Exhibit 10.1
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REMOTEMDX, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
November 9, 2006, is entered into by and between RemoteMDx, Inc., a Utah
corporation (the "Company") and VATAS Holding GmbH, a German limited liability
company (the "Purchaser"). In consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Authorization; Sale of Shares; Issuance of Warrants.
1.1 Authorization. The Company has, or before the Closing (as
defined in Section 2) will have, duly authorized the sale and issuance in this
offering, pursuant to the terms of this Agreement, a maximum of 3,000,000 shares
of the Company's Common Stock (the "Shares") and warrants to purchase up to an
additional 7,000,000 shares of the Company's Common Stock (the "Warrants," and
together with the Shares, the "Securities").
1.2 Sale of Shares and Warrants. Subject to the terms and
conditions of this Agreement, at the Closing (as defined in Section 2.2), the
Company will sell and issue to the Purchaser, and the Purchaser will purchase,
Three Million (3,000,000) Shares for the purchase price of $2.00 per share (the
"Purchase Price"). As additional inducement to the Purchaser to purchase the
Shares, at the Closing, the Company will issue a Warrant to purchase up to an
additional Seven Million (7,000,000) shares of Common Stock, in substantially
the form set forth in Exhibit A hereto.
1.3 Use of Proceeds. The Company will use the proceeds from the
sale of the Shares and the exercise of the Warrants for product development and
other general corporate purposes.
2. Closing.
2.1 The Closing. Subject to the terms and conditions of this
Agreement, the closing (the "Closing") of the sale and purchase of the
Securities under this Agreement shall take place on the date of this Agreement
(the " Closing Date"). At the Closing:
(a) The Company shall deliver to the Purchaser the
Disclosure Schedule (as defined in Section 3);
(b) The Company shall deliver to the Purchaser a
certificate, as of the most recent practicable dates, as to the corporate good
standing of the Company issued by the Secretary of State of the State of Utah;
(c) The Company shall deliver to the Purchaser a copy of
the Articles of Incorporation of the Company, as amended and in effect as of the
Closing Date (including the Designation of Rights), certified by the Secretary
of State of the State of Utah;
(d) The Company shall deliver to the Purchaser a
Certificate of the Secretary of the Company attesting as to (i) the Articles of
Incorporation and By-laws of the Company; (ii) the signatures and titles of the
officers of the Company executing this Agreement or any of the other agreements
to be executed and delivered by the Company at the Closing; and (iii)
resolutions of the Board of Directors of the Company, authorizing and approving
all matters in connection with this Agreement and the transactions contemplated
hereby;
(e) The Company shall deliver to the Purchaser an opinion
from the Company's legal counsel pursuant to Section 3.21;
(f) The Company shall deliver to the Purchaser a
certificate for the Shares registered in the name of such Purchaser;
(g) The Company shall deliver to the Purchaser the Warrant;
and
(h) The Purchaser shall pay to the Company, by wire
transfer of immediately available funds, the Purchase Price for the Shares being
purchased. The Closing shall not be deemed to occur, and all such payments by
any Purchaser shall be deemed to be held in escrow, until the Purchaser shall
have tendered to the Company the payments of the Purchase Price.
3. Representations of the Company. Except as disclosed by the Company
in a written Disclosure Schedule provided by the Company to the Purchasers dated
the date hereof (the "Disclosure Schedule"), the Company hereby represents and
warrants to the Purchaser that the statements contained in this Section 3 are
complete and accurate as of the date of this Agreement. The Disclosure Schedule
shall be arranged in sections corresponding to the numbered and lettered
sections and subsections contained in this Section 3, and the disclosures in any
section or subsection of the Disclosure Schedule shall qualify only the
corresponding section or subsection of this Section 3, unless otherwise
specified.
3.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Utah and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and all other agreements required to be executed by the
Company at or prior to the Closing pursuant to Section 2 (the "Ancillary
Agreements") and to carry out the transactions contemplated by this Agreement
and the Ancillary Agreements. The Company is duly qualified to do business as a
foreign corporation and is in good standing in every other jurisdiction in which
the failure so to qualify would have a material adverse effect on the business,
prospects, assets or condition (financial or otherwise) of the Company (a
"Company Material Adverse Effect"). The Company has furnished to the Purchaser
complete and accurate copies of its Articles of Incorporation and By-laws, each
as amended to date and presently in effect. The Company has at all times
complied with all provisions of its Articles of Incorporation and By-laws and is
not in default under, or in violation of, any such provisions.
3.2 Subsidiaries, Etc. The Company has no subsidiaries and does
not own or control, directly or indirectly, any shares of capital stock of any
other corporation or any interest in any partnership, limited liability company,
joint venture or other non-corporate business enterprise.
3.3 Capitalization.
(a) The authorized capital stock of the Company
(immediately prior to the Closing) consists of (i) 175,000,000 shares of Common
Stock, $.0001 par value per share, of which, as of October 10, 2006,
approximately 80,287,000 shares are issued and outstanding and no shares are
held in the treasury of the Company, and (ii) 20,000,000 shares of Preferred
Xxxxx, x.0000 par value per share, of which 40,000 shares have been designated
as Series A Preferred and, as of October 10, 2006, 15,050 of which are issued or
outstanding; 2,000,000 which have been designated as Series B Preferred and, as
of October 10, 2006, approximately 53,400 of which are outstanding; and
7,383,929 shares have been designated as Series C Preferred, 5,357,143 of which
are issued or outstanding. All issued and outstanding capital stock of the
Company has been duly authorized and validly issued, is fully paid and
nonassessable and has been issued in compliance with all federal and state
securities laws.
(b) Except as set forth in this Section 3.3 or the
Disclosure Schedule, (i) no subscription, warrant, option, convertible security
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or other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, and there are no
statutory or contractual stockholders' preemptive rights or rights of refusal
with respect to the issuance of the Shares, (ii) the Company has no obligation
(contingent or otherwise) to issue any subscription, warrant, option,
convertible security or other such right, or to issue or distribute to holders
of any shares of its capital stock any evidences of indebtedness or assets of
the Company, (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or to make any other distribution in
respect thereof, and (iv) there are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Company.
(c) At no time shall the Company reprice any of its
employee or director stock options outstanding from time to time, except (i) as
required by law or judicial process or (ii) in accordance with the terms and
provisions thereof pursuant to antidilution rights or otherwise.
3.4 Issuance of Shares. The issuance, sale and delivery of the
Shares in accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Shares, have been, or
will be on or prior to the Closing, duly authorized by all necessary corporate
action on the part of the Company, and all such shares have been reserved for
issuance by the Board of Directors. The Shares when so issued, sold and
delivered against payment therefor in accordance with the provisions of this
Agreement, and the shares of Common Stock issuable upon conversion of the
Shares, when issued upon such conversion, will be duly and validly issued, fully
paid and nonassessable, and free of restrictions on transfer other than
restrictions imposed or created under this Agreement or the Ancillary
Agreements, restrictions required as necessary to qualify this offering as
exempt from the registration requirements of the Securities Act of 1933, as
amended (together with the rules and regulations thereunder, the "Securities
Act") or any other applicable law, or by the Purchaser.
3.5 Authority for Agreement; No Conflict. The execution, delivery
and performance by the Company of this Agreement and the Ancillary Agreements,
and the consummation by the Company of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action. This
Agreement has been, and the Ancillary Agreements when executed at the Closing
will be, duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms. The execution and delivery of this Agreement and the Ancillary
Agreements, the consummation of the transactions contemplated hereby and thereby
and the compliance with their respective provisions by the Company will not (a)
conflict with or violate any provision of the Articles of Incorporation or
By-laws of the Company, (b) conflict with, result in a breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest (as defined below) or other arrangement to which
the Company is a party or by which the Company is bound or to which its assets
are subject, (c) result in the imposition of any Security Interest upon any
assets of the Company or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or any of its properties
or assets. For purposes of this Agreement, "Security Interest" means any
mortgage, pledge, security interest, encumbrance, charge or other lien (whether
arising by contract or by operation of law).
3.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any local, state, federal or foreign court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (each of the foregoing is hereafter referred to as a
"Governmental Entity") is required on the part of the Company in connection with
the offer, issuance, sale and delivery of the Shares, the issuance and delivery
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of the shares of Common Stock issuable upon conversion of the Shares or the
other transactions to be consummated at the Closing, as contemplated by this
Agreement and the Ancillary Agreements, except such filings as shall have been
made prior to and shall be effective on and as of the Closing and such filings
required to be made after the Closing under applicable federal and state
securities laws, all of which filings are specified in the Disclosure Schedule.
3.7 Litigation. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company, which (a)
questions the validity of this Agreement, the Ancillary Agreements or the right
of the Company to enter into any such agreements or (b) might result, either
individually or in the aggregate, in a Company Material Adverse Effect. The
Company is not a party to or subject to the provisions of any injunction,
judgment, decree or order of any Government Entity.
3.8 Financial Statements. The Company has made available to the
Purchaser a complete and accurate copy of (a) the audited balance sheet of the
Company at September 30, 2005 and the related audited statements of operations
and cash flows for the fiscal year then ended, and (b) the unaudited balance
sheet of the Company (the "Balance Sheet") at June 30, 2006 (the "Balance Sheet
Date") and the related statements of operations and cash flows for the nine (9)
months then ended (collectively, the "Financial Statements"). The Financial
Statements are in accordance with the books and records of the Company, present
fairly the financial condition and results of operations of the Company, at the
dates and for the periods indicated, and have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied, except
that the unaudited Financial Statements may not be in accordance with GAAP
because of the absence of footnotes normally contained therein and are subject
to normal year-end audit adjustments which in the aggregate will not be
material.
3.9 Absence of Undisclosed Liabilities. The Company does not have
any liability (whether known or unknown and whether absolute or contingent),
except for (a) liabilities shown on the Balance Sheet, (b) liabilities not in
excess of $5,000 in the aggregate, which have arisen since the Balance Sheet
Date in the ordinary course of business and (c) contractual liabilities incurred
in the ordinary course of business which are not required by GAAP to be
reflected on a balance sheet and which could not, either individually or in the
aggregate, have or reasonably be expected to result in a Company Material
Adverse Effect.
3.10 Off-Balance Sheet Arrangements. There is no transaction,
arrangement or other relationship between the Company and an unconsolidated or
other off-balance sheet entity that is required to be disclosed by the Company
under the Securities Exchange Act of 1934, as amended (together with the rules
and regulations of the Commission promulgated thereunder, the "Exchange Act")
and is not so disclosed or that otherwise could reasonably be expected to have a
Company Material Adverse Effect.
3.11 Absence of Changes. Since the Balance Sheet Date, there has
been no event or development that, individually or in the aggregate, has had or
could reasonably be expected to have a Company Material Adverse Effect.
3.12 Accountants. The firm of Xxxxxx, Xxxxxxx & Xxxxxxx, which has
or will express its opinion with respect to the consolidated financial
statements to be included or incorporated by reference in the Registration
Statement (as defined in Section 7), is an independent registered public
accounting firm as required by the Securities Act and the Exchange Act and by
the rules of the Public Company Accounting Oversight Board.
3.13 Internal Accounting Controls. The Company maintains a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
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accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.14 Foreign Corrupt Practices. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company has, in the course of its actions for, or on behalf of, the Company (i)
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
3.15 Taxes.
(a) For purposes of this Agreement: (i) "Tax" or "Taxes"
means 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, unemployment insurance, social security,
business license, business organization, environmental, workers compensation,
payroll, profits, license, lease, service, service use, severance, stamp,
occupation, windfall profits, customs, duties, franchise and other taxes imposed
by the United States of America or any state, local or foreign government, 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; and (ii) "Tax Returns" means all
reports, returns, declarations, statements or other information required to be
supplied to a taxing authority in connection with Taxes and any amendment
thereof.
(b) The amount shown on the Balance Sheet as provision for
Taxes is sufficient in all material respects for the payment of all unpaid Taxes
for all periods ending on or before the date thereof. The Company has timely
filed or obtained presently effective extensions with respect to all Tax Returns
that are or were required to be filed by it, such Tax Returns are complete and
accurate in all material respects and all Taxes shown thereon to be due have
been timely paid. The Company has no knowledge of any tax deficiency which has
been or might be asserted or threatened against it and that could reasonably be
expected to have a Company Material Adverse Effect. All Taxes that the Company
is or was required by law to have withheld or collected have been duly withheld
or collected and, to the extent required, have been timely paid to the proper
Governmental Entity. The Tax Returns of the Company have not been audited by any
Governmental Entity, and no controversy with respect to Taxes is pending or, to
the best of the Company's knowledge, threatened. Neither the Company nor, to the
knowledge of the Company any of its stockholders, has ever filed an election
pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the
"Code"), that the Company be taxed as an S corporation.
(c) The Company is not now and has never been a "United
States real property holding corporation" as defined in Section 897(c)(2) of the
Code and the Treasury Regulations thereunder.
3.16 Property and Assets. The Company has good and marketable
title to, or a valid leasehold interest in, all of its material properties and
assets, including all properties and assets reflected in the Balance Sheet,
except those disposed of since the date thereof in the ordinary course of
business, and none of such properties or assets is subject to any Security
Interest other than those the material terms of which are described in the
Balance Sheet or in the Disclosure Schedule.
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3.17 Intellectual Property.
(a) The Disclosure Schedule lists (i) each patent, patent
application, copyright registration or application therefor, mask work
registration or application therefor, and trademark, service xxxx and domain
name registration or application therefor of the Company and (ii) each Customer
Deliverable (as defined below) of the Company.
(b) The Company owns or has the right to use all
Intellectual Property (as defined below) necessary (i) to use, manufacture,
market and distribute the Customer Deliverables and (ii) to operate the Internal
Systems (as defined below). The Company has taken all reasonable measures to
protect the proprietary nature of each item of Company Intellectual Property (as
defined below), and to maintain in confidence all trade secrets and confidential
information, that it owns or uses. No other person or entity has any rights to
any of the Company Intellectual Property owned by the Company (except pursuant
to agreements or licenses specified in the Disclosure Schedule), and, to the
best of the Company's knowledge, no other person or entity is infringing,
violating or misappropriating any of the Company Intellectual Property.
(c) None of the Customer Deliverables, or the marketing,
distribution, provision or use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity,
and neither the marketing, distribution, provision or use of any Customer
Deliverables currently under development by the Company will, when such Customer
Deliverables are commercially released by the Company, infringe or violate, or
constitute a misappropriation of, any Intellectual Property rights of any person
or entity that exist today. None of the Internal Systems, or the use thereof,
infringes or violates, or constitutes a misappropriation of, any Intellectual
Property rights of any person or entity. The Disclosure Schedule lists any
complaint, claim or notice, or written threat thereof, received by the Company
alleging any such infringement, violation or misappropriation; and the Company
has provided to the Purchaser complete and accurate copies of all written
documentation in the possession of the Company relating to any such complaint,
claim, notice or threat. The Company has provided to the Purchaser complete and
accurate copies of all written documentation in the Company's possession
relating to claims or disputes known to the Company concerning any Company
Intellectual Property.
(d) The Disclosure Schedule identifies each license or
other agreement pursuant to which the Company has licensed, distributed or
otherwise granted any rights to any third party with respect to, any Company
Intellectual Property. Except as described in the Disclosure Schedule, the
Company has not agreed to indemnify any person or entity against any
infringement, violation or misappropriation of any Intellectual Property rights
with respect to any Company Intellectual Property.
(e) The Disclosure Schedule identifies each item of Company
Intellectual Property that is owned by a party other than the Company, and the
license or agreement pursuant to which the Company uses it (excluding
off-the-shelf software programs licensed by the Company pursuant to "shrink
wrap" or "click through" licenses).
(f) The Company has not disclosed the source code for any
software developed by it, or other confidential information constituting,
embodied in or pertaining to such software, to any person or entity, except
pursuant to the agreements listed in the Disclosure Schedule, and the Company
has taken reasonable measures to prevent disclosure of such source code.
(g) All of the copyrightable materials incorporated in or
bundled with the Customer Deliverables have been created by employees of the
Company within the scope of their employment by the Company or by independent
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contractors of the Company who have executed agreements expressly assigning all
right, title and interest in such copyrightable materials to the Company. No
portion of such copyrightable materials was jointly developed with any third
party.
(h) The Disclosure Schedule lists all Open Source Materials
(as defined below) that the Company has used in any way and describes the manner
in which such Open Source Materials have been used by the Company, including,
without limitation, whether and how the Open Source Materials have been modified
and/or distributed by the Company. Except as set forth in the Disclosure
Schedule, the Company has not (i) incorporated any Open Source Materials into,
or combined Open Source Materials with, any Customer Deliverables, (ii)
distributed Open Source Materials in connection with any Customer Deliverables,
or (iii) used Open Source Materials that (with respect to either clause (i),
(ii) or (iii) above) (A) create, or purport to create, obligations for the
Company with respect to software developed or distributed by the Company or (B)
grant, or purport to grant, to any third party any rights or immunities under
intellectual property rights. Without limiting the generality of the foregoing,
the Company has not used any Open Source Materials that require, as a condition
of use, modification and/or distribution of such Open Source Materials, that
other software incorporated into, derived from or distributed with such Open
Source Materials be (1) disclosed or distributed in source code form, (2)
licensed for the purpose of making derivative works, or (3) redistributable at
no charge.
(i) To the best of the Company's knowledge, the Customer
Deliverables and the Internal Systems are free from significant defects or
programming errors and conform in all material respects to the written
documentation and specifications therefor.
(j) For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Customer Deliverables" shall mean (A) the
products that the Company (1) currently manufactures, markets, sells or licenses
or (2) currently plans to manufacture, market, sell or license in the future and
(B) the services that the Company (1) currently provides or (2) currently plans
to provide in the future.
(ii) "Internal Systems" shall mean the internal
systems of the Company that are used in its business or operations, including,
computer hardware systems, software applications and embedded systems.
(iii) "Intellectual Property" shall mean all: (A)
patents, patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations; (B) trademarks, service marks, trade dress,
Internet domain names, logos, trade names and corporate names and registrations
and applications for registration thereof; (C) copyrights and registrations and
applications for registration thereof; (D) mask works and registrations and
applications for registration thereof; (E) computer software, data and
documentation; (F) inventions, trade secrets and confidential business
information, whether patentable or nonpatentable and whether or not reduced to
practice, know-how, manufacturing and product processes and techniques, research
and development information, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information; (G) other proprietary rights
relating to any of the foregoing (including remedies against infringements
thereof and rights of protection of interest therein under the laws of all
jurisdictions); and (H) copies and tangible embodiments thereof.
(iv) "Company Intellectual Property" shall mean the
Intellectual Property owned by or licensed to the Company and incorporated in,
underlying or used in connection with the Customer Deliverables or the Internal
Systems.
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(v) "Open Source Materials" shall mean all software
or other material that is distributed as "free software", "open source software"
or under a similar licensing or distribution model, including without limitation
the GNU General Public License (GPL), GNU Lesser General Public License (LGPL),
Mozilla Public License (MPL), BSD Licenses, the Artistic License, the Netscape
Public License, the Sun Community Source License (SCSL) the Sun Industry
Standards License (SISL) and the Apache License.
3.18 Insurance. The Company maintains valid policies of workers'
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than are customarily obtained
by corporations of established reputation engaged in the same or similar
business and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability and other risks.
3.19 Material Contracts and Obligations. The Disclosure Schedule
sets forth a list of all material agreements or commitments of any nature
(whether written or oral) to which the Company is a party or by which it is
bound, including without limitation (a) any agreement which requires future
expenditures by the Company in excess of $15,000 or which might result in
payments to the Company in excess of $15,000, (b) any employment or consulting
agreement, employee benefit, bonus, pension, profit-sharing, stock option, stock
purchase or similar plan or arrangement, (c) any distributor, sales
representative or similar agreement, (d) any agreement with any current or
former stockholder, officer or director of the Company, or any "affiliate" or
"associate" of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act), including without limitation
any agreement or other arrangement providing for the furnishing of services by,
rental of real or personal property from, or otherwise requiring payments to,
any such person or entity, (e) any agreement under which the Company is
restricted from carrying on any business anywhere in the world, (f) any
agreement relating to indebtedness for borrowed money, (g) any agreement for the
disposition of a material portion of the Company's assets (other than for the
sale of inventory in the ordinary course of business), (h) any agreement for the
acquisition of the business or securities or other ownership interests of
another party or (i) any other agreement that is material to the operations,
business or finances of the Company. All of such agreements and contracts are
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company. Neither the
Company nor, to the best of the Company's knowledge, any other party thereto is
in violation or default of any of its obligations under any of the agreements or
contracts listed in the Disclosure Schedule.
3.20 Compliance. The Company has complied with all laws,
regulations and orders applicable to its present and proposed business and has
all permits and licenses required thereby, except to the extent such a violation
could not reasonably be expected to result in or have a Company Material Adverse
Effect. There is no term or provision of any mortgage, indenture, contract,
agreement or instrument to which the Company is a party or by which it is bound,
or, to the best of the Company's knowledge, of any provision of any judgment,
decree, order, statute, rule or regulation of any Government Entity applicable
to or binding upon the Company, which has or could reasonably be expected to
result in or have a Company Material Adverse Effect. To the best of the
Company's knowledge, none of the employees of the Company is in violation of any
term of any contract or covenant (either with the Company or with another
entity) relating to employment, patents, assignment of inventions, proprietary
information disclosure, non-competition or non-solicitation.
3.21 Corporate Legal Opinion. As a condition to the Purchaser's
obligations to purchase the Securities, legal counsel to the Company will
deliver one or more legal opinions to the Purchaser in a form reasonably
satisfactory to the Purchaser and their counsel.
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3.22 Employees.
(a) All current and former employees of the Company who
have or have had access to confidential or proprietary information of the
Company have executed and delivered non-disclosure and assignment of inventions
agreements and all of such agreements are in full force and effect. All current
and former consultants of the Company that have performed development work or
provided technical services to the Company or have otherwise had access to
confidential or proprietary information of the Company have executed and
delivered non-disclosure and assignment of inventions agreements, and all of
such agreements are in full force and effect.
(b) The Company is not aware that any employee of the
Company has plans to terminate his or her employment relationship with the
Company. All employees of the Company are engaged by the Company on a full time
basis. The Company has complied in all material respects with all applicable
laws relating to wages, hours, equal opportunity, collective bargaining,
workers' compensation insurance and the payment of social security and other
Taxes. None of the employees of the Company is represented by any labor union,
and there is no labor strike or other labor trouble pending with respect to the
Company (including, without limitation, any organizational drive) or, to the
best of the Company's knowledge, threatened.
3.23 ERISA. The Company does not have or otherwise contribute to
or participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended, other than a medical benefit plan with
respect to which the Company has made all required contributions and has
complied with all applicable laws.
3.24 Books and Records. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock ledger
of the Company is complete and accurate and reflects all issuances, transfers,
repurchases and cancellations of shares of capital stock of the Company.
3.25 Permits. The Disclosure Schedule sets forth a list of all
material permits, licenses, registrations, certificates, orders or approvals
from any Governmental Entity ("Permits") issued to or held by the Company. Such
listed Permits are the only Permits that are required for the Company to conduct
its business as presently or proposed to be conducted, except for those the
absence of which could not reasonably be expected to have a Company Material
Adverse Effect. Each such Permit is in full force and effect, no suspension or
cancellation of such Permit is threatened and there is no basis for believing
that such Permit will not be renewable upon expiration.
3.26 Environmental Matters.
(a) The Company has complied with all applicable
Environmental Laws (as defined below). There is no pending or, to the best of
the Company's knowledge, threatened civil or criminal litigation, written notice
of violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Company. For purposes of this Agreement, "Environmental Law"
shall mean any federal, state or local law, statute, rule or regulation or the
common law relating to the environment or occupational health and safety,
including any statute, regulation, administrative decision or order pertaining
to (i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous materials or substances or solid or hazardous
waste; (ii) air, water and noise pollution; (iii) groundwater and soil
contamination; (iv) the release or threatened release into the environment of
9
industrial, toxic or hazardous materials or substances, or solid or hazardous
waste, including emissions, discharges, injections, spills, escapes or dumping
of pollutants, contaminants or chemicals; (v) the protection of wildlife, marine
life and wetlands, including all endangered and threatened species; (vi) storage
tanks, vessels, containers, abandoned or discarded barrels and other closed
receptacles; (vii) health and safety of employees and other persons; and (viii)
manufacturing, processing, using, distributing, treating, storing, disposing,
transporting or handling of materials regulated under any law as pollutants,
contaminants, toxic or hazardous materials or substances or oil or petroleum
products or solid or hazardous waste. As used above, the terms "release" and
"environment" shall have the meaning set forth in the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA").
(b) The Company has no liabilities or obligations arising
from the release of any Materials of Environmental Concern (as defined below)
into the environment. For purposes of this Agreement, "Materials of
Environmental Concern" shall mean any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA), solid wastes and
hazardous wastes (as such terms are defined under the Resource Conservation and
Recovery Act), toxic materials, oil or petroleum and petroleum products or any
other material subject to regulation under any Environmental Law.
(c) The Company is not a party to or bound by any court
order, administrative order, consent order or other agreement between the
Company and any Governmental Entity entered into in connection with any legal
obligation or liability arising under any Environmental Law.
(d) The Company is not aware of any material environmental
liability of any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company.
(e) Set forth in the Disclosure Schedule is a list of all
documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Company (whether conducted by or on
behalf of the Company or a third party, and whether done at the initiative of
the Company or directed by a Governmental Entity or other third party) which
were issued or conducted during the past five years and which the Company has
possession of or access to. A complete and accurate copy of each such document
has been made available to the Purchaser.
3.27 SEC Documents. The Company has filed with the Securities and
Exchange Commission (the "Commission") all forms, reports, schedules, statements
and other documents required to be filed by it since its initial public offering
under the Exchange Act or the Securities Act (such documents, as supplemented
and amended since the time of filing, collectively, the "Company SEC
Documents"). The Company has timely filed with the Commission all Company SEC
Documents within the five-year period preceding the date hereof. The Company SEC
Documents, including, without limitation, any financial statements or schedules
included or incorporated by reference therein, at the time filed (and, in the
case of registration statements and proxy statements, on the dates of
effectiveness and the dates of mailing, respectively) (a) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein (and, in
the case of any prospectus, in light of the circumstances under which they were
made), not misleading, and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be. The financial statements of the Company included in the Company SEC
Documents at the time filed (and, in the case of registration statements and
proxy statements, on the dates of effectiveness and the dates of mailing,
respectively) complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
10
Commission with respect thereto, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the Commission), and fairly
presented (subject, in the case of the unaudited interim financial statements,
to normal, recurring year-end audit adjustments consistent with past practice),
in all material respects, the consolidated financial position of the Company and
its consolidated subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.
3.28 Non-Public Information. The Company has not disclosed to the
Purchaser information that would constitute material non-public information as
of the Closing.
3.29 Disclosures. Neither this Agreement nor any Exhibit hereto,
nor any Ancillary Agreement nor any report, certificate or instrument furnished
by the Company to any of the Purchaser or its counsel in connection with the
transactions contemplated by this Agreement, when read together, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they were made, not
misleading. Each projection furnished was prepared in good faith based on
reasonable assumptions and represents the Company's best estimate of future
results based on information available as of the date of such projections.
3.30 Use of Purchaser Name. Except as may be required by
applicable law or regulation, the Company shall not use the Purchaser's name in
any advertisement, announcement, press release or other similar public
communication unless it has received the prior written consent of the Purchaser
for the specific use contemplated or as otherwise required by applicable law or
regulation.
4. Representations of the Purchaser. The Purchaser represents and
warrants to the Company as follows:
4.1 Investment. The Purchaser is acquiring the Shares for its own
account for investment and not with a view to, or for sale in connection with,
any distribution thereof, nor with any present intention of distributing or
selling the same; and, except as contemplated by this Agreement, and the
Exhibits hereto, the Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
4.2 Accredited Investor. The Purchaser is an "accredited investor"
as defined in Rule 501(a) under the Securities Act.
4.3 Authority. The Purchaser has full power and authority to enter
into and to perform this Agreement and the Ancillary Agreements in accordance
with their terms. If the Purchaser is a corporation, limited liability company,
partnership or trust represents that it has not been organized, reorganized or
recapitalized specifically for the purpose of investing in the Company.
4.4 Disclosure and Experience. Such Purchaser has carefully read
and reviewed the information, representations, and risks concerning the Company
contained in this Agreement, any Ancillary Agreement, and any exhibits or
schedules thereto or documents incorporated by reference therein, including but
not limited to those set forth in the "Risk Factors" section of the Company's
Annual Report on Form 10-KSB and in the Company's registration statement on Form
SB-2 (SEC File No. 333-137814). The officers of the Company have made available
to such Purchaser any and all written information which he, she or it has
requested and have answered to such Purchaser's satisfaction all inquiries made
by such Purchaser; and such Purchaser has sufficient knowledge and experience in
finance and business that he, she or it is capable of evaluating the risks and
merits of his, her or its investment in the Company and such Purchaser is able
financially to bear the risks thereof.
4.5 No Outside Representations. The Purchaser acknowledges that it
is not relying upon statements or representations by any person, firm or
corporation, other than the Company, in making its decision to invest in the
Company.
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4.6 Risk Factors. The Purchaser agrees and acknowledges that it
has been informed about and fully understands that there are risks associated
with an investment in the Company. Such risks may include, but not necessarily
be limited to, the risk that investment in the shares may be illiquid (as there
can be no guarantee that the registration statement to be filed will be declared
effective by the SEC), and that the Company may use the proceeds from the
offering in a way with which the investors may not agree, as well as the risk
factors set forth in the Company's public periodic filings, including filings on
Forms 10-KSB and 10-QSB. By signing below, the Purchaser acknowledges that it
has read or reviewed such public periodic filings, and recognizes and
acknowledges that an investment in the Company includes certain risks, not
limited to those listed herein and in the Company's public periodic filings.
4.7 Sole Party in Interest. The Purchaser represents and warrants
that it is the sole and true party in interest with respect to the Shares being
issued to it.
4.8 Investment Purpose. The Purchaser represents and warrants that
it is acquiring the Shares for its own account, for investment purposes, and not
for the account or benefit of any other person or entity or for or with a view
to resale or distribution thereof, and it has no present intention to effect any
distribution of the Shares, provided that the disposition of the Shares owned by
such Purchaser shall at all times be and remain within its control, subject to
the provisions of this Agreement and the Ancillary Agreements.
4.9 Knowledge and Experience. The Purchaser is experienced in
evaluating and making speculative investments, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of its investment in the Company. The Purchaser understands
that an investment in the Company is speculative and has concluded that its
proposed investment is appropriate in light of its overall investment objectives
and financial situation.
4.10 Disclosure; Access to Information. The Purchaser has
received, read and understands this Agreement; that all documents, records,
books and other information pertaining to its investment in the Company
requested by it have been made available for inspection and copying and there
are no additional materials or documents that have been requested by it that
have not been made available by or on behalf of the Company; and that it further
acknowledges that the Company is subject to the periodic reporting requirements
of the Exchange Act, and it has reviewed or received copies of any such reports
that have been requested by it. Without limiting the generality of the
foregoing, the Purchaser acknowledges that it has received and reviewed copies
of the following documents and materials, all of which are incorporated herein
by reference: (a) Annual Report on Form 10-KSB for the fiscal year ended
September 30, 2005 (the "2005 10-KSB"); (b) Quarterly Reports on Form 10-QSB for
the quarters ended December 31, 2005, March 31, 2006, and June 30, 2006 (the
"10-QSBs"); and (c) the Company's Proxy Statement, dated June 6, 2006, for the
Company's 2006 Annual Meeting of Shareholders held on July 10, 2006 (the "2006
Proxy Statement").
4.11 Accuracy of Representations and Information. All
representations made by the Purchaser in this Agreement, and all information
provided by it to the Company concerning it, are correct and complete in all
material respects as of the date hereof, and further that if there is any
material change in such information before the Closing Date and the issuance of
the Shares, it promptly will provide such information to the Company.
4.12 Tax Matters. The Purchaser represents and warrants that it
has reviewed and understands the U.S. federal and any applicable state income
tax aspects of its purchase of the Shares, and has received such advice in this
regard as it deems necessary from qualified sources such as attorneys, tax
advisors or accountants, and is not relying on any representative or employee of
the Company for such advice.
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4.13 Manner of Sale. The Purchaser represents and warrants that at
no time was such Purchaser presented with or solicited by or through any
leaflet, public promotional meeting, television advertisement or any other form
of general solicitation or advertising.
4.14 Liquidity. The Purchaser presently has sufficient liquid
assets to pay the Purchase Price for all Shares to be purchased by it hereunder,
has adequate means of providing for its current needs and contingencies and has
no need for liquidity in its investment in the Company or for a source of income
from the Company and is capable of bearing the economic risk and the burden of
the investment contemplated by this Agreement including, but not limited to, the
possibility of the complete loss of the value of the Shares and the limited
transferability of the Shares, which may make the liquidation of the Shares
impossible in the near future.
4.15 Absence of Conflicts. Neither the execution and delivery of
this Agreement or any other agreement or instrument to be executed in connection
therewith, nor the consummation of the transactions contemplated thereby and
compliance with the requirements thereof, will violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on the
Purchaser, or the provision of any indenture, instrument or agreement to which
it is a party or is subject, or by which it or any of its properties is bound,
or conflict with or constitute a material default thereunder, or result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by or
to it to any third party, or require the approval of any third party pursuant to
any material contract, agreement, instrument, relationship or legal obligation
to which it is subject or to which any of its properties, operations or
management may be subject. If the Purchaser is, or is purchasing Shares on
behalf of, a mutual fund, venture capital fund, investment partnership, or other
entity formed for the purpose of group investing on behalf of fund equity owners
(an "Investment Fund"), the Purchaser has made its own determination of the
suitability of an investment in Shares for the Investment Fund and an investment
in Shares satisfies all diversification, liquidity and other requirements
applicable to an investment by such Investment Fund.
5. Transfer of Shares.
5.1 Restricted Shares. "Restricted Shares" means (a) the Shares,
and (b) any other shares of capital stock of the Company issued in respect of
such shares (as a result of stock splits, stock dividends, reclassifications,
recapitalizations or similar events); provided, however, that shares of Common
Stock which are Restricted Shares shall cease to be Restricted Shares (x) upon
any sale pursuant to a registration statement under the Securities Act, Section
4(1) of the Securities Act or Rule 144 under the Securities Act or (y) at such
time as they become eligible for sale under Rule 144(k) under the Securities
Act.
5.2 Requirements for Transfer.
(a) Restricted Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Securities
Act, or (ii) the Company first shall have been furnished with an opinion of
legal counsel, reasonably satisfactory to the Company, to the effect that such
sale or transfer is exempt from the registration requirements of the Securities
Act.
(b) Notwithstanding the foregoing, no registration or
opinion of counsel shall be required for (i) a transfer by the Purchaser to an
Affiliated Party (as such term is defined below) of such Purchaser, (ii) a
transfer by the Purchaser which is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner, or (iii) a
transfer by the Purchaser which is a limited liability company to a member of
such limited liability company or a retired member who resigns after the date
hereof or to the estate of any such member or retired member; provided that the
transferee in each case agrees in writing to be subject to the terms of this
13
Section 5 to the same extent as if it were the original Purchaser hereunder, or
(iv) a transfer made in accordance with Rule 144 under the Securities Act. For
purposes of this Agreement "Affiliated Party" shall mean, with respect to the
Purchaser, any person or entity which, directly or indirectly, controls, is
controlled by or is under common control with such Purchaser, including, without
limitation, any general partner, officer or director of such Purchaser and any
venture capital fund now or hereafter existing which is controlled by one or
more general partners of, or shares the same management company as, such
Purchaser.
5.3 Legend. Each certificate representing Restricted Shares shall
bear a legend substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE
REGISTERED UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED."
The foregoing legend shall be removed from the certificates
representing any Restricted Shares, at the request of the holder thereof, at
such time as they become eligible for resale pursuant to Rule 144(k) under the
Securities Act.
5.4 Rule 144 Information. The Company agrees to use its
commercially reasonable efforts to (a) make and keep current public information
regarding the Company available, as those terms are understood and defined in
Rule 144 under the Securities Act, at all times from and after the date hereof;
(b) file with the United States Securities and Exchange Commission (the "SEC")
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act, at all times from and after the date
hereof; and (c) furnish to the Purchaser upon request a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as such Purchaser may reasonably request in availing itself of any rule
or regulation of the SEC allowing such Purchaser to sell any such securities
without registration.
5.5 Rule 144A Information. The Company shall, at all times during
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under
the Exchange Act, upon the written request of any Purchaser, provide in writing
to such Purchaser and to any prospective transferee of any Restricted Shares of
such Purchaser the information concerning the Company described in Rule
144A(d)(4) under the Securities Act ("Rule 144A Information"). The Company also
shall, upon the written request of any Purchaser, cooperate with and assist such
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Restricted Shares for trading through PORTAL. The Company's obligations
under this Section shall at all times be contingent upon receipt from the
prospective transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than persons who will assist such transferee in evaluating the
purchase of any Restricted Shares.
6. Indemnification.
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6.1 The Company hereby agrees to indemnify, defend and hold
harmless the Purchaser and its respective affiliates, directors, officers,
trustees, employees and representatives (any of the foregoing, a "Purchaser
Indemnified Party"), from and against any and all causes of actions, suits,
losses, liabilities, claims, obligations, damages, deficiencies, costs and
expenses, fines or penalties, including interest, reasonable attorneys' fees and
all reasonable amounts paid in investigation, defense or settlement of any of
the foregoing ("Losses") suffered, sustained, incurred or required to be paid by
any such Purchaser Indemnified Party due to, based upon or arising out of any
(i) misrepresentation or breach of a representation, warranty or covenant of the
Company contained in this Agreement or in the Ancillary Documents; (ii) untrue
statement or alleged untrue statement of any material fact contained in a
Registration Statement (as defined in Section 7 below) or any other registration
statement contemplated by this Agreement, or any amendment or supplement
thereof, or out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading (provided, however, that the Company will not
be liable in any such case if and to the extent that any such Losses arise out
of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by such
Purchaser Indemnified Party, its directors, officers, employees or agents in
writing specifically for use in the Registration Statement or such other
registration statement, as applicable); and (iii) violation by the Company of
any rule or regulation promulgated under the Securities Act or Exchange Act
applicable to the Company in connection with any registration, qualification, or
compliance of the Shares under Section 7 of this Agreement. The Company shall
pay each Purchaser Indemnified Party, in cash, for all Losses.
6.2 The Purchaser hereby agrees to indemnify, defend and hold
harmless the Company and its affiliates, directors, officers, trustees,
managers, employees and representatives (any of the foregoing, a "Company
Indemnified Party"), from and against any Losses suffered, sustained, incurred
or required to be paid by any such Company Indemnified Party due to, based upon
or arising out of any material inaccuracy in, or any material breach of, a
representation or warranty of such Purchaser contained in this Agreement.
6.3 To the extent that this Section 6 may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Losses which is permissible under applicable law.
7. Registration Rights.
7.1 The Company agrees that, not later than ten (10) days after
the Company files with the Commission its Annual Report on Form 10-KSB (the
"Filing Deadline"), which shall be filed as soon as possible after September 30,
2006, but in no event later than ninety (90) days after September 30, 2006 and
shall meet the criteria specified in respect of the Company SEC Reports (and
financial statements contained therein) as set forth in Section 3.27 of this
Agreement, the Company will file with the Commission, on Form SB-2 or such other
form as is available to the Company, a registration statement (the "Registration
Statement") with respect to all of the Shares and the shares issuable upon
exercise of the Warrants (the "Warrant Shares"), to register the resale by the
Purchaser of the Shares and the Warrant Shares. The Company shall use its
commercially reasonable efforts to cause the Registration Statement to become
effective within thirty (30) days after the date of the initial filing of the
Registration Statement, and in any event as promptly as possible after such
initial filing date. If the SEC provides comments to the Registration Statement,
the Company will respond to such comments within the shortest time reasonably
possible, and in any event within ten (10) business days of receipt of such
comments. The Company will use its commercially reasonable efforts to cause the
Registration Statement to be continuously effective under the Securities Act
until the earliest of: (i) when all such Shares and Warrant Shares are sold by
15
the Purchaser; and (ii) when all of the Shares and Warrant Shares become
eligible for resale under Rule 144(k) (or any successor provision then in force)
under the Securities Act (the "Effectiveness Period"). The Registration
Statement, when declared effective (including the documents incorporated therein
by reference), will comply as to form with all applicable requirements of the
Securities Act and the Exchange Act and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
7.2 The parties hereby agree that in the event that (a) the
Company does not file the Registration Statement by the Filing Deadline, (b) the
Company does not respond to any SEC comments within ten (10) days of receipt
thereof or (c) the Registration Statement is not declared effective within one
hundred (100) days of the initial filing date of the Registration Statement, the
Company shall issue to the Purchaser, as liquidated damages and not as a
penalty, an additional number of shares equal to five percent (5%) of the
aggregate number of Shares purchased by such Purchaser hereunder. The parties
further agree that (i) for the thirty- (30-) day period which begins on the
thirty-first (31st) day following the Filing Deadline, and for each successive
thirty- (30-) day period, during which the Company has not filed the
Registration Statement, the Company shall issue to the Purchaser, as liquidated
damages and not as a penalty, an additional number of shares equal to five
percent (5%) of the aggregate number of Shares purchased by such Purchaser
hereunder; and (ii) for the thirty- (30-) day period which begins on the one
hundred first (101st) day following the filing of the Registration Statement,
and for each successive thirty- (30-) day period during which the Registration
Statement is not effective, the Company shall pay to the Purchaser, in
immediately available funds, as liquidated damages and not as a penalty, an
amount equal to five percent (5%) of the aggregate Purchase Price paid by such
Purchaser in accordance with Section 1.2 hereof.
7.3 If the Registration Statement is filed and declared effective
but, during the Effectiveness Period, shall thereafter cease to be effective or
fail to be usable for its intended purpose, and such suspension shall not be
lifted or failure shall not be remedied within sixty (60) business days, by the
filing of a post-effective amendment to the Registration Statement or otherwise,
then, on the sixty-first (61st) day thereafter and for each successive thirty-
(30-) day period thereafter until such suspension is lifted or such failure is
remedied, the Company shall pay to the Purchaser, in immediately available
funds, as liquidated damages and not as a penalty, an amount equal to five
percent (5%) of the amount of the Purchase Price paid by such Purchaser
corresponding to the number of shares held by such Purchaser at the time that
the Registration Statement ceases to be effective or fails to be usable for its
intended purpose. For example, assume that a hypothetical Purchaser pays an
aggregate purchase price of $130,000, and purchases 100,000 shares, and then
sells 50,000 of those shares. If the Registration Statement then ceases to be
effective as set forth above, the amount of liquidated damages will be five
percent (5%) of $65,000 (the purchase price relating to the remaining 50,000
shares held by the Purchaser), or $3,250 (65,000 x 0.05 = 3,250).
7.4 If at any time within two years from the date of Closing, the
Company proposes to file (i) a prospectus supplement to an effective shelf
registration statement, including the Registration Statement, or (ii) any other
registration statement in an underwritten offering for its own account, then, as
soon as practicable, the Company shall give notice of such proposed offering or
filing to the Purchaser and such notice shall offer such Purchaser the
opportunity to include in such underwritten offering or other registration
statement such number of Shares as such Purchaser may request in writing.
7.5 The Company will pay all costs, fees and expenses incurred in
connection with the Company's compliance under this Section 7 to effect the
registration of the Shares, including, without limitation, in connection with
the preparation, filing and maintenance of the Registration Statement.
8. Right of First Refusal.
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8.1 For a period of 180 days after the date of this Agreement (the
"Right of First of Refusal Period"), the Company shall not, directly or
indirectly, without the prior written consent of the Purchaser, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition ) any of its
securities or enter into an agreement or arrangement with any other person
regarding the foregoing (a "Subsequent Financing") without first providing the
Purchaser the option and right of first refusal to invest in or otherwise
provide (or cause its designee to provide) such Subsequent Financing (the "Right
of First Refusal"), provided that this Right of First Refusal applies only to
Subsequent Financings (or a portion thereof, if applicable) until they have
generated aggregate net proceeds to the Company of Thirty Million Dollars
($30,000,000).
8.2 Notwithstanding Section 8.1, the Right of First Refusal shall
not be applicable to (i) the granting of options or warrants to the Company's
employees, officers and directors, and the issuance of shares upon exercise of
options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company, (ii) shares issued upon conversion or exercise of any
currently outstanding preferred stock, warrants, or options, (iii) shares issued
in connection with the capitalization or creation of a joint venture with a
strategic partner (a Person whose business is primarily that of investing and
selling of securities shall not be deemed a strategic partner), (iv) shares
issued to pay part or all of the purchase price for the acquisition by the
Company of a Person (which, for purposes of this clause (iv), shall not include
an individual or group of individuals) and (v) shares issued in a bona fide
public offering by the Company of its (and not of any of its stockholders')
securities.
8.3 The Company hereby agrees that in the event that the Company
does plan to initiate a Subsequent Financing, the Company shall deliver to the
Purchaser a written notice (the "Subsequent Financing Notice") of its intention
to effect such Subsequent Financing, which Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing shall be effected, and attached to which shall be a
term sheet or similar document relating thereto. Within fourteen (14) days of
the Purchaser's receipt of the Subsequent Financing Notice, the Purchaser shall
notify the Company of its willingness to enter into or otherwise provide (or to
cause its designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on substantially the terms set forth in
the Subsequent Financing Notice. Promptly thereafter the parties shall negotiate
in good faith regarding the Purchaser's and/or its designed participation in the
Subsequent Financing. If the Purchaser shall fail to so notify the Company
within the fourteen (14) day period, or the parties fail to reach agreement
pursuant to such negotiation within forty-five (45) days of the date of the
Purchaser's receipt of the Subsequent Financing Notice, the Company may effect
the Subsequent Financing substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide the Purchaser with a second Subsequent
Financing Notice, and the Purchaser shall again have the right of first refusal
set forth in this Section 8 (regardless of whether the Right of First Refusal
Period has lapsed), if the Subsequent Financing subject to the initial
Subsequent Financing Notice shall not have been consummated for any reason on
the terms set forth in such Subsequent Financing Notice within ninety (90)
trading days after the date of the initial Subsequent Financing Notice with the
Person (or an Affiliate of such Person) identified in the Subsequent Financing
Notice.
9. Marketing and Distribution Right.
9.1 During the two-year period following the date hereof (the
"Distribution Right Period"), the Company shall not Market or Distribute, or
enter into any agreement or contract or otherwise make arrangements with another
Person (whether or not an Affiliate) to Market or Distribute, any of its
[products or services] ("Products") anywhere in Europe or Asia (the
"Territories", which shall not include the United Kingdom or the Republic of
Ireland, as to which the Company shall retain all marketing and distribution
rights), except in accordance with this Section 9. For purposes of this Section
9, the term "Distribute" shall refer to all activities relating to the
distribution, storage, and handling of Products, and the term "Market" shall
refer to all activities relating to the advertising, promotion and other
marketing of Products.
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9.2 The Company hereby agrees that in the event that the Company
determines to Market and/or Distribute its Products in any Territory during the
Distribution Right Period, the Company shall deliver to the Purchaser a written
notice (the "Distribution Proposal") of such determination, which Distribution
Proposal shall describe in reasonable detail the proposed terms on which it
intends to Market and/or Distribute the Products, the relevant Territories, the
Person (if other than the Company) who would effect such Marketing and/or
Distribution and an indication of whether the terms of the Distribution Proposal
have been proposed by such other Person (in which case such Distribution
Proposal shall attach any term sheet or other proposal form provided by such
Person). Within thirty (30) days of receipt of a Distribution Proposal, the
Purchaser shall notify the Company of its willingness to enter into an
arrangement (a "Distribution Agreement"), subject to completion of mutually
acceptable documentation, to Market and/or Distribute the Products in one or
more of the relevant Territories on substantially the terms set forth in the
Distribution Proposal. Upon receipt of such notice, the Company shall thereafter
exclusively negotiate with the Purchaser to agree upon the terms of a
Distribution Agreement, which shall include, without limitation, a right of the
Purchaser to assign, delegate or sublicense its rights to a third party (subject
to the approval of the Company, which shall not be unreasonably withheld). The
parties shall negotiate in good faith over the sixty (60) days following the
date of the notice from the Purchaser to agree upon and enter into a
Distribution Agreement. If within such sixty (60) day period the parties have
not agreed upon final terms for a Distribution Agreement, the Purchaser shall
have a further seven (7) days to make a final offer to the Company (the "Final
Offer"). The Company may accept the Final Offer at any time prior to the
expiration of ninety (90) days after the date of the Final Offer.
9.3 If (a) the Purchaser does not respond to a Distribution
Proposal and/or declines the right to negotiate with respect to one or more
Territories specified in such Distribution Proposal within the thirty (30) day
period specified in Section 9.2 or (b) the parties do not agree upon final terms
of a Distribution Agreement within the sixty (60) day negotiation period
specified in Section 9.2, the Company shall thereafter be free to negotiate with
other Persons regarding Marketing and/or Distribution arrangements in the
relevant Territories; provided, however, that the Company shall not accept terms
that are less favorable to the Company than the Distribution Proposal or Final
Offer, as applicable; and provided, further, that prior to entering into a
binding agreement on such terms the Company shall deliver to the Purchaser a
written notice (the "Final Distribution Proposal"), and the Purchaser may, by
notice given to the Company not later than five (5) days after receipt of the
Final Distribution Proposal, agree to the terms set forth therein, and the
Company shall enter into a Distribution Agreement on such terms with the
Purchaser in lieu of any agreement with another Person.
10. Miscellaneous.
10.1 Successors and Assigns. This Agreement, and the rights and
obligations of the Purchaser hereunder, may be assigned by such Purchaser to (a)
any person or entity to which Shares are transferred by such Purchaser, or (b)
to any affiliate, partner, member, stockholder or subsidiary of such Purchaser,
and, in each case, such transferee shall be deemed a "Purchaser" for purposes of
this Agreement; provided that each such assignment of rights shall be contingent
upon the transferee providing a written instrument to the Company notifying the
Company of such transfer and assignment and agreeing in writing to be bound by
the terms of this Agreement. The Company may not assign its rights under this
Agreement.
10.2 Survival of Representations and Warranties. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closings of the transactions contemplated
hereby.
10.3 Brokers. The Company and the Purchaser each (a) represents
and warrants to the other parties hereto that he, she or it has not retained a
finder or broker in connection with the transactions contemplated by this
Agreement, and (b) will indemnify and save the other parties harmless from and
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against any and all claims, liabilities or obligations with respect to brokerage
or finders' fees or commissions, or consulting fees in connection with the
transactions contemplated by this Agreement asserted by any person on the basis
of any statement or representation alleged to have been made by such
indemnifying party.
10.4 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
10.5 Specific Performance. In addition to any and all other
remedies that may be available at law in the event of any breach of this
Agreement, the Purchaser shall be entitled to specific performance of the
agreements and obligations of the Company hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York (without
reference to the conflicts of law provisions thereof), as to all other matters.
10.7 Notices. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall be deemed
delivered (a) three business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (b) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at
RemoteMDx, Inc.
000 Xxxx Xxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxx, Xxxx 00000
Attn: Xxxxxxx X. Xxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
With a copy (which shall not constitute notice), to
Durham Xxxxx & Xxxxxxx, P.C.
000 Xxxx Xxxxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxx X. Xxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
If to a Purchaser, at
VATAS Holding GmbH
Xxxxxxxxxxxxxxxx 00
00000 Xxxxxx
Xxxxxxx
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With a copy (which shall not constitute notice), to
Xxxxxxxx & Xxxxxxxx
City Point
One Xxxxxxxxx Xxxxxx
Xxxxxx XX0X 0XX
Xxxxxx Xxxxxxx
Attn: Xxxxxxxx Xxxxxxx
Telephone No.: x00 (0)00 0000 0000
Facsimile No.: x00 (0)00 0000 0000
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
10.8 Complete Agreement. This Agreement (including its Exhibits)
constitutes the entire agreement and understanding of the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter.
10.9 Amendments and Waivers. This Agreement may be amended or
terminated and the observance of any term of this Agreement may be waived with
respect to all parties to this Agreement (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
both the Company and the Purchaser. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
10.10 Press Release. The parties hereby agree that they will work
together to prepare and issue a joint press release announcing the investment in
the Company by the Purchaser, and that the parties anticipate that such
announcement shall be made on ____________, November ___, 2006.
10.11 Pronouns. Whenever the context may require, any pronouns
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural, and vice versa.
10.12 Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which shall constitute one and the same document. This
Agreement may be executed by facsimile signatures.
10.13 Section Headings and References. The section headings are
for the convenience of the parties and in no way alter, modify, amend, limit or
restrict the contractual obligations of the parties. Any reference in this
agreement to a particular section or subsection shall refer to a section or
subsection of this Agreement, unless specified otherwise.
-Remainder of Page Intentionally Left Blank-
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Executed as of the date first written above.
COMPANY:
REMOTEMDX, INC.
_______________________________
By: ____________________________
PURCHASER:
VATAS HOLDING GMBH
______________________________
By:___________________________
Name: ________________________
Title: _________________________
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EXHIBIT A
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Form of Warrant
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