EXHIBIT 10.2.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
March 11, 2004, among LMIC, Inc., a Delaware corporation (the "Company"), and
the purchasers identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act.
"Capital Shares" means the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of
the Company.
"Capital Shares Equivalents" means any securities, rights or
obligations that are convertible into or exchangeable for or give any
right to subscribe for or purchase, directly or indirectly, any Common
Stock or any warrants, options or other rights to subscribe for or
purchase, directly or indirectly, Common Stock or any such convertible
or exchangeable securities.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the
Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to the
Purchasers' obligations to pay the Subscription Amount have been
satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.001 per share, and any securities into which such common stock
shall hereinafter have been reclassified into.
"Company Counsel" means Xxxxxxx Xxxx & Xxxxxxxxx LLP.
"Custodial Agent" shall have the meaning set forth in the
Custodial Agreement.
"Custodial Agreement" means the Custodial and Security
Agreement in substantially the form of Exhibit E hereto executed and
delivered contemporaneously with this Agreement.
"Debentures" means, the 4.0% Secured Convertible Debentures
due 30 months from their date of issuance, issued by the Company to the
Purchasers hereunder, in the form of Exhibit A.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1 hereof.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h) hereof.
"Knowledge" means the following: a Person other than a natural
person will be deemed to have Knowledge of a particular fact or other
matter if any natural person who is serving as a director or executive
officer of such Person either (a) has actual knowledge of a particular
fact or matter, or (b) at the time in question would, based on such
director's or executive officer's position and title, reasonably be
expected to have had, actual knowledge of such particular fact or
matter.
"Liens" shall have the meaning ascribed to such term in
Section 3.1(a) hereof.
-2-
"Losses" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including costs of
preparation and reasonable attorneys' fees.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b) hereof.
"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.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Closing Date, among the Company and the
Purchasers, in the form of Exhibit B.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering, among other things, the resale of the Underlying Shares
by each Purchaser as provided for in the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e) hereof.
"Required Minimum" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and Debentures, ignoring any conversion or exercise limits
set forth therein, and assuming that interest is paid in shares of
Common Stock based on a conversion price equal to the Set Price.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h) hereof.
"Securities" means the Debentures, the Warrants and the
Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Set Price" shall have the meaning ascribed to such term in
the Debentures.
-3-
"Subscription Amount" means, as to each Purchaser, the
aggregate amount to be paid by such Purchaser for the Debentures and
Warrants purchased hereunder at the Closing as specified below such
Purchaser's name on the signature page of this Agreement and next to
the heading "Subscription Amount", in United States Dollars and in
immediately available funds, but excluding the exercise of the
Warrants.
"Subsidiary" means each direct and indirect subsidiary of the
Company as set forth on Schedule 3.1(a) attached hereto.
"Trading Day" means any day during which the Trading Market
shall be open for business.
"Trading Market" means initially the OTC Bulletin Board, and
shall also include the NASDAQ Small-Cap Market, the American Stock
Exchange, the New York Stock Exchange, or the NASDAQ National Market,
whichever is at the time the principal trading exchange or market for
the Common Stock, based upon share volume.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Registration Rights Agreement and the Custodial
Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Debentures and upon exercise of the Warrants and
issued and issuable in lieu of the cash payment of interest on the
Debentures.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:00 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported prior to the day in question; or (c) in all other cases, the
fair market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Purchasers and
reasonably acceptable to the Company.
"Warrants" means collectively the Common Stock purchase
warrants, in the form of Exhibit C delivered to the Purchasers at the
Closing in accordance with Section 2.2 hereof.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
-4-
1.2 Interpretation. Unless the context otherwise requires, the terms
defined in this Article 1 shall have the meanings herein specified for all
purposes of this Agreement and in the other Transaction Documents, applicable to
both the singular and plural forms of any of the terms defined herein. When a
reference is made in this Agreement to a Section, such reference shall be to a
Section of this Agreement unless otherwise indicated. Whenever the words
"include," "includes" or "including" are used in the Transaction Documents, they
shall be deemed to be followed by the words "without limitation." The use of any
gender in the Transaction Documents shall be deemed to include the neuter,
masculine and feminine genders wherever necessary or appropriate.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, and upon the terms and subject to the
conditions set forth herein, the Company hereby sells, and each Purchaser
severally and not jointly with the other Purchasers, hereby purchases a
principal amount of the Debentures equal to the Subscription Amount set forth on
such Purchaser's signature page and Warrants for a number of Warrant Shares set
forth on such Purchaser's signature page for a purchase price equal to the
Subscription Amount set forth on such Purchaser's signature page. The Closing
shall occur at the offices of the Custodial Agent, or such other location as the
parties shall mutually agree.
2.2 Conditions to Closing.
(a) At or prior to the Closing Date the Company shall deliver
or cause to be delivered to the Custodial Agent for the benefit of each
Purchaser the following:
(i) a Debenture in the principal amount equal to such
Purchaser's Subscription Amount, registered in the name of
such Purchaser;
(ii) a Warrant in the form of Exhibit C attached
hereto;
(iii) the legal opinion of Company Counsel in the
form of Exhibit D attached hereto, addressed to the
Purchasers;
(iv) the Registration Rights Agreement duly executed
by the Company;
(v) the Custodial Agreement duly executed by the
Company; and
(vi) this Agreement, duly executed by the Company.
(b) At or prior to the Closing, each Purchaser shall deliver
or cause to be delivered to the Custodial Agent the following:
(i) such Purchaser's Subscription Amount by wire
transfer of immediately available funds;
(ii) this Agreement, duly executed by such Purchaser;
-5-
(iii) the Custodial Agreement duly executed by such
Purchaser; and
(iv) the Registration Rights Agreement duly executed
by such Purchaser.
(c) All representations and warranties of the other parties
contained herein shall remain true and correct as of the Closing Date
and all covenants of the other party shall have been performed if due
prior to such date.
(d) From the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or
on the Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor
shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of the
Purchasers, makes it impracticable or inadvisable to purchase the
Debentures at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof or except as set forth in the SEC
Reports, the Company hereby makes the representations and warranties set forth
below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a). The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any lien, charge,
security interest, encumbrance, right of first refusal or other
restriction on ownership (collectively, "Liens"), and all the issued
and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and
similar rights. If the Company has no Subsidiaries, then references in
the Transaction Documents to the Subsidiaries shall be disregarded.
(b) Organization and Qualification. Each of the Company and
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
-6-
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation of any of the provisions of
its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or
in good standing, as the case may be, would not, individually or in the
aggregate: (i) adversely affect the legality, validity or
enforceability of any Transaction Document, (ii) have or result in or
be reasonably likely to have or result in a material adverse effect on
the results of operations, assets, business or financial condition of
the Company and the Subsidiaries, taken as a whole, or (iii) adversely
impair the Company's ability to perform fully on a timely basis its
obligations under any of the Transaction Documents (any of (i), (ii) or
(iii), a "Material Adverse Effect").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations in all material respects
hereunder or thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby or thereby have been duly authorized
by all necessary action on the part of the Company and no further
consent or action is required by the Company other than the Required
Approvals. Each of the Transaction Documents has been (or upon delivery
will be) duly executed by the Company and, when delivered in accordance
with the terms hereof, will constitute the valid and binding obligation
of the Company enforceable against the Company in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and general principles of
equity. Neither the Company nor any Subsidiary is in violation of any
of the provisions of its respective certificate or articles of
incorporation, by-laws or other organizational or charter documents.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated thereby do not and will not:
(i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) subject to obtaining the
Required Approvals, conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) assuming that the representations made by each of
the Purchasers in Section 3.2 are true and correct, result in a
violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and
state securities laws
-7-
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses
(ii) and (iii), such as would not, individually or in the aggregate,
have or result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization
or order of, give any notice to, or make any filings or registration
with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery
and performance by the Company of the Transaction Documents, other than
(i) the press release or filings required under Section 4.7, (ii) the
filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Debentures and Warrants and the listing of the
Underlying Shares for trading thereon in the time and manner required
thereby and (iv) the filing of Form D with the Commission and
applicable Blue Sky filings (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and non-assessable, free and clear of all Liens. The Company
has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Underlying Shares at least equal to
the Required Minimum on the date hereof. The Company has not, and to
the Knowledge of the Company, no Affiliate of the Company has sold,
offered for sale or solicited offers to buy or otherwise negotiated in
respect of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of
the sale of the Securities to the Purchasers, or that would be
integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market.
(g) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set
forth in the Disclosure Schedules attached hereto. No securities of the
Company are entitled to preemptive or similar rights, and no Person has
any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by
the Transaction Documents. Except as a result of the purchase and sale
of the Securities, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and
-8-
nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued
in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the Securities. Except as
disclosed in the SEC Reports, there are no stockholders agreements,
voting agreements or other similar agreements with respect to the
Company's capital stock to which the Company is a party or, to the
Knowledge of the Company, between or among any of the Company's
stockholders.
(h) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, since July 17,
2003 (or such shorter period as the Company was required by law to file
such material) (the foregoing materials being collectively referred to
herein as the "SEC Reports") on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. The Company has
identified and made available to the Purchasers a copy of all SEC
Reports filed within the 10 days preceding the date hereof. As of their
respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Reports, as
at their respective dates and for the periods shown therein, comply in
all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as
of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited
statements, to normal, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports: (i) there has been no event,
occurrence or development that has had or that could result in a
Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in
the Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has
not altered its accounting principles or the identity of its auditors,
(iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or
made any agreements to purchase or redeem any shares of its
-9-
capital stock, and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing
Company stock option or similar plans.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the Knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which: (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) would, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of
fiduciary duty. The Company does not have pending before the Commission
any request for confidential treatment of information. There has not
been, and to the Knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company
or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) Compliance. Neither the Company nor any Subsidiary: (i) is
in material default under or in material violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or
both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, except in each case
as would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.
(l) Labor Relations. No material labor dispute exists or, to
the Knowledge of the Company, is imminent with respect to any of the
employees of the Company.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits would
not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect ("Material Permits"), and
neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.
-10-
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are
held under valid, subsisting and enforceable leases of which the
Company and the Subsidiaries are in material compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the
SEC Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the "Intellectual Property Rights").
Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
Knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged. To
the Company's Knowledge, such insurance contracts and policies are
accurate and complete. Neither the Company nor any Subsidiary has any
reason to believe it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of the
Company and, to the Knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
Knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
director, trustee or partner.
(r) Internal Accounting Controls. The Company and the
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of
-11-
financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Company and designed such disclosures controls and procedures (or
caused such disclosure controls and procedures to be designed under its
supervision) to ensure that material information relating to the
Company, including its Subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the
period in which the Company's Form 10-K or 10-Q, as the case may be, is
being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's disclosure controls and procedures as of
the end of the period covered by the Form 10-Q for the quarter ended
September 30, 2003 (such date, the "Evaluation Date"). The Company
presented in the Form 10-Q for the quarter ended September 30, 2003 the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company's internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to
the Company's Knowledge, in other factors that would reasonably be
expected to significantly affect the Company's internal controls.
(s) Solvency/Indebtedness. Based on the financial condition of
the Company as of the Closing Date and assuming that the transactions
contemplated by the Transaction Documents occur: (i) the fair saleable
value of the Company's assets exceeds the amount that will be required
to be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature;
(ii) the Company's assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into
account the particular capital requirements of the business conducted
by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated
uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt). The SEC Reports set
forth as of the dates thereof all outstanding secured and unsecured
Indebtedness (as defined below) of the Company or any Subsidiary, or
for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent
obligations, whether or not the same are or should be reflected in the
Company's balance sheet or the notes thereto, except guaranties by
endorsement of negotiable instruments for deposit or collection in the
ordinary course of business, and (c) the present value of any lease
payments in excess of $50,000 due under
-12-
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any
Indebtedness.
(t) Certain Fees. Except as set forth in Schedule 3.1(t), no
brokerage or finder's fees or commissions are or will be payable by the
Company to any broker, financial adviser or consultant, finder,
placement agent, investment banker, bank or other Person with respect
to the transactions contemplated by this Agreement, and the Company has
not taken any action that would cause any Purchaser to be liable for
any such fees or commissions. The Company agrees that the Purchasers
shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of any Person for fees of the type
contemplated by this Section with the transactions contemplated by this
Agreement.
(u) Private Placement. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
3.2(b)-(e), the offer, issuance and sale of the Securities to the
Purchasers as contemplated hereby are exempt from the registration
requirements of the Securities Act. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of
the Trading Market.
(v) Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its Knowledge
is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(w) Registration Rights. Other than as set forth in the
Registration Rights Agreement and the Disclosure Schedules, the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority that
have not been satisfied.
(x) Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or would become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including as a result of the Company's issuance of the
Securities and the Purchasers' ownership of the Securities.
-13-
(y) Seniority. As of the Closing Date, no indebtedness of the
Company is senior to the Debentures in right of payment.
(z) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that, as of the date
hereof, constitutes material, nonpublic information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representations in effecting transactions in securities of the Company.
The Disclosure Schedules to this Agreement, furnished by or on behalf
of the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and
warranties and do not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.
(aa) Tax Status. The Company and each of its Subsidiaries has
made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which
it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has in accordance with GAAP set aside on its books
provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid or accounted for all taxes and other
governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has in accordance with
GAAP set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. There are no unpaid taxes
in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any
such claim. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any
foreign, federal, statue or local tax. None of the Company's tax
returns is presently being audited by any taxing authority.
(bb) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that the Purchasers are
acting solely in the capacity of arm's length purchasers with respect
to this Agreement and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial adviser
or fiduciary of the Company (or in any similar capacity) with respect
to this Agreement and the transactions contemplated hereby and any
statement made to the Company by any Purchaser or any of their
respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Purchasers' purchase of
the Securities. The Company further represents to each Purchaser that
the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its
representatives.
-14-
(cc) No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor, to the Knowledge of the Company,
any of its directors or officers: (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation
D) or general advertising with respect to the sale of the Debentures or
the Warrants, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that
would require registration of the Debentures, the Underlying Shares or
the Warrants under the Securities Act or made any "directed selling
efforts" as defined in Rule 902 of Regulation S.
(dd) No Disagreements with Accountants. There are no
disagreements of any kind presently existing between the accountants
formerly or presently employed by the Company, and the Company is
current with respect to any fees owed to its accountants.
(ee) Form SB-2 Eligibility. The Company is eligible to
register the Underlying Shares for resale by the Purchasers on Form
SB-2 promulgated under the Securities Act.
(ff) Foreign Corrupt Practices. Neither the Company, nor to
the Knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any corrupt
funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity,
(ii) made any unlawful payment to foreign or domestic government
officials or employees or to any foreign or domestic political parties
or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law, or
(iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(gg) Accountants. To the Company's Knowledge, DDK & Company
LLP, the Company's accountants, who the Company expects will express
their opinion with respect to the financial statements to be included
in the Company's next Annual Report on Form 10-K, are independent
accountants as required by the Securities Act and the rules and
regulations promulgated thereunder.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The purchase by such Purchaser of
the Securities hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement, the
Custodial Agreement and the Registration Rights Agreement has been duly
executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally
binding obligation
-15-
of such Purchaser, enforceable against it in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(b) Investment Intent. Such Purchaser understands and
acknowledges that none of the Securities have been registered under the
Securities Act. Such Purchaser is acquiring the Securities as principal
for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof, without prejudice,
however, to such Purchaser's right, subject to the provisions of this
Agreement, at all times to sell or otherwise dispose of all or any part
of such Securities pursuant to an effective registration statement
under the Securities Act or under an exemption from such registration
and in compliance with applicable federal and state securities laws.
Nothing contained herein shall be deemed a representation or warranty
by such Purchaser to hold Securities for any period of time. Such
Purchaser is acquiring the Securities hereunder in the ordinary course
of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute
any of the Securities (this representation and warranty not limiting
such Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable
federal and state securities laws.)
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures, or
receives payments of principal or interest in shares of Common Stock on
such Debenture, it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act (an "Accredited Investor"). Such
Purchaser has not been formed solely for the purpose of acquiring the
Securities. Such Purchaser is not a registered broker-dealer under
Section 15 of the Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment. Such Purchaser has been
furnished access to such information and documents as it has requested
and has been afforded an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and
conditions of this Agreement and the purchase of the Securities
contemplated hereby.
(e) General Solicitation; Investigation. Such Purchaser is not
purchasing the Securities as a result of any advertisement, article,
notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or
radio or presented at any seminar or any other general solicitation or
general advertisement.
-16-
(f) Certain Fees. No brokerage or finder's fees or commissions
are or will be payable by such Purchaser to any broker, financial
adviser or consultant, finder, placement agent, investment banker, bank
or other Person with respect to the transactions contemplated by this
Agreement, and such Purchaser has not taken any action that would cause
the Company to be liable for any such fees or commissions. Such
Purchaser agrees that the Company shall have no obligation with respect
to any fees or with respect to any claims made by or on behalf of any
Person for fees of the type contemplated by this Section with the
transactions contemplated by this Agreement.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws and, unless such transfer is pursuant
to an effective registration statement under the Securities Act or
pursuant to Rule 144, may only be transferred to an Accredited
Investor. In connection with any transfer of Securities other (i) than
pursuant to an effective registration statement or Rule 144 (provided,
as to any transfers pursuant to Rule 144, reasonable and customary
documentation is provided to the Company by the holder thereof), or
(ii) to the Company, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor
and reasonably acceptable to the Company, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of
transfer, any such transferee (other than a transferee in a transfer
pursuant to clause (i) of the preceding sentence) shall agree in
writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is
required by this Section 4.1(b), of the following legend on any
certificate evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH
EFFECT, THE SUBSTANCE OF
-17-
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. [THE TRANSFER OF
THIS SECURITY [AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY] ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH
HEREIN.] THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement or grant a
security interest in some or all of the Securities to a financial
institution that is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith; provided, however, that such pledgee, secured
party, or other transferee shall be required to comply with the terms
of the last sentence of Section 4.1(a). Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the
Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder. Any such pledgee shall otherwise be bound by the provisions
of this Agreement.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k); provided, however, in connection with the
issuance of the Underlying Shares, each Purchaser, severally and not
jointly with the other Purchasers, hereby agrees to adhere to and abide
by all prospectus delivery requirements under the Securities Act and
rules and regulations of the Commission. The Company shall cause its
counsel to issue direction to the Company's transfer agent promptly
after the Effective Date if required by the Company's transfer agent to
effect the removal of the legend hereunder. If all or any portion of a
Debenture or Warrant is converted or exercised (as applicable) at a
time when there is an effective registration statement to cover the
resale of the Underlying Shares, or if such Underlying Shares may be
sold under Rule 144(k) then such Underlying Shares shall be issued free
of all legends. The Company agrees that following the Effective Date or
at such time as such legend is no longer required under this Section
4.1(c), it will, no later than five Trading Days following the delivery
by a Purchaser to the Company or the Company's transfer agent of a
certificate representing Underlying Shares issued with a restrictive
legend (such fifth Trading Day, the "Legend Removal Date"), deliver or
cause to be delivered to such Purchaser a certificate
-18-
representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $5,000 of Underlying Shares
(based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to this Section 4.1(c), $25 per Trading
Day (increasing to $50 per Trading Day 3 Trading Days after such
damages have begun to accrue) for each Trading Day after the second
Trading Date after the applicable Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit
such Purchaser's right to pursue actual damages for the Company's
failure to deliver certificates representing any Securities as required
by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief. Notwithstanding anything herein to the contrary, liquidated
damages hereunder that accrue as to any delivered Shares or Warrant
Shares shall not be payable to a Purchaser to the extent that the
Purchaser has previously demanded, as to such Securities, liquidated
damages pursuant to Section 4(b)(ii) of the Debenture or "buy-in"
compensation pursuant to Section 4(b)(iii) of the Debenture or "buy-in"
compensation pursuant to Section 3(a) of the Warrant, each as the case
may be.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including its obligation to issue the Underlying Shares pursuant to
the Transaction Documents, are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction, regardless of the effect of
any such dilution or any claim the Company may have against any Purchaser and
regardless of the dilutive effect that such issuance may have on the ownership
of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act; provided, however, that such obligation shall cease at such time
as Purchaser is eligible to sell such Securities pursuant to Rule 144(k). The
Company further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
4.4 Integration. The Company shall not, and shall use best efforts to
ensure that no Affiliate of the Company 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 Securities in a manner that would require the registration under the
-19-
Securities Act of the sale of the Securities to the Purchasers, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the
Company's certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.
(c) The Company shall, if applicable: (i) in the time and
manner required by the Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps reasonably
necessary to cause such shares of Common Stock to be approved for
listing on the Trading Market as soon as possible thereafter, (iii)
provide to the Purchasers evidence of such listing, and (iv) maintain
the listing of such Common Stock on any date at least equal to the
Required Minimum on such date on such Trading Market or another Trading
Market.
4.6 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures (provided, as to any
transfers pursuant to Rule 144, the Company may request of the holder thereof
reasonable and customary documentation usually required for such transactions).
No additional legal opinion or other information or instructions shall be
required of the Purchasers to exercise their Warrants or convert their
Debentures (provided, as to any transfers pursuant to Rule 144, the Company may
request of the holder thereof reasonable and customary documentation usually
required for such transactions). The Company shall honor exercises of the
Warrants and conversions of the Debentures and shall deliver Underlying Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
4.7 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date of this Agreement, issue
a press release or file a Current Report on Form 8-K reasonably acceptable to
each Purchaser disclosing all material terms of the transactions contemplated
hereby. The Company and the Purchasers shall consult with each other in issuing
any press releases with respect to the transactions contemplated hereby and
neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press
-20-
release of any Purchaser, or without the prior consent of each Purchaser with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, except as required by law, other than in any registration statement
filed pursuant to the Registration Rights Agreement and filings related thereto,
the Company shall not publicly disclose the name of any Purchaser, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide each Purchaser with prior
notice of such disclosure.
4.8 Non-Public Information. Other than a Subsequent Financing Notice
pursuant to Section 4.13, the Company covenants and agrees that neither it nor
any other Person acting on its behalf will provide any Purchaser or its agents
or counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Purchaser shall have executed
a written agreement regarding the confidentiality and use of such information.
The Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
4.9 [RESERVED]
4.10 Reimbursement. If any Purchaser becomes involved in its capacity
as such in any Proceeding by a stockholder of the Company, solely as a result of
such Purchaser's acquisition of the Securities under this Agreement and without
causation by any other activity, obligation, condition or liability on the part
of, or pertaining to such Purchaser and not to the purchase of Securities
pursuant to this Agreement, the Company will reimburse such Purchaser for its
reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations (and
limitations thereon) of the Company under this paragraph shall be in addition to
any liability which the Company may otherwise have, shall extend upon the same
terms and conditions to any Affiliates of the Purchasers who are actually named
in such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchasers and any such Affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement
except to the extent any provision of the Transaction Documents is breached.
4.11 Shareholders Rights Plan. In the event that a shareholders rights
plan is adopted by the Company, no claim will be made or enforced by the Company
or any other Person that any Purchaser is an "Acquiring Person" under the plan
or in any way could be deemed to trigger the provisions of such plan by virtue
of receiving Securities under the Transaction Documents.
-21-
4.12 [RESERVED].
4.13 Participation in Future Financing. From the date hereof until 12
months after the Effective Date, upon any financing by the Company of its
Capital Shares or Capital Shares Equivalents (a "Subsequent Financing"), each
Purchaser shall have the right to participate in such Subsequent Financing for
all or part of the Subsequent Financing up to the lesser of (a) the greater of
(i) the portion of the Subsequent Financing not subscribed for by the purchasers
in the Vertical Ventures Financing (as defined below) pursuant to the preemptive
rights granted to them in connection with the Vertical Ventures Financing and
(ii) a percentage of the Subsequent Financing equal to (A) the aggregate
principal amount of all Debentures converted prior to the date of the Subsequent
Financing ("Converted Principal Amount"), divided by (B) the sum of (I) the
Converted Principal Amount and (II) the aggregate purchase price paid for the
all of the units in the Vertical Ventures Financing and (b) 50% of such
Subsequent Financing (such lesser amount, the "Participation Maximum"). At least
5 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such Purchaser
if it wants to review the details of such financing (such additionally notice, a
"Subsequent Financing Notice"). Upon the request of a Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than 1 Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing is proposed to be effected, and attached to
which shall be a term sheet or similar document relating thereto. Each Purchaser
shall have until 6:30 p.m. (New York City time) on the first Trading Day after
all of the Purchasers have received the Pre-Notice to notify the Company in
writing of their willingness to participate in the Subsequent Financing (the
"Notice Deadline"). From and after the Notice Deadline, if the Purchasers'
aggregate commitment to participate in the Subsequent Financing is less than the
Participation Maximum, the Company may effect the uncommitted portion of the
Participation Maximum on terms no less favorable to the Company than those set
forth in the Subsequent Financing Notice. If the Company receives no notice from
a Purchaser as of such 3rd Trading Day, or if a Purchaser fails to respond to a
Pre-Notice within one Trading Day, such Purchaser shall be deemed to have
notified the Company that it does not elect to participate. The Company must
provide the Purchasers with a second Subsequent Financing Notice, and the
Purchasers will again have the right of participation set forth above in this
Section 4.13, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice. In the event the Company receives responses
to Subsequent Financing Notices from Purchasers seeking to purchase more than
the Participation Maximum, each such Purchaser shall have the right to purchase
their Pro Rata Portion (as defined below) of the Participation Maximum. "Pro
Rata Portion" is the ratio of (x) the principal amount of Debentures purchased
by a participating Purchaser to (y) the sum of the aggregate principal amount of
Debentures issued hereunder to participating Purchasers. Notwithstanding
anything to the contrary herein, this Section 4.13 shall not apply to the
following (a) the granting of options to employees, officers and directors of
the Company pursuant to any stock option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company
-22-
or a majority of the members of a committee of non-employee directors
established for such purpose, or (b) the exercise of a Debenture or any other
security issued by the Company in connection with the offer and sale of this
Company's securities pursuant to this Agreement, or (c) the exercise of or
conversion of any Capital Shares Equivalents issued and outstanding on the
Closing Date, provided such securities have not been amended since the date
hereof, or (d) the issuance of Capital Shares or Capital Share Equivalents in
exchange for stock or assets of any other Person or (e) the private placement of
up to 5 million units, each unit consisting of one share of Common Stock and a
warrant to purchase one share of Common Stock at an exercise price of not less
than $1.50 per share, subject to customary anti-dilution protection, with a
price per unit of not less than $1.50 per share (the "Vertical Ventures
Financing").
4.14 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the same Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Debenture holders as a class and shall
not in any way be construed as the Purchasers acting in concert or as a group
with respect to the purchase, disposition or voting of Securities or otherwise.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. At the Closing, the Company has agreed to
reimburse Omicron Master Trust ("Omicron") $35,000 for its legal fees and
expenses incurred in connection with the Transaction documents ($15,000 of which
has been received). Accordingly, in lieu of the foregoing payments, the Company,
on the Closing Date, will direct that the aggregate amount that Omicron is to
pay for the Debentures and Warrants at the Closing, be reduced by $20,000.
Except as expressly set forth in the Transaction Documents to the contrary, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all transfer agent fees, stamp taxes and other
taxes and duties levied in connection with the issuance of any Securities.
5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via
-23-
facsimile at the facsimile number specified on the signature page attached
hereto prior to 5:30 p.m. (New York City time) on a Trading Day and an
electronic confirmation of delivery is received by the sender, (b) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section on a
day that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) three Trading Days following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The addresses
for such notices and communications are those set forth on the signature pages
hereof, or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement and the Registration Rights Agreement to any
Person to whom such Purchaser assigns or transfers any Securities.
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.8 Governing Law; Venue; Waiver of Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of the
Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York, borough of
Manhattan (the "New York Courts"). Each party hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in
-24-
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that the New York Courts are an improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereto hereby
irrevocably waive, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
the Transaction Documents or the transactions contemplated thereby. If either
party shall commence an action or proceeding to enforce any provisions of this
Agreement, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys' fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.
5.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.
-25-
5.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested.
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.15 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.16 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal
-26-
balance of any such indebtedness or be refunded to the Company, the manner of
handling such excess to be at such Purchaser's election.
5.17 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in their review
and negotiation of the Transaction Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through FW. FW does not represent all of the
Purchasers but only Omicron. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the Purchasers.
(Signature Pages Follow)
-27-
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
LMIC, INC.
By: /s/
--------------------------------
Name: Xxxx X. Xxxxxxx
Title: President & CEO
Address for Notice:
Attn: Xxxx-Xxxxx Xxxxx
Tel: 000.000.0000
Fax: 000.000.0000
With a copy to:
--------------
(which shall not constitute notice)
Xxxxxxx Xxxx & Xxxxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
-28-
[PURCHASER'S SIGNATURE PAGE - LMII]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
OMICRON MASTER TRUST Address for Notice:
------------------
By: Omicron Capital L.P., as advisor c/o Omicron Capital L.P.
By: Omicron Capital Inc., its general partner 000 Xxxxxxx Xxxxxx, 00xx Xx.
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
By: /s/ Attn: Xxxxx Xxxx
-----------------------------
Name: Xxxxx Xxxxxxxxx
Title:
Subscription Amount: $
Warrant Shares:
Tax Identification No.:
With a copy to:
--------------
(which shall not constitute notice) Xxxxxxx Xxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
-29-
