EXECUTION VERSION
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of July
6, 2006 among Pride Business Development Holdings, Inc. a Nevada corporation
(the "Company"), and each purchaser 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 agree
as follows:
ARTICLE 1
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 Notes (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. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.
"BUSINESS DAY" means any day except Saturday, Sunday, any day which shall
be a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"CLOSING DATES" means, collectively, the dates of the First Closing and
Second Closing.
"CLOSINGS" means collectively, the closings of the purchase and sale of
the Securities pursuant to Section 2.1, and any reference to "Closing" or
"Closings" shall be construed to include the First Closing and the Second
Closing unless a specific Closing is expressly referred to.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter have been reclassified or changed into.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"COMPANY COUNSEL" means Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP with offices
located at 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
"CONVERSION PRICE" shall have the meaning ascribed to such term in the
Notes.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such term in
Section 3.1.
"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.
"EVALUATION DATE" shall have the meaning ascribed to such term in Section
3.1(r).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXEMPT ISSUANCE" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any stock
or option plan duly adopted by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange or
conversion price of any such securities, and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors, provided that any such issuance shall only be to a
Person which is, itself or through its subsidiaries, an operating company in a
business synergistic with the business of the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities.
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"FIRST CLOSING" shall have the meaning ascribed to such term in Section
2.1 hereof.
"FIRST CLOSING DATE" means the date of the First Closing.
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to such
term in Section 3.1(o).
"LEGEND REMOVAL DATE" shall have the meaning ascribed to such term in
Section 4.1(c).
"LIENS" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to such term in
Section 3.1(b).
"MATERIAL PERMITS" shall have the meaning ascribed to such term in Section
3.1(m).
"MAXIMUM RATE" shall have the meaning ascribed to such term in Section
5.17.
"NOTES" mean the 8% Secured Convertible Notes due, subject to the terms
therein, one year from their date of issuance, issued by the Company to the
Purchasers hereunder in the Form of Exhibit A hereto.
"PARTICIPATION MAXIMUM" shall have the meaning ascribed to such term in
Section 4.13.
"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.
"PRE-NOTICE" shall have the meaning ascribed to such term in Section 4.13.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"PURCHASER PARTY" shall have the meaning ascribed to such term in Section
4.11.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated the date hereof, among the Company and the Purchasers, in form of Exhibit
B attached hereto.
"REGISTRATION STATEMENT" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Shares and 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).
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"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 Notes (including
Underlying Shares issuable as payment of interest), ignoring any conversion or
exercise limits set forth therein, and assuming that the Conversion Price is at
all times on and after the date of determination 75% of the then Conversion
Price on the Trading Day immediately prior to the date of determination.
"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).
"SECOND CLOSING" shall have the meaning ascribed to such term in Section
2.1 hereof.
"SECOND CLOSING DATE" means the date of the Second Closing.
"SECURITIES" means the Notes, the Warrants, the Warrant Shares, the Shares
and the Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" means the Security Agreement, dated the date hereof,
among the Company, its Subsidiaries and the Purchasers, in the form of Exhibit C
attached hereto.
"SECURITY DOCUMENTS" means the Security Agreement, the Subsidiary
Guarantees and any other documents and filings contemplated thereunder, in order
to grant the Purchasers a first priority security interest in the assets of the
Company as provided in the Security Agreement, including all UCC-1 financing
statements.
"SERIES A WARRANTS" means collectively the Common Stock purchase warrants,
in the form of Exhibit D delivered to the Purchasers at the Closings in
accordance with Section 2.2(a)(iv) hereof, which Warrants shall be exercisable
immediately and have a term of exercise equal to two (2) years following the
Effective Date.
"SERIES B WARRANTS" means collectively the Common Stock purchase warrants,
in the form of Exhibit E delivered to the Purchasers at the Closings in
accordance with Section 2.2(a)(v) hereof, which Warrants shall be exercisable
immediately and have a term of exercise equal to five (5) years following the
date hereof.
"SCEG" means Xxxxx Xxxxxx Xxxxxxx & Xxxxx P.C. with offices at Xxx
Xxxxxxxxxx Xxxxx, Xxxxxx, Xxx Xxxxxx 00000.
"SHARES" means the shares of Common Stock issued at Closing to each
Purchaser pursuant to this Agreement.
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"SHORT SALES" shall include all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act.
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the aggregate amount to
be paid for Notes, Shares and Warrants purchased hereunder 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.
"SUBSEQUENT FINANCING" shall have the meaning ascribed to such term in
Section 4.13.
"SUBSEQUENT FINANCING NOTICE" shall have the meaning ascribed to such term
in Section 4.13.
"SUBSIDIARY" means any subsidiary of the Company as set forth on Schedule
3.1(a).
"SUBSIDIARY GUARANTEE" means the Subsidiary Guarantee, dated the date
hereof, by each Subsidiary in favor of the Purchasers, in the form of Exhibit F
attached hereto.
"TRADING DAY" means a day on which the Common Stock is traded on a Trading
Market.
"TRADING MARKET" means any of the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question: the
Nasdaq Capital Market, the American Stock Exchange, the New York Stock Exchange
or the Nasdaq National Market, or the OTC Bulletin Board.
"TRANSACTION DOCUMENTS" means this Agreement, the Notes, the Warrants, the
Security Agreement, the Subsidiary Guarantee, the Registration Rights Agreement
and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"UNDERLYING SHARES" means the shares of Common Stock issued and issuable
upon conversion of the Notes and upon exercise of the Warrants and issued and
issuable in lieu of the cash payment of interest on the Notes in accordance with
the terms of the Notes.
"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 L.P. (based on a
Trading Day from 9:30 a.m. New York City Time to 4:02 p.m. New York City Time);
(b) if the OTB Bulletin Board is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the "Pink Sheets" published by the Pink Sheets, LLC (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; or (d) 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.
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"WARRANTS" means collectively the Series A Warrants and Series B Warrants.
"WARRANT SHARES" means the shares of Common Stock issuable upon exercise
of the Warrants.
ARTICLE 2
PURCHASE AND SALE
2.1 CLOSING. Upon the terms and subject to the conditions set forth
herein, the Company agrees to sell, and each Purchaser agrees to purchase in the
aggregate, severally and not jointly, up to $355,000 principal amount of the
Notes and the Warrants and Shares in the amounts set forth on the signature
pages hereto. Upon satisfaction of the conditions set forth in Sections 2.2 and
2.3, the Closings shall occur at the offices of SCEG, or such other location as
the parties shall mutually agree.
(a) First Closing. The First Closing shall be for an aggregate
Subscription Amount of $177,500, and shall occur on the date hereof.
(b) Second Closing. The Second Closing shall be for an aggregate
Subscription Amount of $177,500, and shall occur within 5 Trading Days following
the filing by the Company of its Form 10-QSB for the quarter ended March 31,
2006.
2.2 DELIVERIES.
(a) At or prior to each Closing, the Company shall deliver or cause
to be delivered to each Purchaser the following:
(i) as to the First Closing only, this Agreement duly executed
by the Company;
(ii) as to the First Closing only, a legal opinion of Company
Counsel, in a form reasonably acceptable to the Purchasers, regarding the
legality of the transaction;
(iii) a Note with a principal amount equal to such Purchaser's
Subscription Amount, registered in the name of such Purchaser;
(iv) a Series A Warrant to purchase up to a number of shares
of Common Stock equal to 100% of such Purchaser's Subscription Amount divided by
$0.50, with an exercise price equal to $1.00, subject to adjustment therein,
registered in the name of such Purchaser;
(v) a Series B Warrant to purchase up to a number of shares of
Common Stock equal to 100% of such Purchaser's Subscription Amount divided by
$0.50, with an exercise price equal to $0.85, subject to adjustment therein,
registered in the name of such Purchaser;
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(vi) a certificate evidencing a number of shares equal to 858
Shares per $1,000 of such Purchaser's Subscription Amount, registered in the
name of such Purchaser;
(vii) as to the First Closing only, the Registration Rights
Agreement duly executed by the Company;
(viii) as to the First Closing only, the Security Agreement,
duly executed by the Company and each Subsidiary along with all of the other
Security Documents, including the Subsidiary Guarantee, duly executed by the
parties thereto.
(ix) as to the First Closing only, the written agreement, in
the form of Exhibit G attached hereto, of all of the executive officers,
directors and shareholders holding more than 10% of the issued and outstanding
shares of Common Stock on the date hereof to not dispose of any Common Stock or
Common Stock Equivalents held by them as set forth therein (the "Lock-up
Agreements");
(x) as to the First Closing only, a Personal Guarantee, duly
executed by Xxxxxxxx Xxxxxx in favor of the Purchasers, in the form of Exhibit H
attached hereto; and
(xi) as to the First Closing only, a Stock Pledge Agreement,
duly executed by Xxxxxxxx Xxxxxx in favor of the Purchasers, in the form of
Exhibit I hereto.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) as to the First Closing only, this Agreement duly executed
by such Purchaser;
(ii) as to the First Closing only, the Security Agreement duly
executed by such Purchaser;
(iii) such Purchaser's Subscription Amount by wire transfer to
the account as specified by the Company;
(iv) as to the First Closing only, the Registration Rights
Agreement duly executed by such Purchaser; and
(v) the Stock Pledge Agreement duly executed by such
Purchaser.
2.3 CLOSING CONDITIONS.
(a) The obligations of the Company hereunder in connection with each
Closing are subject to the following conditions being met:
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(i) the accuracy when made and on such Closing Date of the
representations and warranties of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to such Closing Date shall have
been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being met:
(i) the accuracy on such Closing Date of the representations
and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to such Closing Date shall have been
performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(v) from the date hereof to such Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or Company's
principal Trading Market (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 such Closing Date, trading in securities
generally as reported by Bloomberg 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 any 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 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 each Purchaser, makes it impracticable
or inadvisable to purchase the Notes at such Closing.
ARTICLE 3
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, the Company hereby makes the
representations and warranties set forth below to each Purchaser as of the date
hereof and as of the applicable Closing Date as follows:
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(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 Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities. If the Company has no subsidiaries, then all other
references in the Transaction Documents to the Subsidiaries or any of them will
be disregarded.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company's ability to perform a timely basis its obligations under
any Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms except (i) as limited by 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.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
other transactions contemplated hereby and thereby do not and will not: (i)
conflict with or violate any provision of the Company's or any Subsidiary's
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect. Payments of cash on account of principal of
or interest under the Notes, upon any Event of Default under the Notes, as a
result of liquidated damages under any Transaction Document or upon a Buy-In
under and as such term is defined in a Note or a Warrant will not require the
consent of, any payment to, or the creation of any Lien in favor of any lender
to or creditor of the Company or any Subsidiary (under a credit facility, loan
agreement or otherwise) and will not result in a default under any such credit
facilities, loans or other agreements.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) filings required pursuant to Section 4.6, (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 Securities 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 such filings as are required to be made under applicable state
securities laws (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Underlying Shares, when
issued in accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company. The Company has reserved from its duly authorized
capital stock a number of shares of Common Stock for issuance of the Underlying
Shares at least equal to the Required Minimum calculated as of the date hereof.
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(g) Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock of the Company, and all shares of Common
Stock reserved for issuance pursuant to convertible, exercisable or exchangeable
securities of the Company or under the Company's various option and incentive
plans, is specified in Schedule 3.1(g). The Company has not issued any capital
stock since its most recently filed periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and pursuant to
the conversion or exercise of outstanding Common Stock Equivalents. 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 exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. The issuance and sale of the Securities will not,
immediately or with the passage of time, 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 any of such securities. All
of the outstanding shares of capital stock of the Company are validly issued,
fully paid and nonassessable, have been issued in compliance with all federal
and state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. 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. 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; Press Releases. Except, with
respect to the First Closing, for the Company's Form 10-QSB for the quarter
ended March 31, 2006, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the "SEC Reports") on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company included in
the SEC Reports comply with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present the financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. The press releases disseminated by the
Company during the twelve (12) months preceding the date of this Agreement do
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made,
not misleading.
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(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
a subsequent SEC Report, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables, accrued expenses and other liabilities
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 disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting or 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 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 plans and other
compensation arrangements. The Company does not have pending before the
Commission any request for confidential treatment of information. No event,
liability or development has occurred or exists with respect to the Company or
its Subsidiaries or their respective business, properties, operations or
financial condition, that is required to be disclosed by the Company on Form 8-K
under the Exchange Act at the time this representation is made that has not been
publicly disclosed at least one Trading Day prior to the date that this
representation is made.
(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) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor 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. 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.
12
(k) Labor Relations. No labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company.
None of the Company's or its Subsidiaries' employees is a member of a union that
relates to such employee's relationship with the Company, and neither the
Company or any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good. No executive officer is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and, the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business except in each case as could not have
a Material Adverse Effect.
(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 could not 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.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them, in each case free and
clear of all Liens, except for Liens as do not affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company and the Subsidiaries and Liens for the payment of federal, state
or other taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the Company and
the Subsidiaries are held by them under valid, subsisting and enforceable leases
with which the Company and the Subsidiaries are in compliance.
(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, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have, or reasonably be
expected to have, a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). Neither the Company nor any Subsidiary has received a notice
(written or otherwise) that the Intellectual Property Rights used by the Company
or any Subsidiary 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 of others. The Company and its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of all of their intellectual properties.
13
(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, including, but not limited to, product
liability insurance and directors and officers liability insurance coverage each
at least equal to the aggregate Subscription Amount. To the knowledge of the
Company, such insurance contracts and policies are accurate and complete.
Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.
(q) Customers and Suppliers. No customer that was significant to the
Company during the last 12 months or that is expected to be significant to the
Company during the next 12 months, has terminated, materially reduced, or
threatened to terminate or materially reduce, its purchases from the Company. No
supplier that was significant to the Company during the last 12 months or that
is expected to be significant to the Company during the next 12 months, has
terminated, materially reduced, or threatened to terminate or materially reduce,
its provision or products and services to the Company.
(r) Contract. The Company's exclusive trademark license agreement
with Xxxxx & Wesson Holding Corporation ("S&W") is a valid and binding
obligation of the Company and, to the knowledge of the Company, of S&W. The
Company has duly performed its obligations under such license agreement and, to
the knowledge of the Company, S&W has performed its obligations thereunder.
Neither the Company nor, to the knowledge of the Company, S&W is in breach of
any term or provision of such license agreement.
(s) 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, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option or stock grant agreements under any stock plans of the
Company.
14
(t) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002 which are
applicable to it as of the Closing Date. The Company's certifying officers have
evaluated the effectiveness of the Company's internal controls and disclosure
controls and procedures as of the end of the period covered by the Company's
most recently filed periodic report under the Exchange Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed periodic
report under the Exchange Act 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 changes in the Company's internal control over financial reporting (as
such term is defined in the Exchange Act or that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
(u) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by the Transaction Documents.
(v) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers' as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(w) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not be or
be an Affiliate of, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.
(x) Registration Rights. Other than each of the Purchasers and
except as set forth on Schedule (x), no Person has any right to cause the
Company to effect the registration of its securities (including pursuant to
piggy-back registration rights) under the Securities Act of any securities of
the Company.
(y) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(b) or 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 two
years 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.
15
(z) 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
could 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 without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the Securities.
(aa) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, 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 constitutes or might constitute material, nonpublic information. The
Company understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the Company. All
disclosure furnished by or on behalf of the Company to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, including
the Disclosure Schedules to this Agreement, 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.
(bb) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market on which any of the securities of the Company
are listed or designated.
(cc) Solvency. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the fair saleable value
of the Company's assets exceeds the amount that will be required to be paid on
or in respect of the Company's existing debts and other liabilities (including
known contingent liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its liabilities when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. Schedule 3.1(cc) sets forth as of the
dates thereof all outstanding secured and unsecured Indebtedness of the Company
16
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 (other than trade accounts
payable incurred in the ordinary course of business) in excess of $50,000, (b)
all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, 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 or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is
in default with respect to any Indebtedness.
(dd) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.
(ee) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities by any
form of general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other "accredited
investors" within the meaning of Rule 501 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 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 any provision of the Foreign Corrupt Practices Act of
1977, as amended.
(gg) Accountants. The Company's auditors are set forth on Schedule
3.1(ff) of the Disclosure Schedule. To the knowledge of the Company, such
auditors, who the Company expects will express their opinion with respect to the
financial statements to be included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2005 are a registered public accounting firm as
required by the Securities Act.
(hh) Absence of Any Undisclosed Liabilities. There are no
liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the Company's financial statements and (ii) other
undisclosed liabilities which, individually or in the aggregate, could not have,
or reasonably be expected to result in, a Material Adverse Effect.
17
(ii) Seniority. As of the Closing Date, no indebtedness or other
claim against the Company is senior to the Notes in right of payment, whether
with respect to interest or upon liquidation or dissolution, or otherwise, other
than indebtedness secured by purchase money security interests (which is senior
only as to underlying assets covered thereby) and capital lease obligations
(which is senior only as to the property covered thereby).
(jj) No Disagreements with Auditors and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the company and the auditors and lawyers formerly or
presently employed by the Company and the Company is current with respect to any
fees owed to its auditors and lawyers.
(kk) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting solely
in the capacity of an arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers' purchase of the Securities. The Company
further represents to each Purchaser that the Company's decision to enter into
this Agreement and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
(ll) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged
by the Company (i) that none of the Purchasers have been asked to agree, nor has
any Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that past
or future open market or other transactions by any Purchaser, including Short
Sales, and specifically including, without limitation, Short Sales or
"derivative" transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company's
publicly-traded securities; (iii) that any Purchaser, and counter parties in
"derivative" transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a "short" position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with or control
over any arm's length counter-party in any "derivative" transaction. The Company
further understands and acknowledges that (a) one or more Purchasers may engage
in hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Underlying Shares deliverable with respect to Securities are being
determined and (b) such hedging activities (if any) could reduce the value of
the existing stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company acknowledges that
such aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.
18
(mm) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation
for soliciting purchases of, any of the securities of the Company or (iii) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the applicable Closing Date to the Company as follows:
(a) Organization; Authority. If such Purchaser is not an individual,
such Purchaser is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. If such Purchaser is not an
individual, the execution, delivery and performance by such Purchaser of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action on the part of such Purchaser. Each
Transaction Document to which it is a party 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 of such
Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Own Account. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no arrangement or understanding with any other persons
regarding the distribution of such 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) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities hereunder in
the ordinary course of its business.
(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 Notes it will be either: (i) an
"accredited investor" as defined in Rule 501 under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the Securities
Act. Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
19
(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.
(e) General Solicitation. 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.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other
than the transaction contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including Short
Sales (but not including the location and/or reservation of borrowable shares of
Common Stock), in the securities of the Company during the period commencing
from the time that such Purchaser first received a term sheet from the Company
or any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof ("Discussion Time").
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement. Other than to other Persons party to this Agreement,
such Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).
The Company acknowledges and agrees that no Purchaser has made or makes
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE 4
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
20
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any of the Securities in the following
form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY 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 TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON
[EXERCISE] [CONVERSION] OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. 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, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(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
21
(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), or
(iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Company's transfer agent promptly
after the events set forth above if required by the Company's transfer agent to
effect the removal of the legend hereunder.
If all or any portion of a Note 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) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) 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 three (3) Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent of a
certificate representing Underlying Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the "Legend Removal Date"), deliver
or cause to be delivered to such Purchaser a certificate 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.
Certificates for Underlying Shares subject to legend removal hereunder shall be
transmitted by the transfer agent of the Company to the Purchasers by crediting
the account of the Purchaser's prime broker with the Depository Trust Company
System.
(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 $1,000 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 Section
4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading
Days after such damages have begun to accrue) for each Trading Day after the
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.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the
Company's reliance that the Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom.
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(f) Until the one year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or reclassification
of the Common Stock without the prior written consent of the Purchasers holding
a majority in principal amount outstanding of the Notes.
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.
Additionally, the Company acknowledges that a Purchaser's trading activity prior
to, or during, any conversion of its Note could result in a substantial decrease
in the market price of the Common Stock at the time of the conversion resulting
in the issuance by the Company of a greater number of shares of Common Stock to
the Purchaser pursuant to such conversion, causing further dilution of the
outstanding shares of Common Stock. The Company further acknowledges that its
obligations under the Transaction Documents, including without limitation 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. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. 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 requirements of the exemption provided by Rule 144.
4.4 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the 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. If the Company sells, offers for sale or
solicits offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) prior to the 180th day following the
Closing Date, the Company will obtain a ruling from NASDAQ that such transaction
will not be integrated with the offer or sale of the Securities hereunder for
purposes of the rules and regulations of any Trading Market, to the extent the
Company is then listed on a Trading Market.
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4.5 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Notes set forth the totality of the procedures required of the Purchasers in
order to exercise the Warrants or convert the Notes. No additional legal opinion
or other information or instructions shall be required of the Purchasers to
exercise their Warrants or convert their Notes. The Company shall honor
exercises of the Warrants and conversions of the Notes and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30 a.m.
New York City time on the Trading Day following the date hereof, issue a Current
Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby, and shall attach the Transaction Documents thereto. The
Company and each Purchaser shall consult with each other in issuing any other
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 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, 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, 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 (i) as required by federal securities law in connection with
(A) any registration statement contemplated by the Registration Rights Agreement
and (ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under this subclause.
4.7 SHAREHOLDER RIGHTS PLAN. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar plan or arrangement in effect or hereafter adopted by the Company, or
that any Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Purchasers. The Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 NON-PUBLIC INFORMATION. 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 USE OF PROCEEDS. Except as set forth on Schedule 4.9 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and not for the satisfaction of any portion of the
Company's debt (other than payment of trade payables in the ordinary course of
the Company's business and prior practices), to redeem any Common Stock or
Common Stock Equivalents or to settle any outstanding litigation.
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4.10 REIMBURSEMENT. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under 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 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.
4.11 INDEMNIFICATION OF PURCHASERS. The Company will indemnify and hold
each Purchaser and its directors, officers, shareholders, members, partners,
employees and agents and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, shareholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling person (each, a "Purchaser Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a conflict on any material issue between the position of
the Company and the position of such Purchaser Party, in which case the Company
shall be responsible for the reasonable fees and expenses of such separate
counsel. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents.
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4.12 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, as soon as reasonably practicable, prepare
and file with a Trading Market a listing application covering a number of shares
of Common Stock at least equal to all of the Company's outstanding shares on the
date of the application plus the number of the Required Minimum on the date of
such application, (ii) take all reasonable steps necessary to cause such shares
of Common Stock to be approved for listing on such 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.
4.13 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date that is the twelve (12)
month anniversary of the Effective Date upon any issuance by the Company or any
of its Subsidiaries of Common Stock or Common Stock Equivalents (a "Subsequent
Financing"), each Purchaser shall have the right to participate in up to an
amount of the Subsequent Financing equal to 100% of the Subsequent Financing
(the "Participation Maximum").
(b) At least ten (10) 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 additional 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 or Persons through or with whom such
Subsequent Financing is proposed to be effected, and attached to which shall be
a term sheet or similar document relating thereto.
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(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than 5:30 p.m.
(New York City time) on the 10th Trading Day after all of the Purchasers have
received the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser's participation, and that the
Purchaser has such funds ready, willing, and available for investment on the
terms set forth in the Subsequent Financing Notice. If the Company receives no
notice from a Purchaser as of such 10th Trading Day, such Purchaser shall be
deemed to have notified the Company that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 10th Trading Day
after all of the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing (or
to cause their designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and with the Persons
set forth in the Subsequent Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the 10th Trading Day
after all of the Purchasers have received the Pre-Notice, the Company receives
responses to a Subsequent Financing Notice from Purchasers seeking to purchase
more than the aggregate amount of the Participation Maximum, each such Purchaser
shall have the right to purchase the greater of (a) their Pro Rata Portion (as
defined below) of the Participation Maximum and (b) the difference between the
Participation Maximum and the aggregate amount of participation by all other
Purchasers. "Pro Rata Portion" is the ratio of (x) the Subscription Amount of
Securities purchased on the Closing Date by a Purchaser participating under this
Section 4.13 and (y) the sum of the aggregate Subscription Amounts of Securities
purchased on the Closing Date by all Purchasers participating under this Section
4.13.
(f) 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 forty-five (45)
Trading Days after the date of the initial Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect of (i) an Exempt Issuance or (ii) an underwritten public offering of
Common Stock.
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 Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Notes in
amounts which are disproportionate to the respective principal amounts
outstanding on the Notes at any applicable time. 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 for the
Company to treat the Purchasers 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.
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4.15 SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it nor any Affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time and ending at the time that the transactions contemplated
by this Agreement are first publicly announced as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
4.16 FORM D; BLUE SKY FILINGS. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.17 MOST FAVORED NATION PROVISION. From the date hereof until the date
that is the 12 month anniversary of the Closing Date, if the Company effects a
Subsequent Financing, each Purchaser may elect, in its sole discretion, to
exchange all or some of the Notes then held by such Purchaser for any securities
issued in a Subsequent Financing based on the aggregate principal amount of such
Notes, along with any accrued but unpaid interest and other amounts owing
thereon, and the effective price at which such securities were sold in such
Subsequent Financing; provided, however, that this Section 4.17 shall not apply
with respect to (i) an Exempt Issuance or (ii) an underwritten public offering
of Common Stock.
4.18 ENFORCEMENT OF LOCKUP AGREEMENTS. On the Closing Date, the Company
shall provide its transfer agent with copies of each Lockup Agreement, and shall
identify to the transfer agent all securities covered thereby, with
stop-transfer orders. The Company shall not authorize or acquiesce in the
transfer of any shares subject to the Lockup Agreements.
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ARTICLE 5
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the First Closing has not been consummated on or before
July 6, 2006 provided, however, that no such termination will affect the right
of any party to xxx for any breach by the other party (or parties).
5.2 FEES AND EXPENSES. The Company has agreed to reimburse the
non-accountable sum of $20,000 for its legal fees and expenses, $1,000 of which
has been paid prior to the First Closing, $14,000 of which shall be paid at the
First Closing and $5,000 of which shall be paid at the Second Closing. Except as
expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities to the
Purchasers.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service, or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and each Purchaser or, in the case of a
waiver, by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.
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5.6 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof of the Transaction Documents that apply to
the "Purchasers".
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the 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 any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 SURVIVAL. The representations, warranties, covenants and other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
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5.11 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 or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.
5.12 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other 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 Note 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.
5.14 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 (in the case of mutilation), 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. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 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 contained in the Transaction Document and hereby agrees to waive and
not to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
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5.16 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.
5.17 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 balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
5.18 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 or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other 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 Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation 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 SCEG.
SCEG does not represent all of the Purchasers but only _____________________.
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.
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5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 CONSTRUCTION. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(SIGNATURE PAGES FOLLOW)
33
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.
PRIDE BUSINESS DEVELOPMENT
HOLDINGS, INC.
By:
-----------------------
Name:
Title:
Address for Notice:
0000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
with a copy to (which shall not constitute notice)
Xxxx Xxxx, Esq.
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
SIGNATURE PAGE FOR PURCHASER FOLLOWS
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
34
PURCHASER SIGNATURE PAGES TO PRIDE SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: : _________________________
Signature of Authorized Signatory of Purchaser
Name of Authorized Signatory:
Title of Authorized Signatory:
Email Address of Purchaser:
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
First Closing Subscription Amount: $177,500
First Closing Series A Warrant Shares: 355,000
First Closing Series B Warrant Shares: 355,000
First Closing Shares: 152,295
Second Closing Subscription Amount: $177,500
Second Closing Series A Warrant Shares: 355,000
Second Closing Series B Warrant Shares: 355,000
Second Closing Shares: 152,295
EIN Number:
SIGNATURE PAGES CONTINUE
35
INVESTOR QUESTIONNAIRE CERTIFICATION
PRIDE BUSINESS DEVELOPMENT HOLDINGS, INC..
INVESTOR QUESTIONNAIRE
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
To: Pride Business Development Holdings, Inc.
This Investor Questionnaire ("Questionnaire") must be completed by each
potential investor in connection with the offer and sale of the shares of
restricted common stock and warrants of Pride Business Development Holdings,
Inc. (the "Securities"). The Securities are being offered and sold by Pride
Business Development Holdings, Inc. (the "Company") without registration under
the Securities Act of 1933, as amended (the "Act"), and the securities laws of
certain states, in reliance on the exemptions contained in Section 4(2) of the
Act and on Regulation D promulgated thereunder and in reliance on similar
exemptions under applicable state laws. The Company must determine that a
potential investor meets certain suitability requirements before offering or
selling Securities to such investor. The purpose of this Questionnaire is to
assure the Company that each investor will meet the applicable suitability
requirements. The information supplied by you will be used in determining
whether you meet such criteria, and reliance upon the private offering
exemptions from registration is based in part on the information herein
supplied.
This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security. Your answers will be kept strictly confidential.
However, by signing this Questionnaire, you will be authorizing the Company to
provide a completed copy of this Questionnaire to such parties as the Company
deems appropriate in order to ensure that the offer and sale of the Securities
will not result in a violation of the Act or the securities laws of any state
and that you otherwise satisfy the suitability standards applicable to
purchasers of the Securities. All potential investors must answer all applicable
questions and complete, date and sign this Questionnaire. Please print or type
your responses and attach additional sheets of paper if necessary to complete
your answers to any item.
A. BACKGROUND INFORMATION
Name:___________________________________________________________________________
Business Address:_______________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number: _____________________________
If an individual:
Age: __________ Citizenship: __________________
If a corporation, partnership, limited liability company, trust or other entity:
Type of entity:_________________________________________________________________
State of formation:______________________ Date of formation: ___________________
Social Security or Taxpayer Identification No.__________________________________
B. STATUS AS ACCREDITED INVESTOR
The undersigned is an "accredited investor" as such term is defined in
Regulation D under the Act, as at the time of the sale of the Securities the
undersigned falls within one or more of the following categories (Please initial
one or more, as applicable): (1)
_________________________
(1) As used in this Questionnaire, the term "net worth" means the excess
of total assets over total liabilities. In computing net worth for the purpose
of subsection (4), the principal residence of the investor must be valued at
cost, including cost of improvements, or at recently appraised value by an
institutional lender making a secured loan, net of encumbrances.
36
_____ (1) a BANK as defined in Section 3(a)(2) of the Act, or a savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity; a BROKER OR DEALER
registered pursuant to Section 15 of the Securities Exchange Act of 1934; an
INSURANCE COMPANY as defined in Section 2(13) of the Act; an INVESTMENT COMPANY
registered under the Investment Company Act of 1940 or a BUSINESS DEVELOPMENT
COMPANY as defined in Section 2(a)(48) of that Act; a SMALL BUSINESS INVESTMENT
COMPANY licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; a PLAN established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; an EMPLOYEE
BENEFIT PLAN within the meaning of the Employee Retirement Income Security Act
of 1974, if the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
the investment decisions made solely by persons that are accredited investors;
_____ (2) a PRIVATE BUSINESS DEVELOPMENT COMPANY as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
_____ (3) an ORGANIZATION DESCRIBED IN SECTION 501(C)(3) of the Internal Revenue
Code of 1986, as amended, CORPORATION, Massachusetts or similar BUSINESS TRUST,
or PARTNERSHIP, not formed for the specific purpose of acquiring the Securities
offered, with total assets in excess of $5,000,000;
_____ (4) a NATURAL PERSON whose individual net worth, or joint net worth with
that person's spouse, at the time of such person's purchase of the Securities
exceeds $1,000,000;
_____ (5) a NATURAL PERSON who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
_____ (6) a TRUST, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
and
_____ (7) an entity in which all of the equity owners are accredited investors
(as defined above).
IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this ____
day of __________, 2006, and declares under oath that it is truthful and
correct.
_________________________________________________________
Print Name
By: _____________________________________________________
Signature
Title: __________________________________________________
(required for any purchaser that is a
corporation, partnership, trust or other entity)
________________________________________________________________________________
In determining income, the investor should add to the investor's adjusted gross
income any amounts attributable to tax exempt income received, losses claimed as
a limited partner in any limited partnership, contributions to an XXX or XXXXX
retirement plan, alimony payments, and any amount by which income from long-term
capital gains has been reduced in arriving at adjusted gross income.
37
