EXHIBIT 10.5
PLACEMENT AGENCY AGREEMENT
March 3, 2006
Rim Semiconductor Company
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Ladies and Gentlemen:
This Placement Agency Agreement (the "AGREEMENT") confirms the
retention by Rim Semiconductor Company, a Utah corporation (the "COMPANY"), of
Pond Equities, Inc. (the "PLACEMENT AGENT"), to act as the exclusive placement
agent on a "best efforts" basis in connection with the private placement (the
"PLACEMENT") of Units (as defined below) of the Company on the terms set forth
in the Securities Purchase Agreement (as defined below).
1. PLACEMENT
(a) The securities of the Company which are the subject of the Placement
shall be up to Six Million Dollars ($6,000,000) of 7% Senior Secured Convertible
Debentures ("Debentures") and Warrants (the "Warrants") equal to 100 % of the
Conversion Shares (as defined in the Securities Purchase Agreement) (the
Debentures and Warrants are referred to herein as the "Units") (the "MAXIMUM
AMOUNT").
(i) The Units, the Debentures, the Warrants, the Warrant Shares and
the Placement Agent Warrants (as both defined in the Securities Purchase
Agreement) (and underlying securities) are sometimes referred to collectively
herein as the "SECURITIES."
(b) The Placement Agent will, on an exclusive basis, conduct the
Placement on a "best efforts" basis, it being understood and agreed, however,
that the Placement Agent shall have the right, in its sole discretion, to invite
other NASD member firms to participate in the Placement, and to pay (or, with
the reasonable agreement of the Company, cause the Company to pay) a portion of
the compensation to be received by the Placement Agent pursuant to this
Agreement to any such NASD member firm. The Company shall not pursue any other
equity financing (including convertible securities) of the Company's securities
during the term of this Agreement.
(c) The Initial Closing is expected to be on or before the Termination
Date (hereinafter defined) (the "INITIAL CLOSING DATE"), subject to extension by
the Placement Agent in its sole discretion without notice to investors in the
Placement (the "INVESTORS"), and Subsequent Closings may be conducted during the
Offering Period (defined below) until the date on which the Maximum Amount is
subscribed for by Investors and accepted by the Company (the "FINAL CLOSING
DATE"). Unless terminated earlier in the Company's sole discretion, the offering
period for the Placement (the "OFFERING PERIOD") will commence on the date
hereof and expire on the earlier to occur of: (i) March 31, 2006 (the
"TERMINATION DATE"), (ii) the date on which the Maximum Amount is subscribed for
and accepted by the Company or (iii) the termination of the Placement pursuant
to the terms of this Agreement. The Termination Date may be extended by an
additional 30 days by mutual agreement of the Company and the Placement Agent
without notice to the Investors.
(d) The Placement will be made pursuant to the Securities Purchase
Agreement (as defined in Section 2 below). The Securities will not be registered
under the Securities Act of 1933, as amended, or any applicable successor
statute (the "SECURITIES ACT"), but will be issued in reliance on the private
offering exemption available under Section 4(2) of the Securities Act and the
Rules and Regulations (as defined below) promulgated thereunder, including
Regulation D ("REGULATION D"). The Placement Agent understands that all
subscriptions for Units are subject to acceptance by the Company. The Company
and the Placement Agent reserve the right in their reasonable discretion to
accept or reject any or all subscriptions for Units, in whole or in part,
regardless whether any funds have been deposited into an escrow account. As used
herein, the term "RULES AND REGULATIONS" means the applicable rules and
regulations promulgated under the Securities Act and the Exchange Act.
(e) Until the Initial Closing is held, all subscription funds received
shall be held by American Stock Transfer & Trust Company (the "ESCROW AGENT") in
a non interest bearing escrow account established for such purpose (the "ESCROW
ACCOUNT"). A portion of such funds will continue to be held by the Escrow Agent
in accordance with the terms of the Securities Purchase Agreement and the Escrow
Agreement with the Escrow Agent. The Placement Agent shall not have any
independent obligation to verify the accuracy or completeness of any information
contained in any documents or the authenticity, sufficiency or validity of any
check delivered by any prospective Investor in payment for the Units, nor shall
the Placement Agent incur any liability with respect to any such verification or
failure to verify. All subscription checks and funds shall be promptly and
directly delivered without offset or deduction to the Escrow Agent for deposit
into the Escrow Account.
2. SECURITIES PURCHASE AGREEMENT AND RELATED MATTERS
(a) The Company is entering into a Securities Purchase Agreement with
each investor relating to the Placement (such agreement, together with the
exhibits, annexes and attachments thereto or available thereunder and any
amendments or supplements thereto, being referred to herein as the "SECURITIES
PURCHASE AGREEMENT"), which Securities Purchase Agreement, among other things,
describes the Placement. Capitalized terms used herein and not defined have the
meaning given to them in the Securities Purchase Agreement.
(b) The Company has been and will continue to be responsible for
preparing and filing required documentation, if any, with the authorities in the
United States or any state located therein (and subsequent to, if required by
the laws of any such jurisdiction) in connection with the distribution of the
Securities Purchase Agreement to prospective Investors (the parties
acknowledging, however, that the Placement of the Units is intended and expected
to be wholly or partially exempt from filing requirements in the United States
by reason of an "accredited investor" exemption). Notwithstanding the foregoing,
the Placement Agent's counsel, at the expense of the Company, will be
responsible for filing all documents required by each jurisdiction in which the
Units will be offered.
(c) Securities Purchase Agreement shall contain such representations,
warranties, conditions and covenants as are customary in private placements of
corporate debt and equity securities with United States investors that qualify
as "accredited investors", as defined in Rule 501(a) under the Securities Act
("ACCREDITED INVESTORS"). The Placement Agent and its counsel have had or will
have a sufficient opportunity, in their discretion, to review the final form of
the Securities Purchase Agreement and the form of Debenture and Warrant prior to
the distribution thereof to prospective Investors, and the Securities Purchase
Agreement and documents annexed thereto, will be the only offering documents (by
the Placement Agent and any documents made available to Investors in accordance
with the terms of the Securities Purchase Agreement) shown to prospective
Investors. The Placement Agent shall advise the Company of those jurisdictions
in which the Placement Agent is licensed as a broker-dealer and in which the
Placement Agent desires to offer the Units and the Company and its counsel will
thereafter advise the Placement Agent and its counsel in writing of those
jurisdictions in which the Units may lawfully be offered and sold and the
Placement Agent agrees that the Units will be offered or sold only in such
jurisdictions and in the manner specified by the Company; provided, however,
that the Placement Agent shall not be responsible for independently verifying
such written advice with respect to the jurisdictions in which the Units may be
offered and sold and with respect to the manner in which the Units may be
offered and sold in such jurisdictions. Notwithstanding the foregoing, the
Placement Agent shall determine whether it is licensed to offer and sell the
Units and Securities in each jurisdiction in which it intends to do so.
(d) The Placement will be made in accordance with the requirements of
Section 4(2) under the Securities Act and/or Regulation D only to Accredited
Investors, purchasing for their own account for investment purposes only and not
for distribution in violation of applicable securities laws. Furthermore,
prospective Investors will have been provided with the Securities Purchase
Agreement and access to the management of the Company and afforded the
opportunity to ask questions concerning the Company and the Units.
(e) The Company recognizes, agrees and confirms that the Placement Agent
(or any selling agent permitted to be utilized by the Placement Agrement under
Section 3(a) hereof): (i) will use and rely primarily on the information
contained in the Securities Purchase Agreement and on information available from
generally recognized public sources in performing the services contemplated by
this Agreement without having independently verified the same; (ii) is
authorized, as the Company's exclusive financial advisor and placement agent in
connection with the Placement, to transmit to any prospective Investor a copy or
copies of the Securities Purchase Agreement , and any other documentation
supplied to the Placement Agent for transmission to any prospective Investor by
or on behalf of the Company or by any of the Company's officers, representatives
or agents, in connection with the performance of the Placement Agent's services
hereunder or any transaction contemplated hereby; (iii) does not assume
responsibility for the accuracy or completeness of any information contained in
the Securities Purchase Agreement or any such other information, except for
information expressly supplied by the Placement Agent in writing; (iv) will not
make an appraisal of the Company or any assets of the Company or the securities
being offered by the Company in the Placement; and (v) retains the right to
continue to perform due diligence of the Company during the course of the
Company's engagement of the Placement Agent.
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3. PLACEMENT AGENT
(a) The Company hereby employs the Placement Agent as its exclusive
placement agent (subject to the provisions of Section 1(b) hereof) in the United
States for the purpose of offering the Units to Investors and engaging in any
equity financing during the Offering Period for the account and risk of the
Company. This appointment shall be exclusive through the Termination Date with
respect to the Placement and otherwise as provided herein, and the Company shall
not have the right to appoint additional sales agents in the United States in
connection therewith without the Placement Agent's express prior written
consent. The Company hereby agrees that the Placement Agent shall have the right
to utilize other selling broker-dealers in connection with the Placement of the
Units on terms approved by the Placement Agent, provided that the Company shall
not be required to pay any compensation to any such selling broker-dealers other
than a portion of the compensation otherwise payable to the Placement Agent in
accordance with this Agreement. Subject to the provisions of Section 5 hereof
and to the performance by the Company of all of its obligations to be performed
hereunder, the Placement Agent agrees to use its best efforts to assist in
arranging for sales of the Units. The Company acknowledges and agrees that "best
efforts" does not assure that the Placement will be consummated. It is
understood and agreed that this Agreement does not create any partnership, joint
venture or other similar relationship between or among the Placement Agent and
the Company, and that the Placement Agent is acting only as a sales agent.
(b) For the services of the Placement Agent hereunder, the Company will
pay or cause to be paid to the Placement Agent at any Closing the following
fees:
(i) a cash fee equal to ten percent (10%) of the aggregate gross
proceeds (prior to the payment of expenses) received by the Company in the
Placement (to be paid simultaneously with each applicable Closing);
(ii) two (2) warrants (the "Placement Agent Warrants") to purchase
shares of the Company's Common Stock. One warrant will be for the purchase of a
number of shares equal to 10% of the aggregate Issue Date Conversion shares of
all Investors, will have an exercise price equal to the Closing Date Sale Price
and an expiration date three years from the Closing Date. The second warrant
will be for the purchase of a number of shares equal to 10% of the shares
issuable pursuant to the Warrants of all Investors and will have the same
exercise price and expiration date as provided in the Warrants. Except as
otherwise provided above, the Placement Agent's Warrants will otherwise have the
same terms (including provisions relating to cashless exercise rights,
adjustments to number of shares and exercise price, and registration rights,
among others) as are provided in the form of Warrant attached as an exhibit to
the Securities Purchase Agreement. The shares of Common Stock issuable on
exercise of the Placement Agent's Warrants will be included in the Registration
Statement contemplated by the Registration Rights Agreement.
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4. PAYMENT BY COMPANY OF EXPENSES
The Company will pay for or promptly reimburse the Placement Agent, as the case
may be, and whether or not any Units are sold in connection with the Placement,
all out of pocket expenses of the Placement Agent relating to the Placement
relating to activities under this Agreement, including, without limitation: (i)
the preparation, printing, reproduction, filing, distribution and mailing of the
Securities Purchase Agreement and all other documents relating to the Placement,
and any supplements or amendments thereto, and the cost of all copies thereof;
(ii) the public registration and listing of, or the registration and
qualification of the Shares issuable upon conversion of the Debentures (the
"Debenture Shares") and the Warrant Shares and the shares of Common Stock
underlying the Placement Agent Warrants (the "PLACEMENT AGENT WARRANT SHARES"),
or the securing of an exemption therefrom under state or foreign "blue sky" or
securities laws, including, without limitation, filing fees payable in the
jurisdictions in which such registration or qualification or exemption therefrom
is sought, the costs of preparing preliminary, supplemental and final "blue sky
surveys" relating to the offer and sale of the Units and the fees and
disbursements of counsel to the Placement Agent in connection with such "blue
sky" matters; (iii) the filing fees, if any, payable to the applicable
securities regulatory authorities including, but not limited to, the NASD in
connection with filings made via the NASD's COBRADesk filing system (the "COBRA
Filing"); (iv) all Escrow Agent fees; and (v) all road show expenses, travel,
and other related expenses. Regardless of who pays the initial expense with
respect to all such out-of-pocket expenses, the Company shall promptly reimburse
such expenses if such expenses are not paid by it. Any such expenses in excess
of $3,000 shall be subject to prior approval by the Company, which approval
shall not be unreasonably withheld or delayed.
5. TERMINATION OF PLACEMENT
The Placement may be terminated: (i) by the Placement Agent or the
Company at any time upon thirty (30) days prior written notice or (ii)
immediately by the Placement Agent upon giving written notice to the Company,
but only in the event that:
(a) in the opinion of the Placement Agent, the Securities Purchase
Agreement contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements appearing therein not misleading in the light of the circumstances in
which they were made, and the Company shall not have corrected such untrue
statement or omission to the reasonable satisfaction of the Placement Agent and
its counsel within ten (10) days after the Company receives notice of such
untrue statement or omission, provided that notwithstanding such ten (10) day
period, in the event of the Company's receipt of any such notice, the Initial
Closing or, as the case may be, any Subsequent Closing shall not occur hereunder
until the Placement Agent shall notify the Company that it is satisfied, in its
sole and absolute determination, that the Company has taken such steps
(including circulating amended offering materials and affording prospective
Investors a reasonable opportunity to review such amendments) to allow the
Closing to occur; or
(b) the Company shall be in material breach of any representation,
warranty, agreement or covenant made by it in this Agreement, or any other
document relating to the Placement and, in the case thereof, the Company has not
cured any such breach after the expiration of seven (7) days written notice by
the Placement Agent.; or
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(c) (i) any calamitous domestic or international event or act or
occurrence has taken place and, in the Placement Agent's opinion, has or will
materially disrupt general securities markets in the United States in the
immediate future; or (ii) if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the National Association of Securities Dealers, Inc.
("NASD") or by order of the Securities and Exchange Commission ("SEC") or any
other government authority having jurisdiction; or (iii) if the United States
shall have become involved in a war, major hostilities (other than hostilities
in which the United States is currently involved) or the like; or (iv) if a
banking moratorium has been declared by a New York State or federal authority;
or (v) if the Company shall have sustained a material loss, whether or not
insured, by reason of fire, flood, accident or other calamity; or (vi) if there
shall have been such material adverse change in the conditions or prospects of
the Company, involving a change not contemplated by the Securities Purchase
Agreement ; or (vii) if there shall have been such material adverse general
market conditions as in the Placement Agent's reasonable judgment would make it
inadvisable to proceed with the Placement or the sale or delivery of the Units.
6. OFFERING PERIOD; CLOSINGS
Subject to the terms and conditions set forth in Sections 5 and 10 hereof, the
Units will be offered during the Offering Period as described in Section 1(b)
hereof. Unless there shall be a closing by the Termination Date (as the same may
be extended pursuant to the terms hereof), the Placement will be terminated and
all proceeds held by the Escrow Agent will be returned to Investors without
interest or deduction. Each Closing shall be undertaken in a manner agreed to by
the Company and the Placement Agent.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents and warrants to the Placement Agent, as of the date
hereof, the Initial Closing Date and each Subsequent Closing Date, that, except
as otherwise provided in the the Securities Purchase Agreement or the Company
Documents (as defined below):
(a) The Company has been validly formed and is legally existing as a
corporation in good standing under the laws of the State of Utah, with full
corporate power and authority to conduct its business as currently conducted,
and is in good standing in each jurisdiction in which the conduct of its
business or the nature of its properties requires such qualification or
authorization, except where the failure to be so qualified or authorized and in
good standing could not reasonably be expected to have a material adverse effect
on the business and financial condition of the Company and its subsidiaries,
taken as a whole (a "MATERIAL ADVERSE EFFECT"). As of the date hereof, the
Company does not have, directly or indirectly, any significant subsidiaries
other than as disclosed in the Company's filings with the SEC (collectively, the
"SUBSIDIARIES"). Each Subsidiary has been duly organized, is validly existing
and in good standing under the laws of the jurisdiction of its organization, has
the power and authority to own its properties and to conduct its business and is
duly qualified and authorized to transact business and is in good standing in
each jurisdiction in which the conduct of its business or the nature of its
properties requires such qualification or authorization, except where the
failure to be so qualified or authorized and in good standing could not
reasonably be expected to have a Material Adverse Effect.
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(b) Except for the Subsidiaries and as otherwise disclosed in the
Securities Purchase Agreement and the Company's SEC filings, the Company holds
no ownership or other interest, nominal or beneficial, direct or indirect, in
any corporation, partnership, joint venture or other business entity. Except as
otherwise disclosed in the Securities Purchase Agreement and the Company's SEC
filings, all of the issued and outstanding capital stock of each Subsidiary is
owned by the Company, free and clear of any lien, charge, mortgage, pledge,
security interest, claim, equity, trust or other encumbrance, preferential
arrangement, defect or restriction of any kind whatsoever (each, a "LIEN"), and
has been duly authorized and validly issued, and is non-assessable.
(c) The authorized capital stock of the Company is as set forth in the
Securities Purchase Agreement. There are no other shares of capital stock of the
Company authorized. As of February 27, 2006, 293,499,890 shares of Common Stock
are issued and outstanding, no shares of Preferred Stock are issued and
outstanding and no other shares of capital stock of the Company are or will be
issued and outstanding as of the Initial Closing Date (other than the Securities
issued in the Placement or as otherwise disclosed in the Securities Purchase
Agreement or the Company Documents and except for any shares of Common Stock
issued upon the exercise of outstanding convertible securities, warrants or
options). All presently issued and outstanding shares of the Company's capital
stock are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. One half of the Debentures Shares, the Warrant
Shares and the Placement Agent Warrant Shares have been duly reserved, the
remaining one half will be reserved upon an amendment to the Company's Articles
of Incorporation to effect the Authorized Share Increase and when issued in
accordance with the terms of the Placement, will be validly issued, fully paid
and nonassessable and not subject to preemptive or any other similar rights. The
outstanding options, warrants, rights to obtain securities of the Company and
other convertible securities of the Company are as set forth in the Securities
Purchase Agreement and the Company's filings with the SEC (collectively, the
"COMPANY DOCUMENTS"). Except as provided in the Company Documents, neither the
Company nor any Subsidiary is a party to any agreement, instrument or
understanding which calls for, and no securities of the Company or any
Subsidiary contain provisions relating to, the resetting or repricing of any
debt or equity security instrument of the Company or any Subsidiary. Neither the
issuance of the Securities nor the consummation of the Placement will trigger
any resetting or repricing of any debt or equity security instrument of the
Company or any Subsidiary, except as provided in the Placement.
(d) Except as set forth on Schedule A, there are no holders of any
registration rights with respect to the Company's securities that would entitle
such holders to participate in the registration statement contemplated by the
Securities Purchase Agreement.
(e) Except as set forth on Schedule B, there are no holders of any
antidilution rights with respect to the Company's securities that would be
triggered by the Placement..
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(f) Neither the Securities Purchase Agreement (as of the date hereof),
nor any of the Company Documents (as of the date such Company Document was filed
with the SEC) contained any untrue statement of a material fact, and each of the
Company Documents (as of the date such Company Document was filed with the SEC)
did not omit to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading, except that the Company shall have no liability for any information
provided to the Company in writing by, and relating to, the Placement Agent, for
use in and used in the Securities Purchase Agreement . If, at any time before
the Placement is completed or terminated or before all subscriptions are
accepted by the Company, there should be any change which would cause the
Company Documents not to comply with this Section 7(d), the Company will
promptly advise the Placement Agent thereof and make any necessary corrective
filings with the SEC and prepare and furnish the Placement Agent with, for
distribution to Investors, after prior review and approval by the Placement
Agent and its counsel (such approval not to be unreasonably withheld), such
copies of such supplements or amendments to the Securities Purchase Agreement as
will cause the Securities Purchase Agreement, as so supplemented or amended, to
comply with this Section 7(d), and will authorize the Placement Agent to make to
Investors, if: (i) deemed necessary by counsel to the Placement Agent and
approved by the Placement Agent, or (ii) if deemed necessary by counsel to the
Company, an offer of rescission.
(g) Neither the Company nor any Subsidiary is in: (i) violation of its
certificate or articles of incorporation, by-laws or other organizational
documents, (ii) default under, and no event has occurred which, with notice or
lapse of time or both, would constitute a default under or result in the
creation or imposition of any Lien upon any of its property or assets pursuant
to, any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which any of its
property or assets is subject (except as disclosed in the Securities Purchase
Agreement or the Company Documents) or (iii) violation in any respect of any
law, rule, regulation, ordinance, directive, judgment, decree or order of any
judicial, regulatory or other legal or governmental agency or body, foreign or
domestic, except (in the case of clause (ii) above) for any Lien disclosed in
the Securities Purchase Agreement and the exhibits thereto and except, in the
cases of clauses (ii) and (iii), where such defaults or violations do not,
individually or in the aggregate, have a Material Adverse Effect.
(h) Subject to the receipt of approval by the requisite percentage of
Company shareholders of the Authorized Share Increase, the execution, delivery
and performance of this Agreement, the Securities Purchase Agreement, the
Debentures, the Warrants, the Placement Agent Warrants and all other documents
to be entered into by the Company in connection with any transaction described
in the Securities Purchase Agreement or in connection with the Placement, and
the consummation of the transactions contemplated hereby and thereby, have been
or will be prior to such execution, delivery, performance or consummation, as
the case may be, duly and validly authorized by the Company and do not and will
not: (i) constitute, or result in, a breach or violation of any of the terms,
provisions or conditions of the Articles of Incorporation or Bylaws of the
Company or any of its Subsidiaries, (ii) constitute, or result in, a material
violation of any applicable statute, law, ordinance or regulation of any state,
territory or other jurisdiction, or (iii) violate, constitute, or result in, a
default under (or an event which with the passing of time or the giving of
notice or both would constitute a default under) or breach of the terms,
provisions or conditions of any material indenture, note, contract, commitment,
instrument or document to which the Company or any of its Subsidiaries is or
will be a party or by which the Company, any of its Subsidiaries or any of their
respective properties are bound, or any award, judgment, decree, rule or
regulation of any court or governmental or regulatory agency or body having
jurisdiction over the Company or any of its Subsidiaries or their respective
activities or properties except, in the cases of clauses (ii) and (iii), where
such defaults or violations do not, individually or in the aggregate, have a
Material Adverse Effect.
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(i) Subject to the receipt of approval by the requisite percentage of
Company shareholders of the Authorized Share Increase, this Agreement, the
Securities Purchase Agreement, the Debenture Certificates, the Warrants, the
Placement Agent Warrants and all other documents to be entered into by the
Company in connection with any transaction described in the Securities Purchase
Agreement or in connection with the Placement have been duly authorized,
executed and delivered by the Company and constitute the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with their terms, except insofar as enforcement of the indemnification or
contribution provisions hereof may be limited by applicable laws or principles
of public policy and except further as to enforcement, to the availability of
equitable remedies and limitations imposed by bankruptcy, insolvency,
reorganization and other similar laws and related court decisions relating to or
affecting creditors' rights generally.
(j) To the knowledge of the Company, except as disclosed in the Company
Documents, and except for such matters that, individually or in the aggregate,
would not have a Material Adverse Effect on the business, operations or
financial results of the Company and its Subsidiaries (either individually or in
the aggregate):
(i) The Company and each of its Subsidiaries are, and have been, in
compliance with all Environmental Laws (as defined below), and neither the
Company nor any of its Subsidiaries has received any (A) communication that
alleges that the Company or any such Subsidiary is in violation of, or has
liability under, any Environmental Law, (B) written request for information
pursuant to any Environmental Law, or (C) notice regarding any requirement that
is proposed for adoption or implementation under any Environmental Law and that
would be applicable to the operations of the Company or any of its Subsidiaries;
(ii) (A) the Company and each of its Subsidiaries have obtained and
are in compliance with all permits, licenses and governmental authorizations
pursuant to all Environmental Laws (collectively, "ENVIRONMENTAL PERMITS")
necessary for their operations as currently conducted, (B) all such
Environmental Permits are valid and in good standing, and (C) neither the
Company nor any of its Subsidiaries has been advised by any governmental entity
or authority of any actual or potential change in the status or terms and
conditions of any Environmental Permit;
(iii) there are no Environmental Claims (as defined below) pending
or, to the knowledge of the Company, threatened, against the Company or any of
its Subsidiaries;
(iv) there have been no Releases (as defined below) of any
Hazardous Material that could reasonably be expected to form the basis of any
Environmental Claim against the Company or any of its Subsidiaries or against
any person whose liabilities for such Environmental Claims the Company or any of
its Subsidiaries has, or may have, retained or assumed, either contractually or
by operation of law; and
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(v) (A) neither the Company nor any of its Subsidiaries has
retained or assumed, either contractually or by operation of law, any
liabilities or obligations that could reasonably be expected to form the basis
of any Environmental Claim against the Company or any Company Subsidiary, and
(B) to the knowledge of the Company, no Environmental Claims are pending against
any person or entity whose liabilities for such Environmental Claims the Company
or any Company Subsidiary has, or may have, retained or assumed, either
contractually or by operation of law.
As used in this Agreement, the terms: (A) "ENVIRONMENTAL CLAIM" means
any and all administrative, regulatory or judicial actions, suits, orders,
demands, directives, claims, investigations, proceedings or notices of violation
by or from any person or entity alleging liability of whatever kind or nature
arising out of, based on or resulting from (y) the presence or release of, or
exposure to, any Hazardous Materials at any location; or (z) the failure to
comply with any Environmental Law; (B) "ENVIRONMENTAL LAWS" means all applicable
federal, state, local and foreign laws, rules, regulations, orders, decrees,
judgments, legally binding agreements or Environmental Permits issued,
promulgated or entered into by or with any governmental entity or authority,
relating to pollution, natural resources or protection of endangered or
threatened species, human health or the environment (including ambient air,
surface water, groundwater, land surface or subsurface strata); (C) "HAZARDOUS
MATERIALS" means (y) any petroleum or petroleum products, radioactive materials
or wastes, asbestos in any form, urea formaldehyde foam insulation and
polychlorinated biphenyls; and (z) any other radioactive, chemical, material,
substance or waste that in relevant form or concentration is prohibited, limited
or regulated under any Environmental Law; and (D) "RELEASE" means any actual or
threatened release, spill, emission, leaking, dumping, injection, pouring,
deposit, disposal, discharge, dispersal, leaching or migration into or through
the environment (including ambient air, surface water, groundwater, land surface
or subsurface strata) or within any building, structure, facility or fixture.
(k) Notwithstanding any other representation or warranty made herein
(with the intent being and agreement made that this representation and warranty
shall surpercede and replace any other representation or warranty with respect
to the subject matter hereof in this Agreement), as of the date hereof and as of
any Closing Date, the Company may not have sufficient authorized unissued and
unreserved shares to be able to issue shares to the Investors in an amount which
exceeds the shares issuable to honor Notices of Conversion for fifty percent
(50%) of the Debentures and Notices of Exercise of Warrants for fifty percent
(50%). The Company represents that its Board of Directors (i) has voted to
recommend to the stockholders that the Company's articles of incorporation, as
currently in effect, be amended to reflect the Authorized Share Increase, and
(ii) the Company has filed with the SEC and has sent or will send out to the
Company's stockholders a notice of and proxy statement for a stockholders
meeting to be held on or about April 18, 2006 (or as soon thereafter as is
practicable) at which meeting the Authorized Share Increase will be voted on by
the stockholders. All representations and covenants contained in this Agreement
are made subject to the provisions of this paragraph (k).
10
(l) Within the last five years, the Company has not declared, paid or
made any dividends or other distributions of any kind on or in respect of its
capital stock.
(m) Except as disclosed in the Company Documents, since December 31,
2005, there has been no material adverse change (or any development involving a
prospective material adverse change), whether or not arising from transactions
in the ordinary course of business, in or affecting: (i) the business, condition
(financial or otherwise), results of operations, shareholders' equity,
properties or prospects of the Company and each Subsidiary, taken as a whole;
(ii) the long-term debt or capital stock of the Company or any of its
Subsidiaries; or (iii) the Placement or consummation of any of the other
transactions contemplated by this Agreement. Since the date of the latest
balance sheet presented in or attached to the Securities Purchase Agreement or
filed with the SEC , neither the Company nor any Subsidiary has incurred or
undertaken any liabilities or obligations, whether direct or indirect,
liquidated or contingent, matured or unmatured, or entered into any
transactions, including any acquisition or disposition of any business or asset,
which are material to the Company and the Subsidiaries taken as a whole, except
for liabilities, obligations and transactions which are disclosed in the Company
Documents, the Securities Purchase Agreement and/or the exhibits thereto.
(n) The financial statements, including the notes thereto, and the
supporting schedules and annexes included in the Securities Purchase Agreement
and in the Company Documents present fairly, in all material respects and as of
the dates indicated and for the periods specified the financial position and the
cash flows and results of operations of the Company and the Subsidiaries. Except
as otherwise stated in the Securities Purchase Agreement and in the Company
Documents, such financial statements have been prepared in conformity with
United States generally accepted accounting principles applied on a consistent
basis throughout the periods involved. The supporting schedules and annexes, if
any, included in the Securities Purchase Agreement and the Company Documents
present fairly the information required to be stated therein. The other
financial and statistical information included in the Securities Purchase
Agreement and the Company Documents present fairly the information included
therein in all material respects.
(o) Subject to the receipt of approval by the requisite percentage of
Company shareholders of the Authorized Share Increase, no consent, approval,
authorization or order of any court or governmental or regulatory agency or body
or any individual or entity is required on the part of the Company or any
Subsidiary for the lawful consummation of the transactions contemplated hereby
and thereby, except for such consents and approvals with respect to the offer
and sale of the Units in certain jurisdictions which are identified to the
Placement Agent by counsel for the Company.
(p) Each of the Company and the Subsidiaries has all necessary consents,
approvals, authorizations, orders, registrations, qualifications, licenses,
filings and permits of, with and from all applicable judicial, regulatory and
other legal or governmental agencies and bodies and all third parties, foreign
and domestic (collectively, the "CONSENTS"), to own, lease and operate their
respective properties and conduct their respective businesses as are now being
conducted and as disclosed in the Securities Purchase Agreement (including the
exhibits thereto), except where the failure to have any such Consent would not
have a Material Adverse Effect. Each such Consent is valid and in full force and
effect, and neither the Company nor any Subsidiary has received written notice
of any investigation or proceedings which results in or, if decided adversely to
the Company or any Subsidiary, could reasonably be expected to result in, the
revocation of, or imposition of a materially burdensome restriction on, any
Consent.
11
(q) Each of the Company and the Subsidiaries is in compliance with all
applicable laws, rules, regulations, ordinances, directives, judgments, decrees
and orders, foreign and domestic, except where the failure to so comply does or
would not have a Material Adverse Effect.
(r) Neither the Company nor any of its directors, officers, employees,
agents or representatives ("COMPANY REPRESENTATIVES") has taken or will take any
action which has caused or may cause the Placement not to qualify for exemption
from the registration requirements of the Securities Act or of other federal,
state or other securities or other laws. In connection with the Placement,
neither the Company nor the Company Representatives shall offer or cause to be
offered the Units by any form of general solicitation or general advertising as
defined in Rule 502(c) of Regulation D. The Company and the Company
Representatives have not taken and shall not take any action (except for actions
contemplated by the Securities Purchase Agreement ) that would cause the
Placement to be integrated with other transactions under Rule 502(a) of
Regulation D. Neither the Company nor, to the Company's knowledge, any of its
Affiliates or Company Representatives has, prior to the date hereof, made any
offer or sale of any securities which could be "integrated" for purposes of the
Securities Act or the Rules and Regulations with the offer and sale of the
Securities pursuant to the Securities Purchase Agreement .
(s) Except as disclosed in the Securities Purchase Agreement or Company
Documents, and except for such matters that, individually or in the aggregate,
would not have a Material Adverse Effect on the business, operations or
financial results of the Company and its subsidiaries (either individually or in
the aggregate) there are no claims, actions, suits, investigations or
proceedings before or by any arbitrator, court, governmental authority or
instrumentality pending or threatened against or affecting the Company or any of
its subsidiaries or involving the properties of the Company which might affect
the business, properties or financial condition of the Company or any of its
subsidiaries or which might affect the transactions or other acts contemplated
by this Agreement or the validity or enforceability of this Agreement.
(t) The Company will not offer the Units for sale hereunder on the basis
of any communications or documents relating to the Placement Agent or the Units
except the Securities Purchase Agreement and the exhibits thereto and documents
described or referred to therein.
(u) The Company and the Subsidiaries maintain a system of internal
accounting and other controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of reliable financial statements in conformity with United States
generally accepted accounting principles and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accounting for assets
is compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any material differences.
12
(v) Intentionally omitted.
(w) Neither the Company nor any of its Subsidiaries has violated or is
currently in violation of any provisions of: (a) Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"), (b) the Bank Secrecy Act, as amended, (c)
the Money Laundering Control Act of 1986, as amended, (e) the Foreign Corrupt
Practices Act, or (d) the Uniting and Strengthening of America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT)
Act of 2001, and the rules and regulations promulgated under any such law, or
any successor law, except for such violations which, singly or in the aggregate,
would not have a Material Adverse Effect.
(x) So long as the Debentures and the Warrants (including the Common
Stock issuable upon the exercise or conversion thereof) are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act, the
Company, during any period in which it is not subject to and in compliance with
Section 13 or 15(d) of the Exchange Act, or is not exempt from such reporting
requirements pursuant to and in compliance with Rule 12g3-2b under the Exchange
Act, will provide to each holder of Common Stock and to each prospective
purchaser (as designated by such holder) of Common Stock upon the request of
such holder or prospective holder, any information required to be provided by
Rule 144A(d)(4) under the Securities Act.
(y) The Company is not and, at all times up to and including
consummation of the Placement, and after giving effect to application of the net
proceeds of the Placement, will not be, subject to registration as an
"investment company" under the Investment Company Act of 1940, as amended (the
"1940 ACT"), and is not and will not be an entity "controlled" by an "investment
company" within the meaning of the 1940 Act. The Company will: (i) utilize the
proceeds of the Placement in accordance with the "Use of Proceeds" Annex to the
Securities Purchase Agreement and (ii) initially utilize the proceeds of the
Placement and all other funds of the Company in such a manner so as to cause the
Company not to be subject to the 1940 Act, and will thereafter use its best
efforts to avoid the Company's becoming subject to the 1940 Act.
(z) Except as disclosed in the Securities Purchase Agreement , there are
no contracts, agreements or understandings between the Company and any person
that would give rise to a valid claim against the Company or the Placement Agent
for a brokerage commission, finder's fee or other like payment in connection
with the transactions contemplated by this Agreement or, to the Company's
knowledge, any arrangements, agreements, understandings, payments or issuance
with respect to the Company or any of its officers, directors, shareholders,
partners, employees, Subsidiaries or affiliates that may affect the Placement
Agent's compensation.
(aa) No relationship, direct or indirect, exists between or among any of
the Company or any Affiliate of the Company, on the one hand, and any director,
officer, stockholder, customer or supplier of the Company or any Affiliate of
the Company, on the other hand, which is required by the Securities Act, the
Exchange Act or the Rules and Regulations to be described in the Securities
Purchase Agreement or the Company's filings with the SEC which is not so
described therein. There are no outstanding loans (except for mortgage loans
made in the ordinary course of business), advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of their respective family members, except as
disclosed in the Company Documents or Securities Purchase Agreement .
13
(bb) The Company and each Subsidiary owns or leases all such properties
as are necessary to the conduct of its business as presently operated. The
Company and its Subsidiaries have good and marketable title to all personal
property owned by them, in each case free and clear of all Liens except such as
are described in the Securities Purchase Agreement and the Company Documents or
such as do not (individually or in the aggregate) materially interfere with the
use made or proposed to be made of such property by the Company and the
Subsidiaries. Any real property and buildings held under lease or sublease by
the Company and the Subsidiaries are held by them under valid and enforceable
leases with such exceptions as are not material to, and do not interfere with,
the use made and proposed to be made of such property and buildings by the
Company and the Subsidiaries. Neither the Company nor any Subsidiary has
received any written notice (or, to the Company's knowledge, any other notice)
of any claim adverse to its ownership of any personal property or of any claim
against the continued possession of any real property, whether held under lease
or sublease by the Company or any Subsidiary.
(cc) Intellectual Property
(i) INTELLECTUAL PROPERTY consists of the following:
(a) all patents, trademarks, trade names, service marks, trade
dress, copyrights and any renewal rights therefor, mask works, net lists,
schematics, technology, manufacturing processes, supplier lists, trade secrets,
know-how, moral rights, computer software programs or applications (in both
source and object code form), applications and registrations for any of the
foregoing owned by the Company, specifically including but not limited to the
proprietary processes embodied in the Company's pending patents;
(b) all goodwill associated with trademarks, trade names,
service marks and trade dress owned by the Company;
(c) all documents, records and files relating to design, end
user documentation, manufacturing, quality control, sales, marketing or customer
support for all intellectual property described herein owned by the Company;
(d) all other tangible or intangible proprietary information and
materials owned by the Company; and
(e) all license and other rights in any third party product,
intellectual property, proprietary or personal rights, documentation, or
tangible or intangible property, including without limitation the types of
intellectual property and tangible and intangible proprietary information
described in (a) through (e) above (other than license agreements for standard
"shrink wrapped, off the shelf," commercially available, third party products
used by the Company);
14
that are owned or held by or on behalf of the Company or that are being, and/or
have been, used, or are currently under development for use, in the business of
the Company as it has been, is currently or is currently anticipated to be
conducted. Intellectual Property described in clauses (a) to (e) above is
referred to herein as "COMPANY INTELLECTUAL PROPERTY" and Intellectual Property
described in clause (f) above is referred to herein as "COMPANY LICENSED
INTELLECTUAL PROPERTY." Unless otherwise noted, all references to "Intellectual
Property" shall refer to both Company Intellectual Property and Company Licensed
Intellectual Property.
(ii.) Company Intellectual Property consists solely of items and
rights that are either: (a) owned by the Company, (b) in the public domain, or
(c) rightfully used and authorized for use by the Company and its successors
pursuant to a valid license or other agreement. Except as set forth in the
Securities Purchase Agreement, to its knowledge, the Company has all rights in
the Company Intellectual Property reasonably necessary to carry out the
Company's current, and anticipated future activities and has or had all rights
in Company Intellectual Property reasonably necessary to carry out Company's
former activities, including without limitation, if necessary to carry out such
activities, rights to make, use, exclude others from using, reproduce, modify,
adapt, create derivative works based on, translate, distribute (directly and
indirectly), transmit, display and perform publicly, license, rent, lease,
assign, and sell the Company Intellectual Property in all geographic locations
and fields of use (except to the extent of any geographic and field of use
limitations with respect to any Company Licensed Intellectual Property), and to
sublicense any or all such rights to third parties, including the right to grant
further sublicenses (except to the extent such right to sublicense may be
limited with respect to Company Licensed Intellectual Property).
(iii.) Except as set forth in the Securities Purchase Agreement,
the Company is not to its knowledge, nor as a result of the execution or
delivery of this Agreement, or performance of the Company's obligations
hereunder or thereunder, will the Company be, in violation in any material
respect of any license, sublicense or other agreement relating to the Company
Intellectual Property to which the Company is a party or otherwise bound. Except
as specifically described in the Company Documents, the Company is not obligated
to provide any consideration (whether financial or otherwise) to any third
party, nor is any third party otherwise entitled to any consideration, with
respect to any exercise of rights by the Company or its successors in Company
Intellectual Property.
(iv.) Except as set forth in the Securities Purchase Agreement ,
the use, reproduction, modification, distribution, licensing, sublicensing,
sale, or any other exercise of rights in any Company Intellectual Property or
any other authorized exercise of rights in or to Company Intellectual Property
by the Company or its licensees does not and will not, in each case to the best
of the Company's knowledge, infringe any copyright, patent, trade secret,
trademark, service ▇▇▇▇, trade name, firm name, logo, trade dress, mask work,
moral right, other intellectual property right, right of privacy, right of
publicity or right in personal or other data of any person. Except as set forth
in the Securities Purchase Agreement or Company Documents, no claims (a)
challenging the validity, effectiveness, or ownership by the Company of any
Company Intellectual Property, or (b) to the effect that the use, reproduction,
modification, manufacturing, distribution, licensing, sublicensing, sale or any
other exercise of rights in any Company Intellectual Property by the Company or
its licensees infringes or will infringe on any intellectual property or other
proprietary or personal right of any person have been asserted or, to the
Company's knowledge, are threatened by any person nor to the best of the
Company's knowledge are there any valid grounds for any bona fide claim of any
such kind.
15
(dd) There are no material claims by the Company or any Subsidiary
under any insurance policy or instrument as to which any insurance company is
denying liability or defending under a reservation of rights clause. The Company
reasonably believes that it will be able to renew its existing insurance as and
when such coverage expires or will be able to obtain replacement insurance
adequate for the conduct of its business.
(ee) Each of the Company and the Subsidiaries has properly prepared
and timely filed all federal, state, foreign and other tax returns that are
required to be filed by it (except for late filings which are not expected to
have any financial consequence because the Company does not owe any tax for the
applicable period) and has paid or made provision for the payment of, except
such as may be contested in good faith, all taxes, assessments, governmental or
other similar charges, including without limitation, all sales and use taxes and
all taxes which the Company or any Subsidiary is obligated to withhold from
amounts owing to employees, creditors and third parties, with respect to the
periods covered by such tax returns (whether or not such amounts are shown as
due on any tax return). No deficiency assessment with respect to a proposed
adjustment of the Company's or any Subsidiary's federal, state, local or foreign
taxes is pending or, to the Company's knowledge, threatened which, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect. The accruals and reserves on the books and records of the
Company and the Subsidiaries in respect of tax liabilities for any taxable
period not finally determined are adequate in all material respects to meet any
assessments and related liabilities for any such period and, since the date of
the Company's most recent audited financial statements, the Company and the
Subsidiaries have not incurred any liability for taxes other than in the
ordinary course of its business. There is no tax Lien, whether imposed by any
federal, state, foreign or other taxing authority, outstanding against the
assets, properties or business of the Company or any Subsidiary.
(ff) No labor disturbance by the employees of the Company or any
Subsidiary currently exists or, to the Company's knowledge, is likely to occur.
(gg) To the knowledge of the Company: no "prohibited transaction"
(as defined in either Section 406 of the ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended from time to time (the "CODE")), "accumulated
funding deficiency" (as defined in Section 302 of ERISA) or other event of the
kind described in Section 4043(b) of ERISA (other than events with respect to
which the 30-day notice requirement under Section 4043 of ERISA has been waived)
has occurred with respect to any employee benefit plan for which the Company or
any Subsidiary would have any liability; each employee benefit plan of the
Company or any Subsidiary is in compliance in all material respects with
applicable law, including (without limitation) ERISA and the Code; the Company
has not incurred and does not expect to incur liability under Title IV of ERISA
with respect to the termination of, or withdrawal from any "pension plan"; and
each employee benefit plan of the Company or any Subsidiary that is intended to
be qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or by failure to act, which could cause the loss of
such qualification.
16
(hh) Neither the Company, any Subsidiary nor, to the Company's
knowledge, any of their respective employees or agents has at any time during
the last five (5) years: (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments that are not prohibited by the laws of the United States or
any jurisdiction thereof or any foreign jurisdiction.
(ii) The Company has not offered, or caused the Placement Agent to
offer, the Units to any person or entity with the intention of unlawfully
influencing: (i) a customer or supplier of the Company or any Subsidiary to
alter the customer's or supplier's level or type of business with the Company or
any Subsidiary or (ii) a journalist or publication to write or publish favorable
information about the Company, any Subsidiary or its products or services.
(jj) In addition to the foregoing, to the extent not set forth
herein, the Placement Agent may rely on the representations and warranties made
by the Company in the Securities Purchase Agreement provided by the Company and
used in connection with the Placement.
(kk) The Company is not aware of and the Company is not the subject
of any SEC or NASD inquiry or formal or informal investigation and has not
received any notice of the same.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLACEMENT AGENT
The Placement Agent hereby represents and warrants to, and covenants
with, the Company that:
(a) This Agreement has been duly authorized, executed and delivered by
the Placement Agent and constitutes the legal, valid and binding obligation of
the Placement Agent, enforceable against it in accordance with its terms, except
insofar as enforcement of the indemnification or contribution provisions hereof
may be limited by applicable laws or principles of public policy and subject, as
to enforcement, to the availability of equitable remedies and limitations
imposed by bankruptcy, insolvency, reorganization and other similar laws and
related court decisions relating to or affecting creditors' rights generally.
(b) The Placement Agent will cooperate with the Company to ensure that
the offering and sale of the Units will comply with the requirements of the
Securities Act, including, without limitation, the general conditions contained
in Regulation D and the federal securities laws, and will follow the reasonable
advice of the Company with respect to the manner in which to offer and sell the
Units so as to ensure that the offering and sale thereof will comply with the
securities laws of any jurisdiction in which Securities are offered by the
Placement Agent, and the Placement Agent will not make an offer of Securities in
any jurisdiction in which the Company advises it in writing that such offer
would be unlawful for the Placement Agent to offer or sell securities.
17
(c) The Placement Agent is: (i) a registered broker-dealer under the
Exchange Act; (ii) a member in good standing of the NASD; and (iii) registered
as a broker-dealer in each jurisdiction in which it is required to be registered
as such in order to offer and sell the Units in such jurisdiction.
(d) The Placement Agent has not and will not make an offer of Units (or
of any securities, the offering of which may be integrated with the Placement)
on the basis of any communications or documents relating to the Company or the
Units except the Securities Purchase Agreement and the exhibits thereto and
documents described or referred to therein and annexes. Without limiting the
generality of the foregoing, the Placement Agent has not and will not make any
representation as to any rate of return on investment that an offeree may obtain
from the ownership of the Securities other than as set forth in the Securities
Purchase Agreement. The Placement Agent will deliver a copy of the Securities
Purchase Agreement to each prospective Investor solicited by it or, in the case
of amendments or supplements to the Securities Purchase Agreement (other than
those amendments and supplements approved in writing by the Company but
designated in writing as not subject to this requirement), prior to such
offeree's execution of an acknowledgment of receipt of such amendment or
supplement and reconfirmation of intent to subscribe.
(e) The Placement Agent has not and will not knowingly make an offer of
Units on behalf of the Company, or of any securities, the offering of which may
be integrated with the Placement, by any form of general solicitation or general
advertising in violation of Rule 502(c) of Regulation D such as would cause the
offering of Units not to qualify under Section 4(2) of the Securities Act as a
transaction exempt from Section 5 thereof. The Placement Agent has not and will
not supply in writing for inclusion in the Securities Purchase Agreement or any
related sales materials any information relating to the Placement Agent
containing any untrue statement of a material fact or omitting to state any
material fact required to be stated therein or necessary to make such
information, in light of the circumstances under which it is used, not
misleading.
(f) The Placement Agent will periodically notify the Company of the
jurisdiction in which the Securities are being offered by it or will be offered
by it pursuant to this Agreement, and will periodically notify the Company of
the status of the offering conducted pursuant to this Agreement. Such notices
will be accompanied by copies of all filings made by the Placement Agent's
counsel in each such jurisdiction so as to enable the Company to timely comply
with its filing obligations under applicable state laws.
(g) The Placement Agent has delivered or caused to be delivered (or will
so deliver prior to the applicable closing date) the Securities Purchase
Agreement to each prospective Investor.
9. ADDITIONAL COVENANTS AND AGREEMENTS OF THE COMPANY
The Company covenants to and agrees with the Placement Agent that, from
the date hereof through the Termination Date, it shall:
18
(a) Notify the Placement Agent as soon as practicable, and confirm such
notice promptly in writing: (i) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the Final
Closing Date as a result of which the Securities Purchase Agreement would
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) of the receipt of any notification with respect to the
modification, rescission, withdrawal or suspension of the qualification or
registration of the Securities or of an exemption from such registration or
qualification in any jurisdiction. The Company will use its reasonable best
efforts to prevent the issuance of any such modification, rescission, withdrawal
or suspension and, if any such modification, rescission, withdrawal or
suspension is issued, to obtain the lifting thereof as promptly as possible.
(b) Not supplement or amend the Securities Purchase Agreement unless the
Placement Agent and its counsel shall have approved of such supplement or
amendment in writing, such approval not to be unreasonably withheld, delayed or
conditioned. If, at any time during the period commencing on the date hereof and
ending on the Final Closing Date, any event shall have occurred as a result of
which the Securities Purchase Agreement contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or if, in the
opinion of counsel to the Company or counsel to the Placement Agent, it is
necessary at any time to supplement or amend the Securities Purchase Agreement
to comply with the Securities Act, Regulation D or any applicable securities or
"blue sky" laws, the Company will promptly prepare an appropriate supplement or
amendment (in form and substance reasonably satisfactory to the Placement Agent
and its counsel) which will correct such statement or omission or which will
effect such compliance.
(c) Deliver without charge to the Placement Agent such number of copies
of the Securities Purchase Agreement and any supplement or amendment thereto as
may reasonably be requested by the Placement Agent.
(d) Not, directly or indirectly, in connection with the Placement or as
otherwise agreed to in this Agreement, solicit any offer to buy from, or offer
to sell to, any person or entity, any Securities or other securities of the
Company except through the Placement Agent.
(e) Not solicit any offer to buy or offer to sell Securities by any form
of general solicitation or advertising, including, without limitation, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over the Internet, television
or radio or at any seminar or meeting whose attendees have been invited by any
general solicitation or advertising or accept any subscription from an investor
who contacted the Company regarding the Placement due to any Company
announcement or public filing.
(f) At all times during the period commencing on the date hereof and
ending on the Final Closing Date, provide to each prospective Investor or his
purchaser representative, if any, on reasonable request, such information (in
addition to that contained in the Securities Purchase Agreement ) concerning the
Placement, the Company, the Securities and any other relevant matters as it
possesses or can acquire without unreasonable effort or expense and extend to
each prospective Investor or his purchaser representative, if any, the
opportunity to ask questions of, and receive answers from the Company concerning
the terms and conditions of the Placement and the business of the Company and to
obtain any other additional information, to the extent it possesses the same or
can acquire it without unreasonable effort or expense, as such prospective
Investor or purchaser representative may consider necessary in making an
informed investment decision or in order to verify the accuracy of the
information furnished to such prospective Investor or purchaser representative,
as the case may be.
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(g) Notify the Placement Agent promptly of the acceptance or rejection
of any Securities Purchase Agreement.
(h) At the Initial Closing, provide the Placement Agent with the Lock-Up
Agreements attached as Annex VII to the Securities Purchase Agreement.
(i) File five (5) copies of a Notice of Sales of Securities on Form D
with the SEC no later than 15 days after the first sale of the Securities, if
required by law. The Company shall file promptly such amendments to such Notices
on Form D as shall become necessary and shall also comply with any filing
requirement imposed by the laws of any state, province or jurisdiction in which
offers and sales are made, including all appropriate "blue sky" filings pursuant
to documentation prepared by the Placement Agent's counsel. The Placement
Agent's counsel shall furnish the Placement Agent and the Company with copies of
all filings made hereunder with respect to the laws of any such state, province,
or jurisdiction and the Company shall furnish the Placement Agent with copies of
all such filings with the SEC.
(j) Place substantially the following legend on all certificates
representing the Debentures and the Warrants:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THE COMPANY, IS
AVAILABLE."
(k) Not, directly or indirectly, engage in any act or activity which may
jeopardize the status of the offering and sale of the Units as exempt
transactions under the Securities Act or under the securities or "blue sky" laws
of any jurisdiction in which the Placement may be made.
(l) Apply the net proceeds from the sale of the Units for the purposes
set forth under Annex IX, "Use of Proceeds" in the Securities Purchase Agreement
in the manner indicated thereunder.
20
(m) Not, during the period commencing on the date hereof and ending on
the Final Closing Date, issue any press release or other communication or hold
any press conference with respect to the Company, its financial condition,
results of operations, business properties, assets, liabilities or future
prospects or the Placement, without the prior written consent of the Placement
Agent, which consent will not be unreasonably withheld.
(n) Not, prior to the completion of the Placement, bid for, purchase,
attempt to induce others to purchase, or sell, directly or indirectly, any
shares of Common Stock or any other securities in violation of the provisions of
Regulation M under the Exchange Act.
(o) Use its good faith best efforts after the date hereof to become
compliant with all aspects of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 ("SARB-OX") and the
rules and regulations promulgated thereunder that are applicable to the Company
at the date of this Agreement and the rules and regulations with respect to
Sarb-Ox that are now or will be applicable to the Company from time to time
including, without limitation, those provisions relating to loans to Company
officers and directors (it being covenanted and agreed to by the Company that it
shall not, after the date hereof, make any loans to any officer or director of
the Company in violation of Sarb-Ox).
(p) Register the Debenture Shares, Warrant Shares and Placement Agent
Warrant Shares and pay the applicable SEC and NASD filing fees in accordance
with the terms of the Registration Rights Agreement. The Company shall bear all
expenses of the Registration Statement, including reasonable fees and expenses,
if any, of counsel or other advisors to the Placement Agent. The Company shall
also pay all reasonable legal fees of the Company's counsel for any "144
opinions" or other opinions which are required by the Investors or the Placement
Agent in connection with any sales or dispositions of Securities made by such
parties under Rule 144 or any other applicable sale or transfer (including,
without limitation, sales made pursuant to prospectus delivery, or the
reasonable legal fees of counsel to the Investors or the Placement Agent if the
Company's counsel declines to provide any such opinion). In addition to the
foregoing, the Company also grants to the Placement Agent, with respect to the
Placement Agent Warrant Shares, each of the registration rights and the
anti-dilution protections granted to the Investors in the Placement, as such
rights are memorialized in the Warrant.
The Company is aware that the Corporate Financing Rule 2710 ("NASD Rule
2710") of the National Association of Securities Dealers ("NASD") is or may
become applicable to the transactions contemplated by the Transaction Agreements
or to the sale by a Holder of any of the Securities. If NASD Rule 2710 is so
applicable, the Company shall cooperate with any broker or selling shareholder
in respect of any filling, consents, authorizations or approvals that may be
necessary for the NASD to timely and expeditiously permit the shareholder to
sell the securities.
(q) Not, and will not knowingly, make an offer of Units, or of any
securities, the offering of which may be integrated with the Placement, by any
form of general solicitation or general advertising in violation of Rule 502(c)
of Regulation D such as would cause the offering of Units not to qualify under
Section 4(2) of the Securities Act as a transaction exempt from Section 5
thereof. The Company has not and will not supply in writing for inclusion in the
Securities Purchase Agreement or any related sales materials any information
relating to the Company containing any untrue statement of a material fact or
omitting to state any material fact required to be stated therein or necessary
to make such information, in light of the circumstances under which it is used,
not misleading.
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(r) In addition to the foregoing, to the extent not set forth herein,
the Placement Agent may rely on the covenants made by the Company in the
Securities Purchase Agreement used in connection with the Placement.
10. CONDITIONS OF THE PLACEMENT AGENT'S OBLIGATIONS
The obligations of the Placement Agent pursuant to this Agreement shall
be subject, in its discretion, to the continuing accuracy of the representations
and warranties of the Company contained herein and in each certificate and
document contemplated under this Agreement to be delivered to the Placement
Agent or otherwise at any Closing, as of the date hereof and as of the Initial
Closing Date or the date of any Closing subsequent to the Initial Closing Date,
to the performance by the Company of its obligations hereunder, and to the
following conditions:
(a) The Initial Closing and each Subsequent Closing, the Company shall
have delivered as required by the Securities Purchase Agreement certificates for
the Debentures sold to the Investors in the Placement, duly executed and made
out in the name of such Investors for the amount of Debentures purchased.
(b) At the Initial Closing and each Subsequent Closing, the Company
shall have delivered as required by the Securities Purchase Agreement warrant
certificates for the Warrants sold to the Investors in the Placement, duly
executed and made out in the name of such Investors for the amount of the
Warrant Shares which may be received upon the exercise thereof.
(c) At the Initial Closing and each Subsequent Closing, the Placement
Agent shall have received warrant certificates for the Placement Agent Warrants
issued to the Placement Agent in the Placement, duly executed and made out in
the names to be designated by the Placement Agent for the amount of Placement
Agent Warrant Shares which may be received upon the exercise thereof.
(d) At the Initial Closing and each Subsequent Closing, the Placement
Agent shall have received the applicable fees payable to the Placement Agent as
described in Section 3 hereof.
(e) At the Initial Closing and each Subsequent Closing, the Placement
Agent shall have received the favorable opinion from counsel for the Company,
such opinion to be in the form and substance annexed to the Securities Purchase
Agreement.
(f) At the Initial Closing, the Placement Agent shall have received
"lock-up" agreements, in the form attached as an Annex VII to the Securities
Purchase Agreement, duly executed by each person set forth in such Annex.
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(g) At each Closing, the Placement Agent shall have received a
certificate of the Chief Executive Officer of the Company, dated, as applicable,
as of the date of such Closing: (i) to the effect that, as of the date of this
Agreement and as of the applicable date, the representations and warranties of
the Company contained herein were and are accurate, and that, as of the
applicable date, the obligations to be performed by the Company hereunder on or
prior thereto have been fully performed, and (ii) with respect to the incumbency
of the officers of the Company executing the documentation delivered at such
Closing.
(h) At each Closing, the Placement Agent shall have received a
certificate of the Secretary of the Company, dated, as applicable, as of the
date of such Closing, certifying to the charter, by-laws, good standing in their
respective states of incorporation and board resolutions relating to the
Placement of, as applicable, the Company and the Subsidiaries.
(i) All proceedings taken in connection with the issuance, sale and
delivery of the Securities shall be reasonably satisfactory in form and
substance to the Placement Agent and its counsel.
(j) On or prior to or following the Initial Closing Date or the date of
any Subsequent Closing, as the case may be, the Placement Agent shall have been
furnished with: (i) such information, documents and certificates as it may
reasonably require for the purpose of enabling it to review the matters referred
to in this Section 10 and in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties, covenants, agreements or
conditions herein contained, and (ii) such other closing documentation as may be
required in order to affect the applicable Closing or as the Placement Agent may
otherwise reasonably request.
(k) Any certificate or other document signed by any officer of the
Company and delivered to the Placement Agent and its counsel as required
hereunder shall, unless stated otherwise therein, be deemed a representation and
warranty by the Company hereunder as to the statements made therein. If any
condition to the Placement Agent's obligations hereunder have not been fulfilled
as and when required to be so fulfilled, the Placement Agent may terminate this
Agreement or, if the Placement Agent so elects, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment. In the event that the Placement Agent elects to terminate this
Agreement, the Placement Agent shall notify the Company of such election in
writing. Upon such termination, neither party shall have any further liability
nor obligation to the other except as provided in Section 11 hereof.
(l) If there is more than one Closing, then at each such Closing there
shall be delivered to the Placement Agent upon its request updated opinions,
certificates or other information described in this Section 10.
11. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless the Placement
Agent, any person who controls the Placement Agent within the meaning of the
Securities Act, Section 20(a) of the Exchange Act or any applicable statute, and
each partner, director, officer, employee, counsel, agent and representative of
the Placement Agent and its representatives from and against any loss, damage,
expense, liability or claim, or actions or proceedings in respect thereof
(including, without limitation, reasonable attorneys' fees and expenses incurred
in investigating, preparing or defending against any litigation commenced,
collectively "DAMAGES") which any such person or entity may incur or which may
23
be made or brought against any such person arising out of or based upon: (i) any
breach of any of the agreements, representations or warranties of the Company
contained in or contemplated by this Agreement or the Securities Purchase
Agreement, including, without limitation, those arising out of or based on any
alleged untrue statement of a material fact or omission to state a material fact
required to be stated in the Securities Purchase Agreement or the Subscription
Documents or necessary in order to make the statements appearing therein not
misleading in the light of the circumstances in which they were made, (ii) any
violation by the Company of any federal or state securities laws attributable to
the Placement, or (iii) any violation of law by the Company or any affiliate
thereof, or any director, officer, employee, agent or representative of any of
them, related to or arising out of the Placement. This indemnity agreement by,
and the agreements, warranties and representations of, the Company shall survive
the offer, sale and delivery of the Units and the termination of this Agreement
and shall remain in full force and effect regardless of any investigation made
by or on behalf of any person indemnified hereunder, and termination of this
Agreement and acceptance of any payment for the Units hereunder.
(b) The Placement Agent agrees to indemnify and hold harmless the
Company and its affiliates, any person who controls any of them within the
meaning of the Securities Act, Section 20(a) of the Exchange Act or any
applicable statute, and each officer, director, employee, counsel, agent and
representative of the Company or any of its affiliates from and against any
Damages which any such person or entity may incur or which may be made or
brought against any such person, but only to the extent the same arises out of
or is based upon: (i) any breach of any of the agreements, representations or
warranties of the Placement Agent contained in or contemplated by this
Agreement, or (ii) any untrue statement of a material fact in any information
provided to the Company in writing by the Placement Agent, expressly for use in
and used in the Securities Purchase Agreement , or (iii) any violations of
federal or state securities or other laws by the Placement Agent or its
officers, directors, employees or agents. This indemnity agreement by, and the
agreements, warranties and representations of, the Placement Agent shall survive
the offer, sale and delivery of the Units and the termination of this Agreement
and shall remain in full force and effect regardless of any investigation made
by or on behalf of any person indemnified hereunder, and termination of this
Agreement and acceptance of any payment for the Units hereunder.
(c) If any action is brought against a party (the "INDEMNIFIED PARTY")
in respect of which indemnity may be sought against one or more other parties
(the "INDEMNIFYING PARTY" or "INDEMNIFYING PARTIES"), the Indemnified Party
shall promptly notify the Indemnifying Party or Parties in writing of the
institution of such action; provided, however, the failure to give such notice
shall not release the Indemnifying Party or Parties from its or their obligation
to indemnify the Indemnified Party hereunder except to the extent the
Indemnifying Party actually incurs damage by reason of such failure and shall
not release the Indemnifying Party or Parties from any other obligations or
liabilities to the Indemnified Party in any event. The Indemnifying Party or
Parties may at its or their own expense elect to assume the defense of such
action, including the employment of counsel reasonably acceptable to the
Indemnified Party; provided, however, that no Indemnifying or Indemnified Party
shall consent to the entry of any judgment or enter into any settlement by which
24
the other party is to be bound without the prior written consent of such other
party, which consent shall not be unreasonably withheld. In the event the
Indemnifying Party or Parties assume a defense hereunder, the Indemnified Party
shall be entitled to retain its own counsel in connection therewith and, except
as provided below, shall bear the fees and expenses of any such counsel, and
counsel to the Indemnified Party or Parties shall cooperate with such counsel to
the Indemnifying Party in connection with such proceeding. If an Indemnified
Party reasonably determines that there are or may be differing or additional
defenses available to the Indemnified Party which are not available to the
Indemnifying Party, or that there is or may be a conflict between the respective
positions of the Indemnifying Party and of the Indemnified Party in conducting
the defense of any action, then the Indemnifying Party shall bear the reasonable
fees and expenses of any counsel retained by the Indemnified Party in connection
with such proceeding. All references to the Indemnified Party contained in this
Section 11(c) include, and extend to and protect with equal effect, any persons
who may control the Indemnified Party within the meaning of the Securities Act,
Section 20(a) of the Exchange Act or any applicable statute, any successor to
the Indemnified Party and each of its partners, officers, directors, employees,
agents and representatives. The indemnity agreements set forth in this Section
11 shall be in addition to any other obligations or liabilities of the
Indemnifying Party or Parties hereunder or at common law or otherwise.
Notwithstanding anything herein to the contrary, in no event shall the Placement
Agent be obligated to indemnify any person or entity in an amount in excess of
the gross consideration received by the Placement Agent for services rendered
hereunder.
(d) Notwithstanding the provisions of Sections 11(a) and 11(b) hereof,
no Indemnified Party hereunder shall be entitled to or receive indemnification
pursuant to this Agreement if it is determined by a court of competent
jurisdiction (not subject to appeal) that the Damages in question were caused
primarily by the gross negligence or willful misconduct of such Indemnified
Party.
(e) If recovery is not available under the foregoing indemnification
provisions of this Section 11, for any reason other than as specified therein,
the party entitled to indemnification by the terms thereof shall be entitled to
contribution to losses, damages, liabilities and expenses of the nature
contemplated by such indemnification provisions. In determining the amount of
such contribution, there shall be considered the relative benefits received by
the Company on the one hand, and the Placement Agent on the other hand from the
Placement (which shall be deemed to be the portion of the proceeds of the
Placement realized by each party), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was asserted,
the opportunity to correct and prevent any statement or omission, the relative
culpability of the parties, the relative benefits received by the parties and
any other equitable considerations appropriate under the circumstances. No party
shall be liable for contribution with respect to any action or claim settled
without its consent. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 11, notify such party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 11 or otherwise. For
purposes of this Section 11, each person, if any, who controls a party to this
Agreement within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as that
party to this Placement Agreement. Notwithstanding the forgoing, in no event
shall the Placement Agent be obligated for contribution to any person or entity
in an amount in excess of the gross consideration received by the Placement
Agent for services rendered hereunder.
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12. MISCELLANEOUS
(a) The agreements set forth in this Agreement have been made and are
made solely for the benefit of the Company, the Placement Agent, and the
respective affiliates, heirs, personal representatives and successors and
permitted assigns thereof, and except as expressly provided herein nothing
expressed or mentioned herein is intended or shall be construed to give any
other person, firm or corporation any legal or equitable right, remedy or claim
under or in respect of this Agreement or any representation, warranty or
agreement herein contained. The term "successors and assigns" as used herein
shall not include any purchaser of any Units merely because of such purchase.
(b) As used herein, the words "include" or "including" shall be
interpreted to mean "including, without limitation."
(c) Neither party will be liable to the other by reason of any failure
in performances of this Agreement if the failure arises out of the
unavailability of third party communication facilities or energy sources or acts
of God, acts of governmental authority, fires, strikes, delays in
transportation, riots or war, or any cause beyond the reasonable control of such
party.
(d) Any notice or other communication required or appropriate under the
provisions of this Agreement shall be given in writing (and may be delivered by
facsimile transmission, with confirmation of receipt) addressed as follows: (i)
if to the Company, at the address set forth on the first page of this Agreement,
Attention: Chief Executive Officer; with a copy to ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, P.C.,
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Esq. and (ii) if to the Placement Agent, Pond Equities, Inc., ▇▇▇▇ ▇▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇; with a copy to
Ellenoff ▇▇▇▇▇▇▇▇ & Schole LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq., or at such other address as any party may
designate to the others in accordance with this Section 12(c).
(e) This Agreement shall be governed and construed in accordance with
the laws of the State of New York, without giving effect to conflicts of law
provisions thereof (other than Section 5-1401 of the New York General
Obligations Law).
(f) Any legal suit, action or proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby shall be instituted
exclusively in New York Supreme Court, County of New York, or in the United
States District Court for the Southern District of New York. The parties hereto
hereby: (i) waive any objection which they may now have or hereafter have to the
venue of any such suit, action or proceeding, and (ii) irrevocably consent to
the jurisdiction of the New York Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in any such
suit, action or proceeding. The parties further agree to accept and acknowledge
service of any and all process which may be served in any such suit, action or
proceeding in the New York Supreme Court, County of New York, or in the United
States District Court for the Southern District of New York and agree that
service of process upon a party mailed by certified mail to such party's address
shall be deemed in every respect effective service of process upon such party in
any such suit, action or proceeding.
26
(g) This Agreement constitutes the entire agreement between the parties
hereto with respect to the Placement and the subject matter hereof and
supercedes any and all prior agreements, and may be amended or modified only by
a duly authorized writing signed by such parties. This Agreement may be executed
in any number of counterparts and by facsimile, each of which shall be deemed an
original and all of which shall constitute a single instrument.
[SIGNATURE PAGE FOLLOWS]
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This Placement Agency Agreement is executed and shall be effective as of
March 3, 2006
Very truly yours,
POND EQUITIES, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
ACCEPTED AND AGREED TO:
RIM SEMICONDUCTOR COMPANY
By: /s/ ▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Title: President and Chief Executive Officer
[SIGNATURE PAGE TO PLACEMENT AGENCY AGREEMENT]
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