STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of January 4,
2001, is made by and among Nexsan Corporation, a Delaware corporation (the
"Company"), the Company's wholly-owned subsidiary Nexsan Technologies Limited, a
United Kingdom corporation ("Nexsan"), and Xxxxxx Xxxxx (the "Control
Shareholder"), and the purchasers set forth on Schedule A hereto (each an
"Investor" and, collectively, the "Investors").
W I T N E S S E T H:
WHEREAS, the Investors have reviewed a copy of Nexsan's business plan
dated December 14, 2000, a copy of which is attached hereto as Exhibit A (the
"Business Plan"); and
WHEREAS, on the basis of the information contained in the Business
Plan, the Investors desire to acquire an equity interest in the Company; and
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Investors and the
Investors desire to purchase from the Company an aggregate of 4,600,000 shares
(each a "Share" and, collectively, the "Shares") of the Company's common stock,
par value $.001 per share ("Common Stock"), representing 25.6% of the total
number of Common Stock outstanding shares on the Closing Date (as hereafter
defined) after giving effect to the sale of the Shares contemplated hereby, upon
the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
PURCHASE OF SHARES
1.01 Purchase. At the Closing provided for and defined in
Section 1.02 hereof, the Company shall issue and sell to the Investors, and the
Investors shall purchase from the Company the Shares at a purchase price of $.66
per Share, and the Company shall issue to the Investors certificates evidencing
the Shares. The number of Shares purchased by the Investors shall be equal to
approximately 25.6% of the total number of shares of Common Stock outstanding
after giving effect to the sale of the Shares.
1.02 Closing. Subject to the provisions of Articles VII and
VIII hereof, the Closing of the transactions contemplated hereby shall take
place at the offices of Xxxxx Xxxx LLP, 30 Rockefeller Plaza, New York, New
York, on January 4, 2000 or at such other place or on such other day as the
parties may mutually agree. At the Closing, the Company shall deliver to the
Investors certificates representing the Shares to be purchased by said Investors
pursuant to Section 1.01 hereof, free of all claims, liens and encumbrances
whatsoever, and all other documents required to be delivered by the Company to
the Investors as described herein, and all other documents required to be
delivered hereby and each Investor shall deliver to the Company the aggregate
amount required to be paid pursuant to Section 1.01 hereof for the Shares to be
purchased in checks made payable to the Company, or in immediately available
federal funds by wire transfer.
ARTICLE II
DEFINITIONS
2.01. Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
"Adverse Consequences" means all claims, losses, damages,
liabilities, fees and expenses, including, without limitation, settlement costs
and any legal, accounting or other fees and expenses, suffered or incurred by
the Investors in connection with any breach of this Agreement as provided in
ARTICLE X hereof.
The terms "Affiliate" means, with respect to any Person, any
other Person that directly or indirectly controls or is controlled by or under
common control with such Person. For the purposes of this definition, "control,"
when used with respect to any Person, means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Balance Sheet" means the unaudited consolidated balance sheet
of the Company referred to in Section 3.06(ii) of this Agreement.
"Beechtree" means Beechtree Capital, Ltd.
"Beechtree Consulting Agreement" means the consulting
agreement between the Company and Beechtree referred to in section 5.07 hereof.
"Business Plan" means the business plan prepared by the
Company dated December 14, 2000, describing the business and financial condition
of the Company and setting forth certain revenue and earnings projections of the
Company, a copy of which is attached hereto as Exhibit A.
"Closing" means the closing referred to in Section 1.02 of
this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Company" means Nexsan Technologies Incorporated, a
corporation formed under the laws of the State of Delaware.
"Company Affiliate" means each Affiliate of the Company.
"Company Subsidiary" means any corporation of which the
Company (a) directly or indirectly owns or controls at the time outstanding
shares of stock which have in ordinary circumstances (not dependent upon the
happening of a contingency) voting power to elect a majority of the board of
directors of said corporation, or (b) of which shares of stock of the character
described in the foregoing clause (a) shall at the time be owned or controlled
directly or indirectly by the Company and one or more Company Subsidiaries as
defined in the foregoing clause (a) or by one or more such Company Subsidiaries.
"Control Shareholder" means Xxxxxx Xxxxx, the principal
shareholder of Nexsan Technologies, Inc."
"Direct" means Direct Brokerage Inc.
"Direct Services Agreement" means the services agreement
between the Company and Direct referred to in Section 5.12 hereof.
"Disclosure Schedule" means the document delivered by the
Company to the Investors simultaneously with the execution hereof containing the
information required to be included therein pursuant to this Agreement.
"Material" The word "material," when used herein in
reference to the Company or any Company Subsidiaries, means material in respect
of the Company and Company Subsidiaries taken as a whole and in each and every
case is used as such word is used in the Federal securities laws. Inclusion of
information on a schedule delivered pursuant to this Agreement does not
constitute an admission or acknowledgment of the materiality of such
information.
"Material Adverse Effect" means any action or failure to act
that either: (i) adversely affect the legality, validity or enforceability of
this Agreement, (ii) have a material adverse effect on the results of
operations, assets, prospects, or financial condition of the Company and the
Company Subsidiaries, taken as a whole, or (iii) adversely impairs the Company's
ability to perform fully on a timely basis its obligations under this Agreement.
"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.
"Prospectus" means the prospectus included in the Registration
Statement.
"Registration Rights Agreement" means the Registration Rights
Agreement entered into by the Company and the Investors dated the date hereof
whereby the Company agrees to register the Shares for public resale under the
Securities Act, a copy of which is attached hereto as Exhibit D.
"Registration Statement" means the registration statement
referred to in Section 5.13 of this Agreement.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Transactions Documents" means this Stock Purchase Agreement,
the Registration Rights Agreement executed by the Company and the Investors
simultaneous herewith, the Beechtree Consulting Agreement and the Direct
Services Agreement.
The plural of any defined term shall have a meaning
correlative to such defined term.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY, NEXSAN AND THE CONTROL SHAREHOLDER
The Company, Nexsan and the Control Shareholder hereby jointly and
severally represent and warrant to the Investors as follows:
3.01 Corporate Organization; Etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns; is duly qualified or licensed to do business as a foreign corporation
in good standing in the jurisdictions listed in Section 3.01 of the Disclosure
Schedule, which are all the jurisdictions in which such qualification is
required except jurisdictions in which the Company's failure to qualify to do
business will have no "Material Adverse Effect" on the business, prospects,
operations, properties, assets or condition (financial or otherwise) of the
Company and the Company Subsidiaries. True and complete copies of the
Certificate of Incorporation and By-Laws of the Company are attached hereto as
Exhibits B and C, respectively.
3.02 Capitalization of the Company. As of the date of this
Agreement, the authorized capital stock of the Company consists of 90,000,000
shares of Common Stock, $.001 par value per share, of which 9,050,000 shares are
issued and outstanding, and 10,000,000 shares of blank check preferred stock,
$.001 par value per share, of which no shares are outstanding, and no options to
purchase shares of Common Stock issued pursuant to the Company's 2000 Share
Option Plan. All issued and outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable. No shares of Common Stock are
entitled to preemptive or similar rights, nor is any holder of the Common Stock
entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as disclosed in Schedule 3.02(a), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, securities, rights or obligations convertible into
or exchangeable for, or giving any person any right to subscribe for or acquire
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Company Subsidiary is or may become
bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of the
Company, except as specifically disclosed in Section 3.02(a) of the Disclosure
Schedule, no Person beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act) or has the right to acquire by
agreement with or by obligation binding upon the Company, beneficial ownership
of in excess of 5% of the Common Stock. Except for the registration rights
granted to the Investors and to the certain members of the Company's management
named in the Registration Rights Agreement, there are no agreements or
arrangements under which the Company or any Company Subsidiary is obligated to
register the sale of any of their securities under the Securities Act.
3.03 Subsidiaries and Affiliates. Section 3.03(a) of the
Disclosure Schedule sets forth the name, jurisdiction of incorporation and
capitalization of each Company Subsidiary and the jurisdictions in which each
Company Subsidiary is qualified to do business. Except as disclosed in Section
3.03(b) of the Disclosure Schedule, the Company does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity or ownership interest in any business not
listed in Section 3.03(a) of the Disclosure Schedule. Except as and to the
extent set forth in Section 3.03(a) of the Disclosure Schedule, all the
outstanding capital stock of each Company Subsidiary is owned directly or
indirectly by the Company free and clear of all liens, options or encumbrances
of any kind and all material claims or charges of any kind, and is validly
issued, fully paid and nonassessable, and there are no outstanding options,
rights or agreements of any kind relating to the issuance, sale or transfer of
any capital stock or other equity securities of any such Company Subsidiary to
any person except the Company. Each Company Subsidiary (i) is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation; and (ii) has full corporate power and authority
to carry on its business as it is now being conducted and to own the properties
and assets it now owns. Each Company Subsidiary is duly qualified to do business
and is in good standing as a foreign
corporation in each jurisdiction listed opposite the name of such Company
Subsidiary in Section 3.03(a) of the Disclosure Schedule, which are the only
jurisdictions in which the properties owned or leased or the nature of the
business conducted by it makes such qualification necessary. The Company has
heretofore delivered to Beechtree complete and correct copies of the certificate
of incorporation and by-laws of each Company Subsidiary, as presently in effect.
3.04 Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Company. This Agreement
has been duly executed by the Company and when delivered in accordance with the
terms hereof shall constitute the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, by-laws or other charter documents.
3.05 No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
violate any provision of the Certificate of Incorporation or By-Laws of the
Company or any Company Subsidiary, or, except as specified in Section 3.05 of
the Disclosure Schedule, violate, or be in conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or cause the acceleration of the maturity of any debt
or obligation pursuant to, or result in the creation or imposition of any
security interest, lien or other encumbrance upon any property or assets of the
Company or any Company Subsidiary under, any agreement or commitment to which
the Company or any Company Subsidiary is a party or by which the Company or any
Company Subsidiary is bound, or to which the property of the Company or any
Company Subsidiary is subject, or violate any statute or law or any judgment,
decree, order, regulation or rule of any court or governmental authority.
3.06 Financial Statements. Attached hereto as Schedule B is:
(i) an unaudited balance sheet of the Company's wholly-owned subsidiary, Nexsan
Technologies Limited, a United Kingdom corporation as at March 31, 2000; and
statements of income, changes in stockholders' equity and changes in financial
position of Nexsan Technologies Limited for the fiscal year then ended; and (ii)
an unaudited balance sheet of Nexsan Technologies Limited as at September 30,
2000 (the "Balance Sheet"), and unaudited consolidated statements of income,
changes in stockholders' equity and changes in financial position of Nexsan
Technologies Limited for the six (6) month period then ended. The financial
statements set forth in Schedule B do not include
financial information relating to the Company nor the Company's wholly-owned
United States subsidiary, Nexsan Technologies Corp. The financial statements are
prepared in British Pounds Sterling in accordance with United States generally
accepted accounting principles. Such consolidated balance sheets and the notes
thereto are true, complete and accurate and fairly present the consolidated
assets, liabilities and financial condition of Nexsan Technologies Limited as at
the respective dates thereof, and such statements of income, changes in
stockholders' equity and changes in financial position and the notes thereto are
true, complete and accurate and fairly present the results of operations for the
periods therein referred to; all in accordance with United States generally
accepted accounting principles consistently applied throughout the periods
involved except, in the case of unaudited statements, for normally recurring
year-end adjustments, which adjustments will not be material either individually
or in the aggregate.
3.07. No Undisclosed Liabilities; Etc. Neither the Company nor
any Company Subsidiary has any material liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise) which were not fully reflected or
reserved against in the Balance Sheet, except for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
since the date thereof; and the reserves reflected in the Balance Sheet are
adequate, appropriate and reasonable.
3.08 Accounts Receivable. All accounts receivable of the
Company and each Company Subsidiary, whether reflected in the Balance Sheet or
otherwise, represent sales actually made in the ordinary course of business, and
are current and collectible net of any reserves shown on the Balance Sheet
(which reserves are adequate and were calculated consistent with past practice).
3.09 Absence of Certain Changes. Except as set forth in
Section 3.09 of the Disclosure Schedule, since the date of the Balance Sheet,
neither the Company nor any Company Subsidiary has effected, suffered or granted
(as the case may be):
(a) any change in the assets, liabilities, financial
condition or operating results from that reflected in the Financial Statements,
except changes in the ordinary course of business that have not been, in the
aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting its assets, properties,
financial condition, operations, results, prospects or business (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver of a valuable right or of a material
debt owed to it;
(d) any satisfaction or discharge of any lien, claim
or encumbrance or payment of any obligation, except in the ordinary course of
business and that is not material to its assets, properties, financial
condition, operating results or business (as such business is presently
conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material
contract or arrangement by which the Company or any Company Subsidiary or any of
their respective assets or properties are bound or subject;
(f) any material change in any compensation
arrangement or agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of
any key officer; and the Company, to the best of its knowledge, does not know of
the impending resignation or termination of employment of any such officer;
(i) receipt of notice that there has been a loss of,
or material order cancellation by, any major customer;
(j) any mortgage, pledge, transfer of a security
interest in, or lien, created, with respect to any material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made to or for the
benefit of the employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(1) any declaration, setting aside or payment or
other distribution in respect of any capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock;
(m) to the best of the Company's knowledge, any
other event or condition of any character that might materially and adversely
affect the assets, properties, financial condition, operating results or
business of the Company or any Company Subsidiary (as such business is presently
conducted and as it is proposed to be conducted); or
(n) any agreement or commitment by the Company or
any Company Subsidiary to do any of the things described in this Section 3.09.
3.10 Title to Properties; Encumbrances. Each of the Company
and the Company Subsidiaries has good, valid and marketable title to all the
properties and assets which it purports to own (real, personal and mixed,
tangible and intangible), including, without limitation, all the properties and
assets reflected in the Balance Sheet (except for personal property having an
aggregate book value not in excess of $10,000 sold since the date of the Balance
Sheet in the ordinary course of business and consistent with past practice), and
all the properties and assets purchased by the Company and Company Subsidiaries
since the date of the Balance Sheet, which subsequently acquired properties
and assets (other than inventory and short term investments) are listed in
Section 3.10 of the Disclosure Schedule. All properties and assets reflected in
the Balance Sheet have a fair market or realizable value at least equal to the
value thereof as reflected therein, and all such properties and assets are free
and clear of all title defects or objections, liens, claims, charges, security
interests or other encumbrances of any nature whatsoever including, without
limitation leases, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest retention arrangements, and
are not, in the case of real property, subject to any rights of way, building
use restrictions, exceptions, variances, reservations or limitations of any
nature whatsoever except, with respect to all such properties and assets, (a)
liens shown on the Balance Sheet as securing specified liabilities or
obligations and liens incurred in connection with the purchase of property
and/or assets, if such purchase was effected after the date of the Balance
Sheet, with respect to which no default exists; (b) minor imperfections of
title, if any, none of which are substantial in amount, materially detract from
the value or impair the use of the property subject thereto, or impair the
operations of the Company or any Company Subsidiary and which have arisen only
in the ordinary course of business and consistent with past practice since the
date of the Balance Sheet; and (c) liens for current taxes not yet due. The
rights, properties and other assets presently owned, leased or licensed by the
Company and/or the Company Subsidiaries and described elsewhere in this
Agreement include all rights, properties and other assets necessary to permit
the Company and the Company Subsidiaries to conduct their businesses in all
material respects in the same manner as their businesses have been conducted
prior to the date hereof.
3.11 Plant and Equipment. The plants, structures and equipment
of the Company and each Company Subsidiary are structurally sound with no known
defects and are in good operating condition and repair and are adequate for the
uses to which they are being put; and none of such plants, structures or
equipment are in need of maintenance or repairs except for ordinary, routine
maintenance and repairs which are not material in nature or cost. Except as set
forth in Section 3.11 of the Disclosure Schedule, neither the Company nor any
Company Subsidiary has received notification that it is in violation of any
applicable building, zoning, anti-pollution, health or other law, ordinance or
regulation in respect of its plants or structures or their operations and no
such violation exists.
3.12 Patents, Trademarks, Trade Names, Etc. The Company and
each Company Subsidiary has sufficient title and ownership of all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes necessary for its business as now conducted
without any conflict with or infringement of the rights of others. Section 3.12
of the Disclosure Schedule contains an accurate and complete description of (a)
all patents, trademarks, trade names and copyrights used or proposed to be used
by the Company or any Company Subsidiary, all applications therefor, and a
summary of the terms of all licenses and other agreements relating thereto and
(b) a summary of the terms of all agreements relating to technology, know-how or
processes which the Company or any Company Subsidiary is licensed or authorized
to use by others. Except as set forth in Section 3.12 of the Disclosure
Schedule, the Company and each Company Subsidiary has the sole and exclusive
right to
use the patents, trademarks, trade names, copyrights, technology, know-how and
processes referred to in the Disclosure Schedule, and the consummation of the
transactions contemplated hereby will not alter or impair any such rights; no
claims have been asserted by any person to the use of any such patents,
trademarks, trade names, copyrights, technology, know-how or processes or
challenging or questioning the validity or effectiveness of any such license or
agreement, and the Company does not know of any valid basis for any such claim;
and the use of such patents, trademarks, trade names, copyrights, technology,
know-how or processes by the Company or any Company Subsidiary does not infringe
on the rights of any person.
3.13 Agreements in Full Force and Effect; Action.
(a) Section 3.13 of the Disclosure Schedule sets
forth a list of all contracts material to the business and operations of the
Company and each Company Subsidiary. All contracts, agreements, plans, leases,
policies and licenses referred to in the Disclosure Schedule are valid and in
full force and effect, and true copies thereof have been initialed and
heretofore delivered to Beechtree.
(b) Except for agreements explicitly contemplated
hereby and disclosed herein, there are no agreements, understandings or proposed
transactions between the Company or any Company Subsidiary and any of their
respective officers, directors, affiliates, or any affiliate thereof.
(c) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company or any Company Subsidiary is a party or by which
any of them is bound that may involve (i) obligations (contingent or otherwise)
of, or payments to the Company in excess of, in the aggregate, $5,000, or (ii)
the license of any patent, copyright, trade secret or other proprietary right to
or from the Company or any Company Subsidiary, or (iii) provisions restricting
or affecting the development, manufacture or distribution of the Company's or
any Company Subsidiary's products or services, or (iv) indemnification by the
Company or any Company Subsidiary with respect to infringements of proprietary
rights.
(d) Neither the Company nor any Company Subsidiary
has (i) declared or paid any dividends or authorized or made any distribution
upon or with respect to any class or series of its capital stock, (ii) incurred
any indebtedness for money borrowed or any other liabilities individually in
excess of $25,000 or, in the case of indebtedness and/or liabilities
individually less than $5,000, in excess of $50,000 in the aggregate, (iii) made
any loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
(e) For the purposes of subsections (c) and (d)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the
Company has reason to believe are affiliated therewith) shall be aggregated for
the purpose of meeting the individual minimum dollar amounts of such
subsections.
(f) Neither the Company nor any Company Subsidiary
is a party to nor are any of them bound by any contract, agreement or
instrument, or subject to any restriction under their respective Certificates of
Incorporation or By-Laws (or other organizational documents) that adversely
affects their business as now conducted or as proposed to be conducted in the
Business Plan, its properties or its financial condition.
(g) Neither the Company nor any Company Subsidiary
has engaged in the past three (3) months in any discussion (i) with any
representative of any corporation or corporations regarding the consolidation or
merger of the Company or any Company Subsidiary with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or any
Company Subsidiary or a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the Company or any Company
Subsidiary is disposed of, or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of the Company or any Company Subsidiary.
3.14 Related-Party Transactions. No employee, officer, or
director of the Company or any Company Subsidiary or member of his or her
immediate family is indebted to the Company or any Company Subsidiary, nor is
the Company or any Company Subsidiary indebted (or committed to make loans or
extend or guarantee credit) to any of them. To the best of the Company's
knowledge, none of such persons has any direct or indirect ownership interest in
any firm or corporation with which the Company or any Company Subsidiary is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that employees, officers, or
directors of the Company and members of their immediate families may own,
directly or indirectly, up to two percent (2%) of the issued and outstanding
securities in companies, the securities of which are regularly traded on a
national securities exchange or in the over-the-counter market, that may compete
with the Company. No member of the immediate family of any officer or director
of the Company is directly or indirectly interested in any material contract
with the Company.
3.15 Permits. The Company and each Company Subsidiary has all
franchises, permits, licenses and similar authority necessary for the conduct of
its business as now being conducted by it, the lack of which could materially
and adversely affect the business, properties, prospects, or financial condition
of the Company or any Company Subsidiary, and the Company believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as planned to be conducted. Neither the Company nor any Company
Subsidiary is in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
3.16 Environmental and Safety Laws. To the best of its
knowledge, neither the Company nor any Company Subsidiary is in violation of any
applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to the best of its knowledge, no material expenditures are or
will be required in order to comply with any such existing statute, law or
regulation.
3.17 Manufacturing and Marketing Rights. Except as Described
in Section 3.17 of the Disclosure Schedule, neither the Company nor any Company
Subsidiary has granted rights to manufacture, produce, assemble, license,
market, or sell its products to any other person and is not bound by any
agreement that affects the Company's or any Company Subsidiary's exclusive right
to develop, manufacture, assemble, distribute, market or sell its products.
3.18 Use of Proceeds: The proceeds from the sale of the Shares
shall be applied substantially as set forth in Section 3.18 of the Disclosure
Schedule.
3.19 Business Plan. The Business Plan previously delivered to
each Investor has been prepared in good faith by the Company and does not
contain any untrue statement of a material fact nor does it omit to state a
material fact necessary to make the statements made therein not misleading,
except that with respect to projections contained in the Business Plan, the
Company represents only that such projections were prepared in good faith and
that the Company reasonably believes there is a reasonable basis for such
projections.
3.20 Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
3.21 Tax Returns. Payments and Elections. The Company and each
Company Subsidiary has filed all tax returns and reports as required by law.
These returns and reports are true and correct in all material respects. The
Company and each Company Subsidiary has paid all taxes and other assessments
due, except those contested by it in good faith that are listed in Section 3.21
of the Schedule of Exceptions. The provision for taxes of the Company (and each
Company Subsidiary) as shown in the Financial Statements is adequate for taxes
due or accrued as of the date thereof. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section
1362(a) or Section 341(f) of the Code, nor has it made any other elections
pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would have a material effect on
the Company, its financial condition, its business as presently conducted or
proposed to be conducted or any of its properties or material assets.
3.22 Insurance. The Company and each Company Subsidiary has in
full force and effect fire and casualty insurance policies, with extended
coverage, sufficient in amount (subject to reasonable deductibles) to allow it
to replace any of its properties that might be damaged or destroyed. On the
Closing Date, the Company will have in full force and effect term life
insurance, payable to the Company, on the lives of
each of Xxxxxx Xxxxx, Xxxx Xxxxxx and Diamond Lauffin in an amount of no less
than $1,000,000 and no more than $3,000,000 for each such person. The Company
has in full force and effect products liability and errors and omissions
insurance in amounts customary for companies similarly situated.
3.23 Minute Books. The minute books of the Company and each
Company Subsidiary have been delivered to Beechtree and contain a complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
3.24 Labor Agreements and Actions. Neither the Company nor any
Company Subsidiary is bound by or subject to (and none of their respective
assets or properties is bound by or subject to) any written or oral, express or
implied, contract, commitment or arrangement with any labor union, and no labor
union has requested or, to the best of the Company's knowledge, has sought to
represent any of the employees, representatives or agents of the Company or any
Company Subsidiary. There is no strike or other labor dispute involving the
Company or any Company Subsidiary pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
or any Company Subsidiary (as such business is presently conducted and as it is
proposed to be conducted), nor is the Company aware of any labor organization
activity involving its employees. The Company is not aware that any officer or
key employee, or that any group of key employees, intends to terminate their
employment with the Company or any Company Subsidiary, nor does the Company or
any Company Subsidiary have a present intention to terminate the employment of
any of the foregoing. The employment of each officer and employee of the Company
and any Company Subsidiary is terminable at the will of the Company. To the best
of its knowledge, the Company and each Company Subsidiary has complied in all
material respects with all applicable state and federal equal employment
opportunity and other laws related to employment.
3.25 Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company or any Company
Subsidiary that questions the validity of this Agreement or the Registration
Rights Agreement, or the right of the Company to enter into such agreements, or
to consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company or any Company
Subsidiary, financially or otherwise, or any change in the current equity
ownership of the Company or any Company Subsidiary, nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
(or any basis therefor known to the Company) involving the prior employment of
any of the Company's or any Company Subsidiary's employees, their use in
connection with the Company's or any Company Subsidiary's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
Neither the Company nor any Company Subsidiary is
a party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no action,
suit, proceeding or investigation by the Company or any Company Subsidiary
currently pending or that the Company or any Company Subsidiary intends to
initiate.
3.26 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement.
3.27 Offering. Subject in part to the truth and accuracy of
each Investor's representations set forth in Article IV of this Agreement, the
offer, sale and issuance of the Shares as contemplated by this Agreement are
exempt from the registration requirements of the Act, and neither the Company
nor any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.
3.28 Valid Issuance of Shares. The Shares that are being
purchased by the Investors hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement and under applicable state and federal securities laws.
3.29 Compliance with Other Instruments.
(a) Neither the Company nor any Company Subsidiary
is in violation or default in any material respect of any provision of its
Certificate of Incorporation or By-Laws or other organizational documents, as
the case may be,, or in any material respect of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound, or, to
the best of its knowledge, of any provision of any federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree or
contract or an event that results in the creation of any lien, charge or
encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or operations
or any of its assets or properties.
(b) The Company and each Company Subsidiary has
avoided every condition, and has not performed any act, the occurrence of which
would result in the Company's loss of any right granted under any license,
distribution or other agreement.
3.30 Compliance with Law. The operations of the Company and
the Company Subsidiaries have been conducted in accordance with all applicable
laws, regulations and other requirements of all national governmental
authorities, and of all states, municipalities and other political subdivisions
and agencies thereof, having jurisdiction over the Company and the Company
Subsidiaries, including, without limitation, all such laws, regulations and
requirements relating to antitrust, consumer protection, currency exchange,
equal opportunity, health, occupational safety, pension, securities and
trading-with-the-enemy matters. Neither the Company nor any Company Subsidiary
has received any notification of any asserted present or past failure by the
Company or any Company Subsidiary to comply with such laws, rules or
regulations.
3.31 Backlog. At November 30, 2000, the Company's backlog of
firm orders for products and services was $146,311.
3.32 Brokers and Finders. Except for certain fees payable to
Direct pursuant to the terms of a Placement Agency Agreement dated the date
hereof between Direct and the Company, neither the Company nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement. The Company agrees to
indemnify and hold the Investors and their officers, directors, employees and
agents harmless against any liability for commissions, fees or other
compensation to any broker or financial advisor or other person or firm (and the
costs and expenses of defending against such liability) for which the Company or
any Company Subsidiary, or any of their respective employees or representatives,
are responsible.
3.32 Disclosure. The Company has fully provided each Investor
with all the information that such Investor has requested for deciding whether
to purchase the Shares and all information that the Company believes is
reasonably necessary to enable such Investor to make such decision. Neither this
Agreement nor any other statements or certificates made or delivered in
connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants to the Company, severally
as to itself, as follows:
4.01 Organization; Authority. The Investor, if a corporation
or other legal entity, was organized, and is validly existing and in good
standing under the laws of the jurisdiction of its organization with the
requisite power and authority to enter into and to consummate the transactions
contemplated by this Agreement and to carry out its obligations hereunder. The
acquisition of the Shares to be acquired hereunder by the
Investor has been duly authorized by all necessary action on the part of the
Investor. This Agreement has been duly executed and delivered by each Investor
and constitutes the valid and legally binding obligation of the Investor,
enforceable against it in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity.
4.02 Purchase Entirely for Own Account. This Agreement is made
with each Investor in reliance upon the Investor's representation to the
Company, which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Shares to be received by the Investor will be acquired for
investment for such Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that such
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same, without in any way limiting the Investors'
right to resell the Shares pursuant to the Registration Statement. By executing
this Agreement, the Investor further represents that such Investor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares.
4.03 Disclosure of Information. The Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Shares. Each Investor further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 3 of this Agreement or the right of the Investors to rely
thereon.
4.04 Brokers. No Investor has entered into an agreement for
the payment of any broker's or finder's fee or commission in connection with the
purchase or sale of the Shares. Each Investor agrees to indemnify and hold the
Company and its officers, directors, employees and agents harmless against any
liability for commissions, fees or other compensation in the nature of a
broker's or finder's fee to any broker or other nature of a broker's or finder's
fee to any broker or other person or firm (and the costs and expenses of
defending against such liability) for which the Investor, or any of its
employees or representatives, are responsible.
4.05 Private Placement. Each Investor understands that the
Shares have not been registered under the Securities Act or registered or
qualified under any state securities laws on the grounds that such Shares are
being issued in a transaction exempt from the registration requirements of the
Securities Act and the registration or qualification requirement of applicable
state securities laws, and that the Shares must be held indefinitely unless
Shares are subsequently registered under the Securities Act and qualified or
registered under applicable state securities laws or an exemption from
registration and qualification is available, and that, except as otherwise
provided in this Agreement, the Company is under no obligation to register or
qualify the Shares. The
Company may require an opinion of the Investor's counsel prior to authorizing
the registration of any transfer of the Shares in reliance on an exemption from
registration or qualification to the effect that the transfer is exempt from
such registration or qualification. Each Investor shall hold harmless the
Company and its directors, officers, employees and agents against any loss or
liability from any disposition of Shares by it in violation of this Section
4.05.
4.06 Accredited Investor. Each Investor is an accredited
investor within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the investment
to be made hereunder by it and it is able to bear the economic risk of its
investment. The Investor, as a corporation or partnership, has total assets in
excess of $5,000,000 or each of its partners or shareholders has an individual
net worth in excess of $1,000,000, (b) was not formed for the purpose of
investing in the Shares, and (c) has business or investments other than the
investment in the Shares.
4.07 Preexisting Relationship. Each Investor either (a) has a
preexisting personal or business relationship with the Company or any of its
officers, directors or controlling persons or an affiliate of the Company, or
(b) by reason of its business or financial experience or the business or
financial experience of its professional advisor(s) who is (are) unaffiliated
with and who is (are) not compensated, directly or indirectly, by the Company,
or any affiliate or selling agent of the Company, the Investor can reasonably by
assumed to have the capacity to protect its own interests in connection with
this transaction.
4.08 Confidentiality. Each Investor shall keep confidential
and shall not use the trade secrets and other non-public information provided to
it by the Company or its agents in connection with the transactions contemplated
hereby.
4.09 Representations and Warranties at Closing. Except as
expressly herein otherwise provided, the representations and warranties of the
Investors set forth in this Agreement shall be true on and as of the Closing as
though such representations and warranties were made on and as of such time.
4.10 Reliance. Each Investor understands and acknowledges that
(i) the Shares to be acquired by it hereunder are being offered and sold to it
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and the
Investor hereby consents to such reliance.
The Company acknowledges and agrees that the Investors make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Article IV.
ARTICLE V
OTHER AGREEMENTS OF THE PARTIES
5.01 Transfer Restrictions. (a) The Shares may only be
disposed of pursuant to an effective registration statement under the Securities
Act, to the Company or pursuant to an available exemption from or in a
transaction not subject to the registration requirements thereof. In connection
with any transfer of any Shares other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration under
the Securities Act. Notwithstanding the foregoing, the Company hereby consents
to and agrees to register any transfer of Shares by an Investor to an Affiliate
of the Investor, or any transfers among any such Affiliates the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act and that it is acquiring any such Shares in
accordance with the representation provided by the original Investor in Article
IV. Any Affiliate transferee shall have the rights of an Investor under this
Agreement.
(b) Each Investor agrees to the imprinting, so long
as is required by this Section 5.01(b), of the following legend on the
Securities:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS."
The Company agrees that it will provide each Investor, upon request,
with a certificate or certificates representing the Shares free from such legend
at such time as such legend is no longer required hereunder. The Company may not
make any notation on its records or give instructions to any transfer agent of
the Company which enlarge the restrictions of transfer set forth in this Section
5.01(b).
5.02 Furnishing of Information. As long as any Investor owns
Shares, the Company covenants that, after such time as it becomes subject to the
reporting requirements of the Exchange Act, it shall timely file (or obtain
extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of
the Exchange Act. If at any time prior to the date on which an Investor may
resell all of its Shares without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as determined by counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent for the benefit of and enforceable by the Investor)
the Company is not required to file reports pursuant to Section 13(a) or 15(d)
of the Exchange Act, it will prepare and furnish to the Investor and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as an Investor may reasonably request, all to the extent required from
time to time to enable such person to sell Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in this Section. Upon the request of any such person, the Company shall
deliver to such person a written certification of a duly authorized officer as
to whether it has complied with such requirements. In connection with any future
access or diligence of the Company by an Investor, the Company agrees that its
will not furnish to the Investor any non-public information unless it first
discloses in writing that such information is of such character and the Investor
thereafter agrees to receive such information.
5.03 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Shares under the securities or Blue Sky
laws of such jurisdictions as any Investor may request and shall continue such
qualification at all times until the Investor notifies the Company in writing
that it no longer owns Shares; provided, however, that neither the Company nor
the Company Subsidiaries shall be required in connection therewith to qualify as
a foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
5.04 Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate shall 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
Shares in a manner that would require the registration under the Securities Act
of the issue or sale of the Shares to the Investor.
5.05 No Sales of Company Securities. The Company shall not,
without the prior written consent of Beechtree, offer for sale or sell any
securities until a date which is six months after the date upon which the SEC
declares the Registration Statement effective.
5.06 Use of Proceeds. Unless otherwise agrees to in writing by
Beechtree, the Company shall use all of the proceeds from the sale of the Shares
as described in Section 3.18 of the Disclosure Schedule. Pending application of
the proceeds derived from the sale of the Shares, the Company will invest such
proceeds in interest bearing accounts and/or short-term, investment grade
interest bearing securities.
5.07 Consulting Agreement with Beechtree Capital, Ltd. At the
Closing, the Company will execute and deliver to Beechtree the form of
Consulting Agreement, a copy of which is attached hereto as Exhibit E (the
"Consulting Agreement"), pursuant to which the Company engages Beechtree to
provide certain financial and business advisory services for a period of five
years after the Closing Date for the compensation and on the other terms and
conditions therein set forth.
5.08 Lock-Up of Outstanding Common Stock. On or before the
Closing Date, the Company will have entered into a lock-up agreement with each
person holding shares of Common Stock immediately prior to the Closing, a copy
of the form of which is attached hereto as Exhibit F (the "Lock-Up Agreement"),
pursuant to which such holder agrees, except as provided therein, to refrain
from selling or otherwise disposing of his shares of Common Stock for a one-year
period commencing on the Closing Date. The Company will deliver to Beechtree a
copy of each such Lock-Up Agreement at the Closing.
5.09 Management Employment Agreements. On or before the
Closing Date, the Company will have entered into an employment agreement, in
form and substance reasonably satisfactory to the Company and Beechtree, with
each of the persons named on Exhibit G hereto providing for the employment by
the Company of such persons commencing upon the Closing.
5.10 Notice of Breaches. Each of the Company and the Investors
shall give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in the Transaction
Documents, as well as any events or occurrences arising after the date hereof,
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained in the Transaction
Documents to be incorrect or breached as of such Closing Date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure any
breach of any representation, warranty or other agreement contained in the
Transaction Documents.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify Beechtree of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between the Investors and the
Company, and the Company shall promptly furnish by facsimile to Beechtree a copy
of any written statement in support of or relating to such claim or notice.
5.11 Board of Director and Committee Representation. (a) The
Company shall use its best efforts to cause and maintain the election to the
Board of Directors of one representative selected by Beechtree and one
representative of Direct, should Direct so desire, for a period of five years
after the Closing Date. To the extent permitted by law and the applicable
exchange on which the Company's stock is trading, the Control Shareholder agrees
to vote any and all shares of Common Stock and other voting securities of the
Company registered in his name in favor of Beechtree's and Direct's respective
nominees to the Board.
(b) The Company shall use its best efforts to
appoint each of Beechtree's and Direct's respective nominees to the Board to
serve on its Executive Committee of the Board of Directors, which such committee
shall consist of up to five (5) persons, for a period of five (5) years. To the
extent permitted by law and the applicable exchange on which the Company's stock
is trading, the Control Shareholder agrees to vote any and all shares of Common
Stock and other voting securities of the Company registered in his name in favor
of Beechtree's and Direct's respective nominees to the Executive Committee.
(c) The Company shall use its best efforts to
appoint each of Beechtree's and Direct's respective nominees to the Board to
serve on its Audit Committee of the Board of Directors, which such committee
shall consist of up to five (5) persons, for a period of five (5) years. To the
extent permitted by law and the applicable exchange on which the Company's stock
is trading, the Control Shareholder agrees to vote any and all shares of Common
Stock and other voting securities of the Company registered in his name in favor
of Beechtree's and Direct's respective nominees to the Audit Committee.
5.12 Consulting Agreement with Direct. As soon as reasonably
practicable after the Closing, the Company shall enter into a services agreement
with Direct in the form attached hereto as Exhibit H.
5.13 No Registration of Other Securities. Except for the
Shares and other "Registrable Securities" (as such term is defined in the
Registration Rights Agreement) to be registered by the Company in the
"Registration Statement" (as such term is defined in the Registration Rights
Agreement) in accordance with the Registration Rights Agreement, the Company
shall not, without the prior written consent of Beechtree, (i) issue or sell any
of its or any of its Affiliates' equity or equity-equivalent securities pursuant
to Regulation S promulgated under the Securities Act, or (ii) register for
resale any securities of the Company for a period of not less than one year
after the date that the Registration Statement covering the Registrable
Securities is declared effective by the SEC.
5.14 Certain Securities Laws Disclosures; Publicity. (a) The
Company shall timely file with the SEC a Form D promulgated under the Securities
Act as required under Regulation D promulgated under the Securities Act and
provide a copy thereof to each Investor promptly after the filing thereof.
(b) In furtherance of and in addition to the
obligation of the Company set forth in Section 5.14(a) above, the Company and
Beechtree shall consult with each other in issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
hereby and neither party shall issue any such press release or otherwise make
any such public statement without the prior written consent of the other, which
consent shall not be unreasonably withheld or delayed, except that no prior
consent shall be required if such disclosure is required by law, in which such
case the disclosing party shall provide the other party with prior notice of
such public statement.
5.14 Review and Approval of Company Budget. One month prior to
the conclusion of the 2000 calendar year, the Company shall furnish to Beechtree
a copy of the Company's proposed budget for the 2001 calendar year. Beechtree,
as representative of the Investors, shall have the right to review and approve
said budget. Beechtree shall communicate its comments on said budget, if any, to
the Company in writing two weeks prior to the conclusion of calendar year 2000.
The Company shall deliver to Beechtree a revised budget for calendar year 2001
that reflects the changes requested by Beechtree one week prior to the
conclusion of the 2000 calendar year.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees with each Investor as follows:
6.01 Full Access. The Company shall, and shall cause each
Company Subsidiary to, afford to Beechtree, its counsel, accountants and other
representatives full access to the plants, offices, warehouses, properties,
books and records of the Company and each Company Subsidiary in order that
Beechtree may have full opportunity to make such investigations as it shall
desire to make of the affairs of the Company and the Company Subsidiaries; and
the Company will cause its officers and accountants to furnish such additional
financial and operating data and other information as the Investors'
Representative shall from time to time request, provided, however, that any such
investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the businesses of the Company and the Company
Subsidiaries.
6.02 Consents of Company Lenders, Etc. The Company shall, and
shall cause each Company Subsidiary to, use its best efforts to obtain at the
earliest practicable date and prior to the Closing all consents necessary to the
consummation of the transactions contemplated hereby and will provide to
Beechtree copies of each such consent promptly after it is obtained.
6.03 Other Transactions. Neither the Company nor its Board of
Directors shall enter into any discussions concerning, or approve or recommend
to the holders of any shares of its capital stock, any merger, consolidation,
disposition of all or substantially all of its business, properties or assets
(other than pursuant to this
Agreement), any tender offer, acquisition or other business combination, or
proposal therefor, or furnish or cause to be furnished any information
concerning the business, properties or assets of the Company to any party in
connection with any tender offer or other transaction involving the acquisition
of the Company or all or any substantial part of its assets by any person other
than the Investors or their duly authorized representatives.
6.04 Covenant to Satisfy Conditions. Each of the Company and
the Company Subsidiaries will use its best efforts to insure that the conditions
set forth in Article VI hereof are satisfied, insofar as such matters are within
the control of any of them.
6.05 Certificates. At the Closing, the Company will furnish
Beechtree with such certificates of its officers and others to evidence
compliance with the covenants set forth in this Article VI as may be reasonably
requested by Beechtree.
ARTICLE VII
CONDITIONS TO THE COMPANY'S OBLIGATIONS
Each and every obligation of the Company under this Agreement
to be performed on or before the Closing shall be subject to the satisfaction,
on or before the Closing, of each of the following conditions, unless waived in
writing by the Company:
7.01 Representations and Warranties True. The representations
and warranties of each Investor contained herein shall be in all material
respects true and accurate as of the date when made and at and as of the Closing
as though such representations and warranties were made at and as of such date,
except for changes expressly permitted or contemplated by the terms of this
Agreement.
7.02 Performance. Each Investor shall have performed and
complied with all agreements, obligations and conditions required by this
Agreement to be performed or complied with by them on or prior to the Closing.
7.03 No Governmental Proceeding or Litigation. No suit,
action, investigation, inquiry or other proceeding by any governmental body or
other person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE INVESTORS
Each and every obligation of the Investors under this
Agreement to be performed on or before the Closing shall be subject to the
satisfaction, on or before the Closing, of each of the following conditions,
unless waived in writing by Beechtree:
8.01 Representations and Warranties True. The representations
and warranties contained in Article III hereof, the Disclosure Schedule and in
all certificates and other documents delivered and to be delivered by the
Company, the Control Shareholder and each Company Subsidiary to the Investors or
their representatives pursuant hereto or in connection with the transactions
contemplated hereby shall be true, complete and accurate as of the date when
made and at and as of the Closing Date as though such representations and
warranties were made at and as of such date, except for changes expressly
permitted or contemplated by the terms of this Agreement.
8.02 Performance. The Company and each Company Subsidiary
shall have performed and complied with all agreements, obligations and
conditions required by this Agreement to be performed or complied with by them
on or prior to the Closing.
8.03 Investigations; Etc. Neither any investigation of the
Company and the Company Subsidiaries by the Investors or Beechtree, nor the
Disclosure Schedule or any supplement thereto nor any other document delivered
to the Investors or Beechtree as contemplated by this Agreement, shall have
revealed any facts or circumstances which, in the sole and exclusive judgment of
any of the Investors or Beechtree, reflect in a material adverse way on the
financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, business, operations or prospects of the Company or any
Company Subsidiary.
8.04 No Proceeding or Litigation. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding by or before any United States or foreign court or governmental
or other regulatory or administrative agency or commission requesting or looking
toward an order, judgment or decree which (a) in the judgment of Beechtree might
have a material adverse effect on the Investors or any of their affiliates or
(b) in the sole and exclusive judgment of Beechtree might have a material
adverse effect on the business or financial condition of the Company or any
Company Subsidiary.
8.05 Material Change. From the date of the Balance Sheet to
the Closing Date, neither the Company nor any Company Subsidiary shall have
suffered any material adverse change (whether or not such change is referred to
or described in any supplement to the Disclosure Schedule) in its business,
prospects, financial condition, working capital, assets, liabilities (absolute,
accrued, contingent or otherwise), reserves or operations.
8.06 Opinion of the Company's Counsel. The Company shall have
delivered an opinion in favor of the Investors from each of Xxxxx Xxxx LLC, as
to matters of United States law, and Xxxxx Xxxxxx & Xxxxxxx, as to matters of
United Kingdom law, dated as of the Closing Date, comprising the matters set
forth in Exhibit I hereto.
8.07 Consents Obtained. All consents referred to in Sections
3.05, 3.26 and 3.29 shall have been obtained.
ARTICLE IX
CONDUCT OF THE COMPANY'S BUSINESS PENDING THE CLOSING
Pending the Closing, and except as otherwise expressly consented to or
approved by Beechtree in writing:
9.01. Regular Course of Business. Each of the Company and the
Company Subsidiaries will carry on its respective business diligently and
substantially in the same manner as heretofore conducted, and neither the
Company nor any Company Subsidiary shall institute any new methods of
manufacture, purchase, sale, lease, management, accounting or operation or
engage in any transaction or activity, enter into any agreement or make any
commitment, except in the ordinary course of business and consistent with past
practice.
9.02. Amendments. No change or amendment shall be made in the
Certificate of Incorporation or By-Laws of the Company or any Company
Subsidiary.
9.03. Capital Changes; Dividends; Redemptions. Neither the
Company nor any Company Subsidiary shall, for a period of one year after the
Closing Date without the prior written consent of Beechtree, issue or sell any
shares of its capital stock or other securities except pursuant to the valid
conversion of securities or exercise of options described in Section 3.02,
acquire directly or indirectly, by redemption or otherwise, any such capital
stock, reclassify or split-up any such capital stock, declare or pay any
dividends thereon in cash, securities or other property or make any other
distribution with respect thereto, or grant or enter into any options, warrants,
calls or commitments of any kind with respect thereto.
9.04. Subsidiaries. Neither the Company nor any Company
Subsidiary will organize any new subsidiary, acquire any capital stock or other
equity securities of any corporation or acquire any equity or ownership interest
in any business.
9.05. Organization. Each of the Company and the Company
Subsidiaries shall use its best efforts to preserve its corporate existence and
business organization intact.
9.06. Certain Changes. Neither the Company nor any Company
Subsidiary shall, without the prior written consent of Beechtree:
(a) Borrow or agree to borrow any funds or incur, or
assume or become subject to, whether directly or by way of guarantee or
otherwise, any obligation or liability (absolute or contingent), except
obligations and liabilities incurred in the ordinary course of business and
consistent with past practice;
(b) Pay, discharge or satisfy any claim, liability
or obligation (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities or obligations reflected or
reserved against in the Balance Sheet or incurred in the ordinary course of
business and consistent with past practice since the date of the Balance Sheet;
(c) Permit or allow any of its property or assets
(real, personal or mixed, tangible or intangible) to be subjected to any
mortgage, pledge, lien or encumbrance, except for those of a kind permitted
under Section 3.10 hereof;
(e) Grant any general increase in the compensation
of officers or employees (including any such increase pursuant to any bonus,
pension, profit sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any officer or employee;
(i) Pay, loan or advance any amount to, or sell
transfer or lease any properties or assets to, or enter into any agreement or
arrangement with, any of its officers, directors agents or any affiliate or
Associate of any of its officers, directors or agents, except for directors'
fees and compensation to officers at rates not exceeding the rates of
compensation paid during the fiscal year ended March 31, 2000.
(k) Agree, whether in writing or otherwise, to do
any of the foregoing.
9.07 Compliance With Laws. The Company and each Company
Subsidiary shall duly comply with all laws applicable to it and its properties,
operations, business and employees.
ARTICLE X
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
BREACHES; INDEMNIFICATION BY NEXSAN; ARBITRATION
10.01. Investigations; Survival of Warranties. All of the
representations and warranties of the Company, Nexsan and the Control
Shareholder on the one hand, and the Investors, on the other hand, contained
herein or in any certificates or other documents delivered prior to or at the
Closing shall not be deemed waived or otherwise affected by any investigation
made by any party hereto. Each and every such representation and warranty shall
survive the Closing hereunder and continue in full force and effect for three
years thereafter, even if the damaged party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing.
10.02. Indemnification by Nexsan. (a) Subject to the
provisions of Sections 10.01, relating to the survival of the representations
and warranties made by the
Company, Nexsan and the Control Shareholder in this Agreement, and Sections
10.02(b) and 10.03, below, Nexsan shall indemnify and hold harmless the
Investors in respect of any and all Adverse Consequences reasonably suffered or
incurred by the Investors through and after the date of the claim for
indemnification (including any Adverse Consequences the Investors may suffer
after the end of the survival period set forth in Section 10.01, above,) in
connection with each and all of the following:
(i) the breach of any representation or
warranty made by the Company, Nexsan and the Control Shareholder in this
Agreement that results in a Material Adverse Effect;
(ii) the breach of any covenant, agreement or
obligation of the Company, Nexsan and the Control Shareholder in this Agreement
that results in a Material Adverse Effect; and
(iii) any misrepresentation contained in any
statement or certificate furnished by the Company, Nexsan and the Control
Shareholder in this Agreement that results in a Material Adverse Effect.
(b) Claims for Indemnification. Whenever any claim
shall arise for indemnification hereunder, the Investors shall promptly notify
Nexsan in writing in accordance with Section 12.03 hereof, of the claim and,
when known, the facts constituting the basis for such claim. In the event of any
claim by a third party, the notice to the Company shall specify, if known, a
reasonable estimate of the amount of the liability arising therefrom.
10.03. Arbitration. The determination as to whether any breach
or alleged breach of this Agreement shall result in a Material Adverse Effect on
the Company and the amount and nature of any remedy or dollar amount of
indemnification shall be settled by arbitration before a single arbitrator in
the City and State of New York, Borough of Manhattan, in accordance with the
rules of the American Arbitration Association. The arbitrator's determination
shall be final and binding on the parties. If the parties are unable to agree on
an arbitrator within 30 days following notice of the dispute, then each of the
parties shall select an arbitrator, and those two persons shall in turn, select
the third arbitrator who shall act as the sole arbitrator of the dispute. Any
judgment on the award rendered by the arbitrator in such arbitration proceeding
may be entered in any court having jurisdiction thereof. The fees and expenses
of the arbitration shall be borne as determined by the arbitrator. The
arbitrator will not be authorized to award punitive damages.
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ARTICLE XI
TERMINATION AND ABANDONMENT
11.01. Methods of Termination. The transactions contemplated
herein may be terminated and/or abandoned at any time but not later than the
Closing:
(a) By mutual consent of the respective Boards of
Directors of the Company and Beechtree; or
(b) By any of the Investors prior to January 4,
2000, or such later date as may be established pursuant to Section 1.02 hereof,
if any of the conditions provided for in Article VIII of this Agreement shall
not have been met or waived in writing by the Investors prior to such date; or
(c) By the Board of Directors of the Company prior
to January 4, 2000, or such later date as may be established pursuant to Section
1.02 hereof, if any of the conditions provided for in Article VII of this
Agreement shall not have been met or waived in writing by the Company prior to
such date.
11.02. Procedure Upon Termination. In the event of termination
and abandonment by Beechtree or by the Board of Directors of the Company, or
both, pursuant to Section 11.01 hereof, written notice thereof shall forthwith
be given to the other party and the transactions contemplated by this Agreement
shall be terminated and/or abandoned, without further action by any Investor or
the Company. If the transactions contemplated by this Agreement are terminated
and/or abandoned as provided herein:
(a) Each party will redeliver all documents, work
papers and other material of any other party relating to the transactions
contemplated hereby, whether so obtained before or after the execution hereof,
to the party furnishing the same;
(b) No party hereto shall have any liability or
further obligation to any other party to this Agreement except as stated in
subparagraphs (a) and (b) of this Section 11.02, provided, however, that (i) if
such termination and/or abandonment is a result of the failure of any condition
set forth in Article VIII hereof, other than the condition set forth in Section
8.10, then Beechtree shall be entitled to recover from the Company all
out-of-pocket costs which Beechtree has incurred (including reasonable
attorney's fees and expenses).
ARTICLE XII
MISCELLANEOUS
12.01. Fees and Expenses. Upon the Closing, the Company shall
pay to Beechtree and Direct, forthwith and without further notice (i) $15,000
for its legal fees and disbursements in connection with the preparation and
negotiation of the Transaction
Documents, (ii) $7,000 for their due diligence expenses and disbursements in
connection with the transactions contemplated hereby and (iii) up to $50,000 for
other expenses actually incurred by Beechtree and Direct in the Company's
behalf. The Company agrees to pay to Beechtree and Direct any other expenses
which they may incur in the Company's behalf upon the earlier of the sale by the
Company of a minimum of $3.5 million of its securities or six (6) months from
the date hereof. The Company's covenant and promise to repay Beechtree and
Direct the fees and expenses incurred by them in its behalf shall be
unconditional, irrevocable, without set-off or counterclaim and shall require no
further notice on the part of Beechtree or Direct. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Shares pursuant hereto. The Investors shall be responsible for their own tax
liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement.
12.02. Entire Agreement; Amendments. This Agreement, together
with the Exhibits and Schedules hereto, 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.
12.03. 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 (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 4:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) 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 follows:
If to the Company: Nexsan Corporation
Xxx Xxxxxxxxxxx Xxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn.: Xxxx Xxxxxxx
Facsimile No.: (000) 000-0000
With copies to: Xxxxx Xxxx LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxxx Xxxxx, Esq.
Facsimile No.: (000) 000-0000
Xxxxx Xxxxxx & Xxxxxxx
5 St. Michael's Court
St. Michael's Lane
Derby DE1 3JH
England
Attn.: Mr. Xxxxxx Xxxxxxx
Facsimile no. 000 00 (0)0000 000000
If to an Investor: Beechtree Capital, Ltd.
Xxx Xxxxxxxxxxx Xxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn.: Chairman
Facsimile No.: (000) 000-0000
With copies to (for
communications to
the Investor): Ruffa & Ruffa, P.C.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.:
Attn: Xxxxxxx X. Xxxxx, Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
12.04. Amendments; Waivers. No provision of this Agreement may
be waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and Beechtree; or, in the case of a waiver, by
the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
12.05. 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.
12.06. 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 the Investor. No Investor may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company. The assignment by a party of this Agreement or
any rights hereunder shall not affect the obligations of such party under this
Agreement.
12.07. No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
12.08. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party 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 to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
12.09. Execution. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
12.10. Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state or local
statute or law shall be deemed to also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation. The parties intend that
each representation, warranty or covenant contained herein shall have
independent significance. If any party has breached any representation, warranty
or covenant herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
12.11. Severability. In case any one or more of the provisions
of this Agreement shall be invalid or unenforceable in any respect, the validity
and
enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE COMPANY:
NEXSAN CORPORATION
By: /s/ Xxxxxx Xxxxx
______________________________
Xxxxxx Xxxxx, Chief Executive Officer
CONTROL SHAREHOLDER:
XXXXXX XXXXX
/s/ Xxxxxx Xxxxx
__________________________________
NEXSAN:
NEXSAN TECHNOLOGIES, LTD.
By: /s/ Xxxxxx Xxxxx
______________________________
AS TO SECTION 12.01:
BEECHTREE CAPITAL, LTD.
By: /s/ Xxxxxx Xxxxx
______________________________
INVESTOR SIGNATURE PAGE
The undersigned hereby subscribes to purchase Shares at a
price of $.66 per Share for an aggregate purchase price of $ . Payment of
the aggregate purchase for the Shares (please check one of the following):
______ Is included herewith in the form of a bank, cashier's or
certified check;
or
______ Has been wire transferred to the escrow account referenced in
Schedule A to the Offering Memorandum.
FOR INDIVIDUALS:
--------------------------------
Print Name
--------------------------------
Dated: ___________, 2000 Signature
--------------------------------
Print Name
--------------------------------
Dated: ___________, 2000 Signature
FOR CORPORATIONS:
--------------------------------
Name of Company
--------------------------------
Name of Executive Officer of
Company
Dated: ___________, 2000 --------------------------------
Signature of Executive Officer
FOR PARTNERSHIPS:
--------------------------------
Name of Partnership
--------------------------------
Name of Authorized Partner
Dated: ___________, 2000 --------------------------------
Signature of Authorized Partner
FOR TRUSTS:
--------------------------------
Name of Trust
--------------------------------
Name of Authorized Trustee
Dated: ___________, 2000 --------------------------------
Signature of Authorized Trustee
SCHEDULE A
INVESTORS
Name, Address and Tax Identification No. Signature
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