaser to the Board of Directors and all of the Board’s standing
committees; provided that, the Company shall not be obligated to appoint any
designee if (i) the nomination of such designee would violate rules,
regulations or other standards of the Commission or the Trading Market, or
(ii) the designee does not meet the Company’s reasonable written director
qualification standards.
4.14 Additional Negative
Covenants of the Company. The Company hereby covenants and agrees, so
long as any share of Series G Preferred Stock remains outstanding, it will not
(and will not allow any subsidiary to), without the prior written consent of the
holder(s) of more than 66% of the number of shares of Series G Preferred Stock
outstanding (the “Majority Holders”),
directly or indirectly:
(a) Distributions and
Redemptions. (i) Except with respect to the Preferred
Stock, or forward stock splits in the form of a dividend, declare or pay any
dividends or make any distributions to any holder(s) of any shares of capital
stock of the Company or (ii) purchase, redeem or otherwise acquire for
value, directly or indirectly, any shares of Common Stock of the Company or
Common Stock Equivalents, except as may be required by the terms of the
Preferred Stock; or (iii) purchase, redeem or otherwise acquire for value,
directly or indirectly, any shares of preferred stock of the Company or warrants
or rights to acquire such stock, except as may be required by the terms of such
preferred stock.
(b) Reclassification. Effect
any reclassification, combination or reverse stock split of the Common
Stock.
(c) Liens. Except
as otherwise provided in this Agreement, create, incur, assume or permit to
exist any Lien upon or with respect to any property or asset of the Company or
any subsidiary, except that the foregoing restrictions shall not apply
to:
(i) liens
for taxes, assessments and other governmental charges, if payment thereof shall
not at the time be required to be made, and provided such reserve as shall be
required by generally accepted accounting principles consistently applied shall
have been made therefor;
(ii) liens
of workmen, materialmen, vendors, suppliers, mechanics, carriers, warehouseman
and landlords or other like liens, incurred in the ordinary course of business
for sums not then due or being contested in good faith, if an adverse decision
in which contest would not materially affect the business of the
Company;
(iii) liens
securing indebtedness of the Company or any subsidiaries which is in an
aggregate principal amount not exceeding $100,000 and which liens are
subordinate to liens on the same assets held by the Purchaser;
(iv) statutory
liens of landlords, statutory liens of banks and rights of set-off, and other
liens imposed by law, in each case incurred in the ordinary course of business
(i) for amounts not yet overdue or (ii) for amounts that are overdue
and that are being contested in good faith by appropriate proceedings, so long
as such reserves or other appropriate provisions, if any, as shall be required
by generally accepted accounting principles shall have been made for any such
contested amounts;
(v) liens
incurred or deposits made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(vi) any
attachment or judgment lien not constituting an Event of Default;
(vii) easements,
rights-of-way, restrictions, encroachments, and other minor defects or
irregularities in title, in each case which do not and will not interfere in any
material respect with the ordinary conduct of the business of the Company or any
of its subsidiaries;
(viii) any
(i) interest or title of a lessor or sublessor under any lease,
(ii) restriction or encumbrance that the interest or title of such lessor
or sublessor may be subject to, or (iii) subordination of the interest of
the lessee or sublessee under such lease to any restriction or encumbrance
referred to in the preceding clause (ii), so long as the holder of such
restriction or encumbrance agrees to recognize the rights of such lessee or
sublessee under such lease;
(ix) liens
in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of
goods;
(x) any
zoning or similar law or right reserved to or vested in any governmental office
or agency to control or regulate the use of any real property;
(xi) liens
securing obligations (other than obligations representing debt for borrowed
money) under operating, reciprocal easement or similar agreements entered into
in the ordinary course of business of the Company and its subsidiaries;
and
(xii) the
replacement, extension or renewal of any lien permitted by this
Section upon or in the same property theretofore subject or the
replacement, extension or renewal (without increase in the amount or change in
any direct or contingent obligor) of the indebtedness secured
thereby.
All of
the Foregoing Liens described in subsections (i) – (xii) above shall be referred
to as “Permitted
Liens”.
(d) Indebtedness. Create,
incur, assume, suffer, permit to exist, or guarantee, directly or indirectly,
any Indebtedness, excluding, however, from the operation of this
covenant:
(i) Indebtedness
to the extent existing on the date hereof or any replacement Indebtedness to
existing Indebtedness;
(ii) Indebtedness
which may, from time to time be incurred or guaranteed by the Company which in
the aggregate principal amount does not exceed $100,000;
(iii) the
endorsement of instruments for the purpose of deposit or collection in the
ordinary course of business;
(iv) Indebtedness
relating to Contingent Obligations of the Company and its subsidiaries under
guaranties in the ordinary course of business of the obligations of suppliers,
customers, and licensees of the Company and its subsidiaries;
(v) Indebtedness
relating to loans from the Company to its subsidiaries;
(vi) Indebtedness
relating to capital leases in an aggregate amount not to exceed $100,000;
or
(vii) accounts
or notes payable arising out of the purchase of merchandise, supplies,
equipment, software, computer programs or services in the ordinary course of
business.
The
foregoing Indebtedness described in subsections (i) – (vii) above shall be
referred to as “Permitted
Indebtedness”.
(e) Issuances of
Securities.
(i) Except
for issuances to the Purchaser and issuances required by Preferred Stock, issue
any security that is senior to or ranks pari passu with the Preferred
Stock, whether with respect to right of payment of redemptions, dividends,
interest, damages or upon liquidation or dissolution or otherwise.
(ii) Prior
to the full payment of the Special Preferred Distribution by the Company to
holders of the Series G Preferred Stock, permit the exercise of any Management
Option. Notwithstanding the foregoing, the exercise of the Management
Options shall not be prohibited if the Company has the funds to pay the Special
Preferred Distribution and (i) the Board of Directors elects not to distribute
the Special Preferred Distribution or (ii) it offers to pay the
Special Preferred Distribution, but the holders of the Series G Preferred Stock,
in their sole discretion, elect to waive the payment of the Special Preferred
Distribution. Additionally, if the Special Preferred Distribution is
paid to the holders of the Series G Preferred Stock in part, the Management
Options will become exercisable on a pro rata basis, proportionate to the amount
of payment made under the Special Preferred Distribution;
(iii) [Reserved];
and
(iv) Adopt
any benefit plan, or enter into any employment, consulting or similar agreement
with any officer, director, employee, consultant or agent of the Company or any
subsidiary, that provides for the issuance of any security of the Company or any
subsidiary, other than Management Options, prior to the full payment of the
Special Preferred Distribution by the Company to holders of the Series G
Preferred Stock. Notwithstanding the foregoing, any action or
transaction contemplated or referenced by this paragraph shall not be prohibited
if the Company has the funds to pay the Special Preferred Distribution and (i)
the Board of Directors elects not to distribute the Special Preferred
Distribution or (ii) it offers to pay the Special Preferred Distribution, but
the holders of the Series G Preferred Stock, in their sole discretion, elect to
waive the payment of the Special Preferred Distribution.
(f) Liquidation or
Sale. Sell, transfer, lease, spin-off, split off or otherwise
dispose of any subsidiary or 10% or more of its consolidated assets (as shown on
the most recent financial statements of the Company or the subsidiary, as the
case may be) in any single transaction or series of related transactions (other
than the sale of inventory in the ordinary course of business), or liquidate,
dissolve, recapitalize or reorganize in any form of
transaction.
(g) Change of Control
Transaction. Enter into a Change in Control Transaction. For
purposes of this Agreement, “Change in Control
Transaction” means the occurrence of (a) an acquisition by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether through legal
or beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of fifty percent (50%) of the voting securities of the
Company, (b) a replacement at one time or over time of more than one-half
of the members of the Board of the Company which is not approved by a majority
of those individuals who are members of the Board on the date hereof (or by
those individuals who are serving as members of the Board on any date whose
nomination to the Board was approved by a majority of the members of the Board
who are members on the date hereof), (c) the merger or consolidation of the
Company or any subsidiary of the Company in one or a series of related
transactions with or into another entity (except in connection with a merger
involving the Company solely for the purpose, and with the sole effect, of
reorganizing the Company under the laws of another jurisdiction; provided that
the certificate of incorporation and bylaws (or similar charter or
organizational documents) of the surviving entity are substantively identical to
those of the Company and do not otherwise adversely impair the rights of the
Purchaser), or (d) the execution by the Company of an agreement to which
the Company is a party or by which it is bound, providing for any of the events
set forth above in (a), (b) or (c).
(h) Board Changes; Amendment of
Charter Documents.
(i) Expand
the size of the Board of Directors, except as may be required hereunder;
or
(ii) Amend
or waive any provision of its Articles of Incorporation or Bylaws or the
Certificate of Designations in any way that adversely affects the rights of the
Purchaser without the prior written consent of the Purchaser;
(iii) Take
any action that alters or changes adversely the voting or other powers,
preferences, rights, privileges, or restrictions of the Preferred Shares;
or
(iv) increase
the authorized number of shares of the Series E Preferred Stock, Series G
Preferred Stock, or reinstate or issue any Series A Preferred Stock or Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series F
Preferred Stock.
(i) Transactions with
Affiliates.
(i) Engage
in any transaction with any of the officers, directors, employees or affiliates
of the Company or of its subsidiaries, except on terms no less favorable to the
Company or the subsidiary as could be obtained in an arm’s length
transaction.
(ii) Divert
(or permit anyone to divert) any business or opportunity of the Company or
subsidiary to any other corporate or business entity.
(j) Registration
Statements. File any registration statement with the
Commission until the earlier of: (i) 60 Trading Days following the date that a
registration statement or registration statements registering all the Conversion
Shares, Warrant Shares and other Registrable Securities is declared effective by
the Commission; and (ii) the date the Conversion Shares and Warrant Shares are
saleable by Purchaser under Rule 144 under the Securities Act without limitation
as to volume or manner of sale; provided that this Section shall not prohibit
the Company from filing a registration statement on Form S-4 or other applicable
form for securities to be issued in connection with acquisitions of businesses
by the Company or its subsidiaries, or post effective amendments to registration
statements that were declared effective prior to the date hereof or to a
registration statement filed with the Commission on Forms S-4 or
S-8.
(k) Agreements. Enter
into an agreement with respect to any of the foregoing (a) - (j).
4.15 Further
Assurances. From time to time the Company shall execute and
deliver to the Purchaser and the Purchaser shall execute and deliver to the
Company such other instruments, certificates, agreements and documents and take
such other action and do all other things as may be reasonably requested by the
other party in order to implement or effectuate the terms and provisions of this
Agreement and any of the Securities, including, without limitation, the rights
of holders of the Series G Preferred Stock to elect directors.
ARTICLE
V
MISCELLANEOUS
5.1 Events of
Default.
(a) The
occurrence and continuance of any of the following events shall constitute an
event of default under this Agreement (each, an “Event of Default”
and, collectively, “Events of
Default”):
(i) if
the Company shall default in the payment of any dividend, distribution or other
payment on or redemption of any Preferred Share when the same shall become due
and payable; and in each case such default shall have continued without cure for
five (5) Trading Days after written notice (a “Default Notice”) is
given to the Company of such default;
(ii) the
Company shall fail to file a registration statement (each a “Registration
Statement”) providing for the resale of Conversion Shares and Warrant
Shares as required by the Registration Rights Agreement;
(iii) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed or quoted on at least one of the
following: the OTC Bulletin Board or Pink Sheets Market, the American Stock
Exchange, the Nasdaq Global Market, the Nasdaq Capital Market or The New York
Stock Exchange, Inc. for a period of ten (10) consecutive Trading Days and such
suspension from listing (or listing on an alternate exchange or quotation
system) is not cured within ten (10) days after the tenth (10th)
consecutive day of such suspension from listing;
(iv) the
Company shall fail to (i) timely deliver the shares of Common Stock upon
conversion of the Preferred Shares or exercise of a Warrant by the tenth (10th)
Trading Day after the date of delivery required therefor or otherwise in
accordance with the provisions of the Transaction Documents, (ii) file a
Registration Statement in accordance with the terms of the Registration Rights
Agreement, or (iii) make the payment of any fees and/or liquidated damages under
this Agreement or any Transaction Document, which failure in the case of items
(i) and (iii) of this Section is not remedied within ten (10) Trading Days after
the incurrence thereof and, solely with respect to item (iii) above, ten (10)
Trading Days after the Purchaser delivers a Default Notice to the Company of the
incurrence thereof;
(v) while
a Registration Statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the Purchaser for sale of the
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten (10) consecutive Trading
Days;
(vi) the
Company’s notice to the Holder, including by way of public announcement, at any
time, of its inability to comply for any reason or its intention not to comply
with proper requests for issuance of, or its failure to timely deliver,
Conversion Shares upon conversion of Preferred Shares or Warrant Shares upon
exercise of the Warrant;
(vii) if
the Company or any subsidiary shall default in the performance of any of the
covenants contained this Agreement or the Transaction Documents and (i) such
default shall have continued without cure for ten (10) Trading Days after a
Default Notice is given to the Company or (ii) such default shall have
materially adversely affected the Purchaser regardless of any action taken by
the Company to cure such default;
(viii) if
any of the Company or its subsidiaries shall default in the observance or
performance of any term or provision of a material agreement to which it is a
party or by which it is bound, which default will have or could reasonably be
expected to have a Material Adverse Effect and such default is not waived or
cured within the applicable grace period provided for in such
agreement;
(ix) if
any representation or warranty made in this Agreement, any Transaction Document
or in or any certificate delivered by the Company or its subsidiaries pursuant
hereto or thereto shall prove to have been incorrect in any material respect
when made;
(x) the
Company shall (i) default in any payment of any amount or amounts of principal
of or interest on any Indebtedness and the aggregate principal amount of which
Indebtedness is in excess of $250,000 or (ii) default in the
observance or performance of any other agreement or condition relating to any
such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders or beneficiary or beneficiaries of such
Indebtedness to cause with the giving of notice if required, such Indebtedness
to become due prior to its stated maturity;
(xi) if
a final judgment which, either alone or together with other outstanding final
judgments against the Company and its subsidiaries, exceeds an aggregate of
$250,000 shall be rendered against the Company or any subsidiary and such
judgment shall have continued undischarged or unstayed for thirty-five (35) days
after entry thereof;
(xii) the
Company or any of its subsidiaries shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or
assets, (ii) make a general assignment for the benefit of its creditors, (iii)
commence a voluntary case under the United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic), (iv) file a petition seeking to take advantage of any bankruptcy,
insolvency, moratorium, reorganization or other similar law affecting the
enforcement of creditors’ rights generally, (v) acquiesce in writing to any
petition filed against it in an involuntary case under United States Bankruptcy
Code (as now or hereafter in effect) or under the comparable laws of any
jurisdiction (foreign or domestic), or admit in writing its inability to pay its
debts (vi) issue a notice of bankruptcy or winding down of its operations or
issue a press release regarding same, or (vii) take any action under the laws of
any jurisdiction (foreign or domestic) analogous to any of the foregoing;
or
(xiii) a
proceeding or case shall be commenced in respect of the Company or any of its
subsidiaries, without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of it or
of all or any substantial part of its assets in connection with the liquidation
or dissolution of the Company or any of its subsidiaries or (iii) similar relief
in respect of it under any law providing for the relief of debtors, and such
proceeding or case described in clause (i), (ii) or (iii) shall continue
undismissed, or unstayed and in effect, for a period of sixty (60) days or any
order for relief shall be entered in an involuntary case under United States
Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of
any jurisdiction (foreign or domestic) against the Company or any of its
subsidiaries or action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing shall be taken with respect to the Company or
any of its subsidiaries and shall continue undismissed, or unstayed
and in effect for a period of sixty (60) days.
(b) Remedies.
(i) Upon
the occurrence and continuance of an Event of Default, the Purchaser may at any
time (unless all defaults shall theretofore have been remedied) at its option,
by written notice or notices to the Company require the Company to immediately
redeem in cash all or a portion of the Preferred Shares held by the Purchaser at
a price per share equal to one hundred twenty-five percent (125%) of the stated
value of the Preferred Shares plus all accrued and unpaid dividends thereon at
the time of such request.
(ii) The
Purchaser, by written notice or notices to the Company, may in its own
discretion waive an Event of Default and its consequences and rescind or annul
such declaration; provided that, no such waiver shall extend to or affect any
subsequent Event of Default or impair any right resulting
therefrom.
(iii) In
case any one or more Events of Default shall occur and be continuing, the
Purchaser may proceed to protect and enforce its rights by an action at law,
suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Transaction Document or
for an injunction against a violation of any of the terms hereof or thereof, or
in aid of the exercise of any power granted hereby or thereby or by
law. In case of a default in the payment of any dividend on or
redemption of any Preferred Share, the Company will pay to the Purchaser such
further amount as shall be sufficient to cover the cost and the expenses of
collection, including, without limitation, actual attorney’s fees, expenses and
disbursements. No course of dealing and no delay on the part of a
Purchaser in exercising any rights shall operate as a waiver thereof or
otherwise prejudice such Purchaser’s rights.
(iv) Any
remedy conferred by this Section shall not be exclusive of any other remedy
provided by this Agreement or any other Transaction Document or now or hereafter
available at law, in equity, by statute or otherwise.
5.2 Fees and
Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, 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
transfer agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchaser.
5.3 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.
5.4 Notices. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments;
Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchaser or, in the case of a
waiver, by the party against whom enforcement of any such waived provision 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 any party to exercise any right hereunder in any manner impair the
exercise of any such right.
5.6 Headings. 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.
5.7 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 Purchaser (other than
by merger). 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 of the Transaction Documents
that apply to the “Purchaser”.
5.8 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.
5.9 Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in New York County, New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in New York County, New York for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an 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 other 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
reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. Except
as specifically provided herein, the covenants and agreements of the Company
made herein shall survive the Closing indefinitely. Except as
specifically provided herein, the representations and warranties made herein
shall survive the Closing for a period of two (2) years thereafter
5.11 Execution. This
Agreement may be executed in two (2) or more counterparts, all of which when
taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf” signature page were an original thereof.
5.12 Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Remedies. In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, the 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 contained in the
Transaction Documents and hereby agrees to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.14 Construction. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
(Remainder
of Page Intentionally Left Blank)
(Signature
Pages Follow)
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.
|
Address for
Notice:
|
|||
|
By:
|
00000
Xxxxxxxx Xxxxxx
|
||
| Name: Xxxxxx XxXxxxx |
Xxxxxxxxxx,
XX 00000
|
||
| Title: Chief Executive Officer |
Tel:
(000) 000-0000
|
||
|
Fax:
(000) 000-0000
|
|||
|
With
a copy to (which shall not constitute notice):
|
|||
|
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
|
|||
|
Attn:
Xxxxxx X. Xxxxxx
|
|||
|
00
Xxxxxxxx, 00xx
Xxxxx
|
|||
|
Xxx
Xxxx, XX 00000
|
|||
(Remainder
of Page Intentionally Left Blank)
(Signature Page For Purchaser
Follows)
[PURCHASER
SIGNATURE PAGES TO 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
Purchaser: Vicis Capital Master Fund
|
Signature of Authorized
Signatory of Purchaser:
|
|
Name of
Authorized
Signatory: Xxxx
Xxxxxxxx
Title of
Authorized
Signatory: Member,
Vicis Capital LLC, investment advisor to Vicis Capital Master
Fund
Email
Address of
Purchaser: xxxxxxxxx@xxxxxxxxxxxx.xxx
Facsimile
Number of Purchaser: (000) 000-0000
Jurisdiction
of Organization of Purchaser: Cayman Islands trust
Address
for Notice of Purchaser:
Vicis
Capital LLC
Attn:
Xxxx Xxxxxxxx
000 Xxxx
Xxxxxx, 00xx Xxxxx
Xxx Xxxx,
XX 00000
Address
for Delivery of Securities for Purchaser (if not same as above):
Vicis
Capital LLC
Attn:
Xxxx Xxxx
000 Xxxx
Xxxxxx, 00xx Xxxxx
Xxx Xxxx,
XX 00000
