EXHIBIT 10.14
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of June ___,
2004, by and between Raptor Networks Technology, Inc., a Colorado corporation
(the "COMPANY"), and each of the entities whose names appear on the signature
pages hereof. Such entities are each referred to herein as an "INVESTOR" and,
collectively, as the "INVESTORS".
The Company wishes to sell to each Investor, and each Investor wishes
to purchase, on the terms and subject to the conditions set forth in this
Agreement, (i) shares (the "SHARES") of the Company's common stock, par value
$.001 per share (the "COMMON STOCK"), (ii) a Series C Warrant in the form
attached hereto as EXHIBIT A (a "SERIES C WARRANT" and, collectively, the
"SERIES C WARRANTS") and (iii) a Series D Warrant in the form attached hereto as
EXHIBIT B (a "SERIES D WARRANT" and, collectively, the "SERIES D WARRANTS"). The
Series C Warrants and the Series D Warrants are collectively referred to herein
as the "WARRANTS".
Each Series C Warrant issued to an Investor will entitle such Investor
to purchase a number of shares of Common Stock equal to the number of Shares
purchased by such Investor at the Closing. The Series C Warrants will have an
exercise price equal to $3.00 per share (subject to adjustment as provided
therein) and will expire on the sixtieth (60th) day following the Effective Date
(as defined below). Each Series D Warrant issued to an Investor will entitle
such Investor to purchase a number of shares of Common Stock equal to the number
of Shares purchased by such Investor at the Closing. The Series D Warrants will
have an exercise price equal to $3.50 per share (subject to adjustment as
provided therein) and will expire on the fifth (5th) anniversary of the Closing
Date.
The shares of Common Stock into which the Warrants are exercisable are
referred to herein as the "WARRANT SHARES". The Shares and the Warrants are
collectively referred to herein as the "PURCHASED SECURITIES", and the Purchased
Securities and the Registrable Securities (as defined below) are collectively
referred to herein as the "SECURITIES".
The Company has agreed to effect the registration of the Registrable
Securities under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
pursuant to a Registration Rights Agreement in the form attached hereto as
EXHIBIT C (the "REGISTRATION RIGHTS AGREEMENT"). The sale of the Securities by
the Company to the Investors will be effected in reliance upon the exemption
from securities registration afforded by the provisions of Regulation D
("REGULATION D"), as promulgated by the Securities and Exchange Commission (the
"COMMISSION") under the Securities Act.
In consideration of the mutual promises made herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each Investor hereby agree as follows:
1. PURCHASE AND SALE OF SHARES AND WARRANTS.
1.1 PURCHASE AND SALE OF PURCHASED SECURITIES. Upon the terms and
subject to the satisfaction or waiver of the conditions set forth herein, the
Company agrees to sell and each Investor agrees to purchase (i) the number of
Shares set forth below such Investor's name on the signature pages hereof, (ii)
a Series C Warrant and (ii) a Series D Warrant. The purchase price for the
Purchased Securities being purchased by an Investor (the "PURCHASE PRICE") shall
be equal to (x) the number of Shares purchased by such Investor TIMES (y) $1.80
(the "SHARE Price"), provided that the Purchase Price shall be allocated among
the Purchased Securities as may be agreed to among the Company and such
Investor. The date on which the closing of the purchase and sale of the
Purchased Securities occurs (the "CLOSING") is hereinafter referred to as the
"CLOSING DATE". The Closing will be deemed to occur when (A) this Agreement and
the other Transaction Documents (as defined below) have been executed and
delivered by the Company and, to the extent applicable, by each Investor, (B)
each of the conditions to Closing described in Section 5 hereof has been
satisfied or waived as specified therein and (C) except as otherwise provided in
the following sentence, full payment of each Investor's Purchase Price has been
made by such Investor to the Company by wire transfer of immediately available
funds against physical delivery by the Company of duly executed certificates
representing the Purchased Securities purchased by such Investor at the Closing.
1.2 CERTAIN DEFINITIONS. When used herein, the following terms shall
have the respective meanings indicated:
"AFFILIATE" means, as to any Person (the "SUBJECT PERSON"),
any other Person (a) that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under direct or indirect
common control with, the subject Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
equity of the subject Person, or (c) ten percent (10%) or more of the voting
equity of which is directly or indirectly beneficially owned or held by the
subject Person. For the purposes of this definition, "CONTROL" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, through representation on such Person's Board of Directors or other
management committee or group, by contract or otherwise.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which the New York Stock Exchange or commercial banks located in New
York City are authorized or permitted by law to close.
"CLOSING" and "CLOSING DATE" have the respective meanings
specified in Section 1.1 hereof.
"COMMON STOCK" means the common stock, par value $0.001 per
share, of the Company.
"DEBT" means, as to any Person at any time: (a) all
indebtedness, liabilities and obligations of such Person for borrowed money; (b)
all indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of Property or services, except trade accounts payable of such
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Person arising in the ordinary course of business that are not past due by more
than 90 days; (c) all capital lease obligations of such Person; (d) all Debt of
others guaranteed by such Person; (e) all indebtedness, liabilities and
obligations secured by a Lien existing on Property owned by such Person, whether
or not the indebtedness, liabilities or obligations secured thereby have been
assumed by such Person or are non-recourse to such Person; (f) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers' acceptances, surety or other bonds and similar
instruments; and (g) all indebtedness, liabilities and obligations of such
Person to redeem or retire shares of capital stock of such Person.
"DISCLOSURE DOCUMENTS" means all SEC Documents filed by the
Company at least two (2) Business Days prior to the date of this Agreement via
the Commission's Electronic Data Gathering, Analysis and Retrieval system
(XXXXX) in accordance with the requirements of Regulation S-T under the Exchange
Act.
"EFFECTIVE DATE" has the meaning set forth in the Registration
Rights Agreement.
"ENVIRONMENTAL LAW" means any federal, state, provincial,
local or foreign law, statute, code or ordinance, principle of common law, rule
or regulation, as well as any Permit, order, decree, judgment or injunction
issued, promulgated, approved or entered thereunder, relating to pollution or
the protection, cleanup or restoration of the environment or natural resources,
or to the public health or safety, or otherwise governing the generation, use,
handling, collection, treatment, storage, transportation, recovery, recycling,
discharge or disposal of hazardous materials.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations and published interpretations thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended (or any successor act), and the rules and regulations thereunder (or
respective successors thereto).
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in (i) opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (ii) statements
of the Financial Accounting Standards Board and (iii) interpretations of the
Commission and the Staff of the Commission. Accounting principles are applied on
a "CONSISTENT BASIS" when the accounting principles applied in a current period
are comparable in all material respects to those accounting principles applied
in a preceding period.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state, provincial or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including without limitation any stock exchange,
securities market or self-regulatory organization.
"GOVERNMENTAL REQUIREMENT" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, franchise,
license or other directive or requirement of any federal, state, county,
municipal, parish, provincial or other Governmental Authority or any department,
commission, board, court, agency or any other instrumentality of any of them.
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"INSURANCE POLICIES" means the insurance policies providing
all of the coverages contemplated by the Insurance Binder.
"INTELLECTUAL PROPERTY" means any U.S. or foreign patents,
patent rights, patent applications, trademarks, trade names, service marks,
brand names, logos and other trade designations (including unregistered names
and marks), trademark and service xxxx registrations and applications,
copyrights and copyright registrations and applications, inventions, invention
disclosures, protected formulae, formulations, processes, methods, trade
secrets, computer software, computer programs and source codes, manufacturing
research and similar technical information, engineering know-how, customer and
supplier information, assembly and test data drawings or royalty rights.
"LIEN" means, with respect to any Property, any mortgage or
mortgages, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, or other lien, charge,
easement, encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"MATERIAL ADVERSE EFFECT" means an effect that has a material
and adverse effect on (i) the consolidated business, operations, properties,
financial condition, prospects or results of operations of the Company and its
Subsidiaries taken as a whole or (ii) the transactions contemplated by this
Agreement or the other Transaction Documents (as defined below).
"MATERIAL CONTRACTS" means, as to the Company, any agreement
required pursuant to Item 601 of Regulation S-B or Item 601, as applicable, of
Regulation S-K under the Securities Act to be filed as an exhibit to any report,
schedule, registration statement or definitive proxy statement filed or required
to be filed by the Company with the Commission under the Exchange Act or any
rule or regulation promulgated thereunder, and any and all amendments,
modifications, supplements, renewals or restatements thereof.
"NASD" means the National Association of Securities Dealers,
Inc.
"OUTSTANDING REGISTRABLE SECURITIES" means, at any time, all
Registrable Securities outstanding, or issuable upon exercise of the Warrants
(without regard to any limitation on such exercise), at such time.
"PENSION PLAN" means an employee benefit plan (as defined in
ERISA) maintained by the Company for employees of the Company or any of its
Affiliates.
"PERMITTED LIENS" means the following:
(a) encumbrances consisting of easements,
rights-of-way, zoning restrictions or other restrictions on the use of
real Property or imperfections to title that do not (individually or in
the aggregate) materially impair the ability of the Company or any of
its Subsidiaries to use such Property in its businesses, and none of
which is violated in any material respect by existing or proposed
structures or land use;
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(b) Liens for taxes, assessments or other
governmental charges that are not delinquent or which are being
contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing the forfeiture or sale of the Property
subject to such Liens, and for which adequate reserves (as determined
in accordance with GAAP) have been established; and
(c) Liens of mechanics, materialmen, warehousemen,
carriers, landlords or other similar statutory Liens securing
obligations that are not yet due and are incurred in the ordinary
course of business or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject to such
Liens, for which adequate reserves (as determined in accordance with
GAAP) have been established.
"PERSON" means any individual, corporation, trust,
association, company, partnership, joint venture, limited liability company,
joint stock company, Governmental Authority or other entity.
"PRINCIPAL MARKET" means the principal exchange or market on
which the Common Stock is listed or traded.
"PROPERTY" means property and/or assets of all kinds, whether
real, personal or mixed, tangible or intangible (including, without limitation,
all rights relating thereto).
"PURCHASE PRICE" has the meaning specified in Section 1.1
hereof.
"PURCHASED SECURITIES" has the meaning set forth in the
preamble to this Agreement.
"REGISTRABLE SECURITIES" means the Shares and the Warrant
Shares, any other shares of Common Stock issuable pursuant to the terms of the
Warrants, and any shares of capital stock issued or issuable from time to time
(with any adjustments) in replacement of, in exchange for or otherwise in
respect of the Shares or the Warrant Shares; PROVIDED, HOWEVER, that
"REGISTRABLE SECURITIES" shall not include any such shares that have been sold
pursuant to the Registration Statement or Rule 144(k).
"REGISTRATION STATEMENT" has the meaning set forth in the
Registration Rights Agreement.
"RULE 144" means Rule 144 under the Securities Act, or any
successor provision.
"SEC DOCUMENTS" has the meaning specified in Section 3.4
hereof. "SECURITIES" has the meaning specified in the preamble to this
Agreement.
"SUBSIDIARY" means, with respect to any Person, any
corporation or other entity of which at least a majority of the outstanding
shares of stock or other ownership interests having by the terms thereof
ordinary voting power to elect a majority of the board of directors (or Persons
performing similar functions) of such corporation or entity (irrespective of
whether or not at the time, in the case of a corporation, stock of any other
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class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more of its Subsidiaries
or by such Person and one or more of its Subsidiaries.
"TRADING DAY" means any day on which the Common Stock is
purchased and sold on the Principal Market.
"TRANSACTION DOCUMENTS" means (i) this Agreement, (ii) the
Series C Warrants, (iii) the Series D Warrants, (iv) the Registration Rights
Agreement, (v) the Indemnity Agreement, and (vi) all other agreements, documents
and other instruments executed and delivered by or on behalf of the Company or
any of its officers at the Closing.
1.3 OTHER DEFINITIONAL PROVISIONS. All definitions contained in this
Agreement are equally applicable to the singular and plural forms of the terms
defined. The words "hereof', "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.
Each Investor hereby represents and warrants to the Company and agrees
with the Company that, as of the date of this Agreement and as of the Closing
Date:
2.1 AUTHORIZATION; ENFORCEABILITY. Such Investor is duly and validly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization as set forth below such
Investor's name on the signature page hereof with the requisite corporate power
and authority to purchase the Purchased Securities and to execute and deliver
this Agreement. This Agreement and the other transaction documents to which it
is a party each constitutes such Investor's valid and legally binding
obligation, enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws of general application relating to or affecting the enforcement of
creditors' rights generally and (ii) general principles of equity.
2.2 ACCREDITED INVESTOR. Such Investor is an accredited investor as
that term is defined in Rule 501 of Regulation D, and is acquiring the Purchased
Securities solely for its own account (or for one or more accounts as to which
it exercises investment discretion) and not with a present view to the public
resale or distribution of all or any part thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act; PROVIDED, HOWEVER, that, in making such
representation, such Investor does not agree to hold the Purchased Securities
for any minimum or specific term and reserves the right to sell, transfer or
otherwise dispose of the Purchased Securities at any time in accordance with the
provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
2.3 INFORMATION. The Company has provided such Investor with
information regarding the business, operations and financial condition of the
Company, and has granted to such Investor the opportunity to ask questions of
and receive answers from representatives of the Company, its officers,
directors, employees and agents concerning the Company and materials relating to
the terms and conditions of the purchase and sale of the Purchased Securities
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hereunder. Neither such information nor any other investigation conducted by
such Investor or its representatives shall modify, amend or otherwise affect
such Investor's right to rely on the Company's representations and warranties
contained in this Agreement.
2.4 LIMITATIONS ON DISPOSITION. Such Investor acknowledges that, except
as provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the Securities Act and may not be transferred
or resold without registration under the Securities Act or unless pursuant to an
exemption therefrom.
2.5 LEGEND. Such Investor understands that the certificates
representing the Securities may bear at issuance a restrictive legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and
may not be offered or sold unless a registration statement
under the Securities Act and applicable state securities laws
shall have become effective with regard thereto, or an
exemption from registration under the Securities Act and
applicable state securities laws is available in connection
with such offer or sale."
Notwithstanding the foregoing, it is agreed that, as long as (A) the
resale or transfer (including without limitation a pledge) of any of the
Securities is registered pursuant to an effective registration statement, (B)
such Securities have been sold pursuant to Rule 144, subject to receipt by the
Company of customary documentation in connection therewith, or (C) such
Securities are eligible for resale under Rule 144(k) or any successor provision,
such Securities shall be issued without any legend or other restrictive language
and, with respect to Securities upon which such legend is stamped, the Company
shall issue new certificates without such legend to the holder upon request.
2.6 RELIANCE ON EXEMPTIONS. Such Investor understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of federal and state securities laws and that
the Company is relying on the truth and accuracy of the representations and
warranties of such Investor set forth in this Section 2 in order to determine
the availability of such exemptions and the eligibility of such Investor to
acquire the Securities.
2.7 NON-AFFILIATE STATUS; COMMON STOCK OWNERSHIP. Such Investor is not
an Affiliate of the Company or of any other Investor and is not acting in
association or concert with any other Investor with regard to its purchase of
Purchased Securities or otherwise in respect of the Company. Such Investor's
investment in Purchased Securities is not for the purpose of acquiring, directly
or indirectly, control of, and it has no intent to acquire or exercise control
of, the Company or to influence the decisions or policies of the Company's Board
of Directors.
2.8 NO SHORT POSITION IN COMPANY SECURITIES. Neither such Investor nor
any person trading on its behalf or at its direction has established or
maintained a short position in the Common Stock or any other securities of the
Company as of the Trading Day immediately preceding the Closing Date.
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2.9 FEES. Such Investor is not obligated to pay any compensation or other fee,
cost or related expenditure to any underwriter, broker, agent or other
representative in connection with the transactions contemplated hereby, other
than legal fees to its counsel.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to each Investor and agrees with such Investor that, as of the date
of this Agreement and as of the Closing Date:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Company
and its Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and has
all requisite power and authority to carry on its business as now conducted.
Each of the Company and its Subsidiaries is duly qualified to transact business
and is in good standing in each jurisdiction in which it conducts business
except where the failure so to qualify has not had or would not reasonably be
expected to have a Material Adverse Effect.
3.2 AUTHORIZATION; CONSENTS. The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents, including without limitation to
issue and sell the Purchased Securities to the Investors in accordance with the
terms thereof, to issue the Warrant Shares upon exercise of the Warrants. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for the authorization, execution and delivery of, and the
performance by the Company of its obligations under, this Agreement and the
other Transaction Documents has been taken, and no further consent or
authorization of the Company, its Board of Directors, stockholders, any
Governmental Authority or organization (other than such approval as may be
required under the Securities Act and applicable state securities laws in
respect of the Registration Rights Agreement), or any other person or entity is
required (pursuant to any rule of the NASD or otherwise). The Company's Board of
Directors has determined, at a duly convened meeting or pursuant to a unanimous
written consent, that the issuance and sale of the Purchased Securities, and the
consummation, of the transactions contemplated hereby and the other Transaction
Documents (including without limitation the issuance of Warrant Shares) are in
the best interests of the Company.
3.3 ENFORCEMENT. Each Transaction Document has been duly executed and
delivered by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable against it in accordance with its terms,
subject to (i) applicable bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization or other similar laws of general application relating
to or affecting the enforcement of creditors' rights generally and (ii) general
principles of equity.
3.4 SEC DOCUMENTS; AGREEMENTS; FINANCIAL STATEMENTS; OTHER INFORMATION.
Except as described on SCHEDULE 3.4 hereto, the Company has filed with the
Commission all reports, schedules, registration statements and definitive proxy
statements that the Company was required to file with the Commission on or after
December 31, 2003, and to the knowledge of the Company before such date
(collectively, the "SEC DOCUMENTS"). The Company is not aware of any event
occurring on or prior to the Closing Date (other than the transactions effected
hereby) that would require the filing of, or with respect to which the Company
intends to file, a Form 8-K after the Closing. Each SEC Document, as of the date
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of the filing thereof with the Commission, complied in all material respects
with the requirements of the Securities Act or Exchange Act, as applicable, and
the rules and regulations promulgated thereunder and, as of the date of such
filing (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing), such SEC Document (including all
exhibits and schedules thereto and documents incorporated by reference therein)
did not contain an untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. All
documents required to be filed as exhibits to the SEC Documents have been filed
as required. Except as set forth in the SEC Documents or any schedule or exhibit
attached hereto, the Company has no liabilities, contingent or otherwise, other
than liabilities incurred in the ordinary course of business which, under GAAP,
are not required to be reflected in the financial statements included in the SEC
Documents and which, individually or in the aggregate, are not material to the
consolidated business or financial condition of the Company and its Subsidiaries
taken as a whole. The financial statements included in the SEC Documents have
been prepared in accordance with GAAP consistently applied at the times and
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end adjustments).
3.5 CAPITALIZATION; DEBT SCHEDULE. The capitalization of the Company as
of the date hereof, including its authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company's stock option plans and agreements, the number of
shares issuable and reserved for issuance pursuant to securities (other than the
Purchased Securities) exercisable for, or convertible into or exchangeable for
any shares of Common Stock and the number of shares initially to be reserved for
issuance upon exercise of the Warrants is set forth on SCHEDULE 3.5 hereto. All
issued and outstanding shares of capital stock of the Company have been duly
authorized, validly issued, fully paid and non-assessable. No shares of the
capital stock of the Company are subject to preemptive rights or any other
similar rights of security holders of the Company or any Liens created by or
through the Company. Except for Raptor Networks Technology, Inc., a California
corporation ("CA SUB"), the Company has no Subsidiaries. All of the issued and
outstanding shares of capital stock of CA Sub are held of record and
beneficially by the Company, free and clear of any options, warrants, rights,
contracts, calls, commitments, demands, and Liens created by or through CA Sub.
Except as disclosed on SCHEDULE 3.5, or as contemplated herein, as of the date
of this Agreement and as of the date of the Closing, there are (a) no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its Subsidiaries; (b) no obligations or arrangements
(contingent or otherwise) by which the Company or any of its Subsidiaries is or
may become bound to issue additional shares of capital stock of the Company or
any of its Subsidiaries (whether pursuant to anti-dilution, "reset" or other
similar provisions) or securities or rights convertible into or exercisable or
exchangeable for any share of capital stock of the Company or any of its
Subsidiaries; (c) no obligations or arrangements of the Company or any of its
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Subsidiaries (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof; (d) no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
the Company or any of its Subsidiaries; and (e) no persons entitled to any
preemptive or similar right with respect to the issuance of any capital stock of
the Company or any of its Subsidiaries. Except as described on SCHEDULE 3.5
hereto, the Company has no material Debt outstanding as of the date hereof.
3.6 DUE AUTHORIZATION; VALID ISSUANCE. The Shares and the Warrants are
duly authorized and, when issued, sold and delivered in. accordance with the
terms hereof, will be duly and validly issued, fully paid and non-assessable,
free and clear of any Liens and any preemptive rights imposed by or through the
Company and, assuming the accuracy of each Investor's representations in this
Agreement, will be issued, sold and delivered in compliance with all applicable
Federal and state securities laws. The Warrant Shares are duly authorized and
reserved for issuance and, when issued in accordance with the terms of the
Warrants, will be duly and validly issued, fully paid and non-assessable, free
and clear of any Liens and any preemptive rights imposed by or through the
Company.
3.7 NO CONFLICT WITH OTHER INSTRUMENTS. Neither the Company nor any of
its Subsidiaries is in violation of any provisions of its charter, bylaws or any
other governing document or in default (and no event has occurred which, with
notice or lapse of time or both, would constitute a default) under any provision
of any instrument or contract to which it is a party or by which it or any of
its Property is bound, or in violation of any provision of any Governmental
Requirement applicable to it, except for violations of any provision of a
Governmental Requirement that has not had or would not reasonably be expected to
have a Material Adverse Effect (any such violation or default, a "CURRENT
VIOLATION"). To the knowledge of the Company, except as disclosed in the SEC
Documents, no employee of the Company or any of its Subsidiaries is in violation
of any term of any instrument, contract or covenant (either with the Company,
any of its Subsidiaries or another entity) relating to employment, Intellectual
Property, assignment of inventions, proprietary information disclosure,
non-competition or non-solicitation. The execution, delivery and performance of
this Agreement and the other Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Purchased Securities and the reservation and issuance of the
Warrant Shares) will not result in a Current Violation or result in the creation
of any Lien upon any assets of the Company or of any of its Subsidiaries or the
triggering of any preemptive or anti-dilution rights (including without
limitation pursuant to any "reset" or similar provisions) or rights of first
refusal or first offer, or any other rights that would allow or permit the
holders of the Company's securities or other Persons to purchase shares of
Common Stock or other securities of the Company (whether pursuant to a
shareholder rights plan provision or otherwise).
3.8 FINANCIAL CONDITION; TAXES; LITIGATION.
3.8.1 The Company's financial condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the consolidated business or financial
condition of the Company and its Subsidiaries taken as a whole. There has been
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no (i) material adverse change to the Company's or any of its Subsidiaries'
businesses, operations, properties, financial condition, prospects or results of
operations since the date of the Company's most recent audited financial
statements contained in the Disclosure Documents; (ii) change by the Company in
its accounting principles, policies and methods except as required by changes in
GAAP; (iii) waiver of any material right of the Company or any of its
Subsidiaries or cancellation of any debt or claim held by the Company or any of
its Subsidiaries; (iv) increase, direct or indirect, in the compensation paid or
payable to any officer, director, employee or stockholder of the Company or any
of its Subsidiaries, or any agreement or commitment therefor; (v) material loss,
destruction or damage to any property material to the business of the Company or
any of its Subsidiaries whether or not insured; (vi) material change in the
personnel of the Company or any of its Subsidiaries or the terms and conditions
of their employment; (vii) acquisition or disposition of any assets of the
Company or any of its Subsidiaries (or any contract or arrangement therefor);
and (viii) contract, agreement, commitment, expenditure or hiring of new
employees or consultants by the Company or any of its Subsidiaries which is
otherwise material and not entered into in the ordinary course of business.
3.8.2 Each of the Company and its Subsidiaries (i) has prepared in good faith
and duly and timely filed all foreign, federal, state, county and local income,
excise or franchise tax returns, real estate and personal property tax returns,
sales and use tax returns, and other tax returns required to be filed by it and
such returns are complete and accurate in all material respects (ii) has paid
all taxes required to have been paid by it, except for taxes which it reasonably
disputes in good faith or the failure of which to pay has not had or would not
reasonably be expected to have a Material Adverse Effect, and has no liability
with respect to accrued taxes in excess of the amounts that are described as
accrued in the financial statements included in the Disclosure Documents. All
taxes and other assessments and levies which the Company or any of its
Subsidiaries is required to withhold or collect have been withheld and collected
and have been paid over to the proper Governmental Authorities, except where the
failure to pay would not have a Material Adverse Effect. There are in effect no
waivers of applicable statutes of limitations with respect to any taxes owed by
the Company or any of its Subsidiaries for any year.
3.8.3 Neither the Company nor any of its Subsidiaries is the
subject of any pending or, to the Company's knowledge, threatened inquiry,
investigation or administrative or legal proceeding by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, the
Commission, the NASD, any state securities commission or other Governmental
Authority.
3.8.4 Except as described in SCHEDULE 3.8.4, there is no
material claim, litigation or administrative proceeding pending or, to the
Company's knowledge, threatened or contemplated, against the Company or any of
its Subsidiaries, or against any officer, director or employee of the Company or
any such Subsidiary in connection with such person's employment therewith.
Neither the Company nor any of its Subsidiaries is a party to or subject to the
provisions of, any order, writ, injunction, judgment or decree of any court or
Governmental Authority which has had or would reasonably be expected to have a
Material Adverse Effect.
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3.9 FORM SB-2. The Company is eligible to register the Registrable
Securities for resale by each Investor on a registration statement on Form SB-2
under the Securities Act. To the Company's knowledge, there exist no facts or
circumstances (including without limitation any required approvals or waivers of
any circumstances that may delay or prevent the obtaining of accountant's
consents) that could reasonably be expected to prohibit or delay the preparation
and filing of such registration statement.
3.10 ACKNOWLEDGEMENT OF DILUTION. The Company acknowledges that the
issuance of the Warrant Shares upon exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Warrant Shares upon exercise of the Warrants in
accordance with the terms thereof is unconditional regardless of the effect of
any such dilution.
3.11 INTELLECTUAL PROPERTY. The Company and its Subsidiaries each owns
or possesses, licenses or can acquire or make use of, without undue expense, all
Intellectual Property that is necessary or appropriate for the operation of its
businesses as presently conducted and as proposed to be conducted, without any
known conflict with the rights of others. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents will not
materially alter or impair, individually or in the aggregate, any of such rights
of the Company. To the Company's knowledge, (i) none of its current products or
services infringes upon any Intellectual Property of any other Person, and no
claim or litigation is pending or, to the knowledge of the Company, threatened
against the Company contesting its right to sell or otherwise use any product or
material or service which has had or would reasonably be expected to have a
Material Adverse Effect and (ii) the use by the Company of any Intellectual
Property does not infringe the rights of any third party to such Intellectual
Property. There is no violation by the Company with respect to any Intellectual
Property owned or used by the Company and the Company's rights to such
Intellectual Property are valid and enforceable and no registration relating
thereto has lapsed, expired or terminated or is the subject of any claim or
proceeding that could result in any such lapse, expiration or termination. The
Company and its Subsidiaries each has complied in all material respects with its
obligations pursuant to any agreement relating to Intellectual Property rights
that are the subject of licenses granted by third parties.
3.12 REGISTRATION RIGHTS. Except as described on SCHEDULE 3.12 hereto,
the Company has not granted or agreed to grant to any person or entity any
rights (including "PIGGY-BACK" registration rights) to have any securities of
the Company registered with the Commission or any other governmental authority
which has not been satisfied in full prior to the date hereof
3.13 FEES. Except as described on SCHEDULE 3.13 hereto, the Company is
not obligated to pay any compensation or other fee, cost or related expenditure
to any underwriter, broker, agent or other representative in connection with the
transactions contemplated hereby. The Company will indemnify and hold harmless
such Investor from and against any claim by any person or entity alleging. that
such Investor is obligated to pay any such compensation, fee, cost or related
expenditure in connection with the transactions contemplated hereby.
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3.14 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary, has (i) used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity, (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee (including
without limitation any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment), or (iii) violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
3.15 EMPLOYEES. Each of the Company's executive officers (as defined in
Rule 501(f) of the Securities Act) (each, a "KEY EMPLOYEE") is currently serving
in the capacity indicated in SCHEDULE 3.15 hereto. The Company has no knowledge
of any fact or circumstance (including without limitation (i) the terms of any
agreement to which such person is a party or any litigation in which such person
is or may become involved and (ii) any illness or medical condition that could
reasonably be expected to result in the disability or incapacity of such person)
that would limit or prevent any such person from serving in such capacity on a
full-time basis in the foreseeable future, or of any intention on the part of
any such person to limit or terminate his or her employment with the Company. No
Key Employee has borrowed money pursuant to a currently outstanding loan that is
secured by Common Stock or any right or option to receive Common Stock. There is
no strike, labor dispute or union organization activities pending or, to the
knowledge of the Company, threatened between it and its employees. None of the
Company's employees belong to any union or collective bargaining unit. The
Company has complied in all material respects with all applicable federal and
state laws related to employment, including but not limited to such laws
relating to wages, hours, equal opportunity, collective bargaining, workers'
compensation insurance, and the payment of social security and other taxes.
3.16 ENVIRONMENT. The Company and its Subsidiaries have no liabilities
under any Environmental Law, nor do any factors exist that are reasonably likely
to give rise to any such liability, affecting any of the properties owned or
leased by the Company or any of its Subsidiaries that, individually or in the
aggregate, have had or would reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any of the Subsidiaries has violated any
Environmental Law applicable to it now or previously in effect, other than such
violations or infringements that, individually or in the aggregate, have not had
and would not reasonably be expected to have a Material Adverse Effect. There is
no pending or, to the knowledge of the Company, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding or
inquiry, information request or, to the knowledge of the Company, investigation
by any governmental entity, relating to Environmental Laws.
3.17 ERISA. Except as described on SCHEDULE 3.17, the Company does not
maintain or contribute to, or have any obligation under, any Pension Plan. The
Company is in compliance in all material respects with the presently applicable
provisions of ERISA and the United States Internal Revenue Code of 1986, as
amended, except for matters that, individually or in the aggregate, have not
had, and would not reasonably be expected to have, a Material Adverse Effect.
3.18 DISCLOSURE. No written statement, information, report,
representation or warranty made by the Company in this Agreement or any other
Transaction Document or furnished to such Investor by or on behalf of the
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Company in connection with the Transaction Documents or such Investor's due
diligence investigation of the Company contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein, in light of the circumstances in which made, not
misleading. The Company has not disclosed to such Investor any event,
circumstance or fact that would constitute material non-public information as of
the date of this Agreement or the Closing Date. Following the issuance of the
press release and Form 8-K in accordance with Section 4.1(c) hereof, such
Investor will not possess any material non-public information concerning the
Company. The Company acknowledges that such Investor is relying on the
representations, acknowledgements and agreements made by the Company in this
Section 3.18 in making trading and other decisions concerning the Company's
securities.
3.19 INSURANCE. Except as described in SCHEDULE 3.19 hereto, the
Company maintains insurance for itself and its Subsidiaries in such amounts and
covering such losses and risks as the Company believes to be reasonably prudent
in relation to the businesses in which the Company and its Subsidiaries are
engaged. No notice of cancellation has been received for any of such policies
and the Company is in compliance with all of the terms and conditions thereof.
The Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost. Without limiting the generality
of the foregoing, the Company maintains Director's and Officer's insurance in an
amount not less than $5 million for each covered occurrence.
3.20 PROPERTY. The Company and its Subsidiaries have good and
marketable title to all personal Property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
Liens, except for Permitted Liens. Any Property held under lease by the Company
and its Subsidiaries is held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made or proposed to be made of such Property by the Company and its
Subsidiaries. Neither the Company nor any of its Subsidiaries own any real
Property.
3.21 MATERIAL CONTRACTS. Except as set forth in the SEC Documents, the
Company nor any of its Subsidiaries is a party or is bound by any Material
Contract.
3.22 REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses other than where the failure to possess such certificates,
authorizations or permits, individually or in the aggregate, has not had and
would not reasonably be expected to have a Material Adverse Effect. Neither the
Company nor any such Subsidiary has received any notice or otherwise become
aware of any proceedings, inquiries or investigations relating to the revocation
or modification of any such certificate, authorization or permit.
3.23 EXCHANGE ACT REGISTRATION. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and the Company has
taken no action designed to, or which, to the knowledge of the Company, is
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act.
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3.24 INVESTMENT COMPANY STATUS. The Company is not, and immediately
after receipt of payment for the Purchased Securities issued under this
Agreement will not be, an "INVESTMENT COMPANY" or an entity "CONTROLLED" by an
"INVESTMENT COMPANY" within the meaning of the Investment Company Act of 1940,
as amended (the "INVESTMENT COMPANY ACT"), and shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.
3.25 TRANSFER TAXES. No stock transfer or other taxes (other than
income taxes) are required to be paid in connection with the issuance and sale
of any of the Securities, other than such taxes for which the Company has
established appropriate reserves and intends to pay in full on or before the
Closing.
3.26 INTERNAL CONTROLS AND PROCEDURES. The Company maintains internal
accounting controls, policies and procedures and such books and records as are
reasonably designed to provide reasonable assurance that (i) all transactions to
which the Company or any Subsidiary is a party or by which its properties are
bound are effected by a duly authorized employee or agent of the Company,
supervised by and acting within the scope of the authority granted by the
Company's senior management; (ii) the recorded accounting of the Company's
consolidated assets is compared with existing assets at regular intervals; and
(iii) all transactions to which the Company or any Subsidiary is a party, or by
which its properties are bound, are recorded (and such records are maintained)
in accordance with all material Government Requirements and as may be necessary
or appropriate to ensure that the financial statements of the Company are
prepared in accordance with GAAP.
3.27 EMBARGOED PERSON. None of the funds or other assets of the Company
shall constitute property of, or shall be beneficially owned, directly or
indirectly, by any person subject to trade restrictions under United States law,
including, but not limited to, the International Emergency Economic Powers Act,
50 U.S.C. ss. 1701 ET SEQ., The Trading with the Enemy Act, 50 U.S.C. App. 1 ET
SEQ., and any Executive Orders or regulations promulgated under any such United
States laws (each, an "EMBARGOED PERSON"), with the result that the investments
evidenced by the Purchased Securities are or would be in violation of law; (b)
no Embargoed Person shall have any interest of any nature whatsoever in the
Company with the result that the investments evidenced by the Purchased
Securities are or would be in violation of law; and (c) none of the funds of the
Company shall be derived from any unlawful activity with the result that the
investments evidenced by the Purchased Securities are or would be in violation
of law.
3.28 NO OTHER AGREEMENTS. The Company has not, directly or indirectly,
entered into any agreement with or granted any right to any Investor relating to
the terms or conditions of the transactions contemplated by this Agreement or
the other Transaction Documents, except as expressly set forth in the
Transaction Documents.
4. COVENANTS OF THE COMPANY AND EACH INVESTOR.
4.1 The Company agrees with each Investor that it will, following the
Closing:
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(a) file a Form D with respect to the Securities issued at the
Closing as and when required under Regulation D and to provide a copy thereof to
such Investor promptly after such filing;
(b) take such action as the Company reasonably determines upon
the advice of counsel is necessary to qualify the Purchased Securities issued at
the Closing for sale and resale under applicable state or "blue-SKY" laws or
obtain an exemption therefrom, and shall provide evidence of any such action to
such Investor at such Investor's request; and
(c) (i) On the Business Day immediately following the date on
which this Agreement is executed and delivered by the Company, issue a press
release disclosing the material terms of this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby and
(ii) on the Business Day immediately following the Closing Date, file with the
Commission a Current Report on Form 8-K disclosing the material terms of this
Agreement and the other Transaction Documents and the transactions contemplated
hereby and thereby and including as exhibits this Agreement and the other
Transaction Documents; PROVIDED, HOWEVER, that each Investor named therein shall
have a reasonable opportunity to review and comment on any such press release or
Form 8-K prior to the issuance or filing thereof. Thereafter, the Company shall
timely file any filings and notices required by the Commission or applicable law
with respect to the transactions contemplated hereby.
4.2 The Company agrees that it will, as long as any Investor or any
Affiliate of such Investor beneficially owns any Securities:
(a) maintain its corporate existence in good standing;
(b) maintain, keep and preserve all of its Properties
necessary in the proper conduct of its businesses in good repair, working order
and condition (ordinary wear and tear excepted) and make all necessary repairs,
renewals and replacements and improvements thereto, except where the failure to
do so would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(c) pay or discharge before becoming delinquent (a) all taxes,
levies, assessments and governmental charges imposed on it or its income or
profits or any of its Property and (b) all lawful claims for labor, material and
supplies, which, if unpaid, might become a Lien upon any of its Property, except
where the failure to do so would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect; PROVIDED, however,
that the Company shall not be required to pay or discharge any tax, levy,
assessment or governmental charge, or claim for labor, material or supplies,
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate reserves
have been established under GAAP;
(d) comply with all Governmental Requirements applicable to
the operation of its business, except for instances of noncompliance that would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
(e) comply with all agreements, documents and instruments
binding on it or affecting its Properties or business, including, without
limitation, all Material Contracts, except for instances of noncompliance that
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
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(f) provide such Investor with copies of all materials sent to
its stockholders, in each such case at the same time as delivered to such
stockholders;
(g) timely file with the Commission all reports required to be
filed pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination;
(h) until the Effective Date of the Registration Statement,
restrict Key Employees from selling shares of Common Stock other than as may be
agreed in writing by the Company and Satellite Strategic Finance Associates, LLC
in connection with any 10b-5(1) trading plans; and
(i) keep all of the Insurance Policies in full force and
effect.
4.3 RESERVATION OF COMMON STOCK. The Company shall authorize and
reserve for issuance to the Investors, free from any preemptive rights, a number
of shares of Common Stock (the "RESERVED AMOUNT") that, on the Closing Date, is
not less than the sum of (A) the aggregate number of Shares issued to the
Investors at the Closing PLUS (B) the aggregate number of Warrant Shares
issuable upon exercise of the Series C Warrants PLUS (C) one hundred and fifty
percent (150%) of the aggregate number of Warrant Shares issuable upon exercise
of the Series D Warrants (without regard to any limitation or restriction on
such exercise that may be set forth in the Series D Warrants). If, on any date
following the Closing Date, the Reserved Amount is less than the sum of (i) the
aggregate number of Warrant Shares issuable under the Series C Warrants PLUS
(ii) one hundred and twenty five percent (125%) of the aggregate number of
Warrant Shares issuable upon exercise of the Series D Warrants (without regard
to any limitation or restriction on such exercise that may be set forth in the
Warrants), the Company shall take action (including without limitation seeking
stockholder approval for the authorization or reservation of additional shares
of Common Stock) as soon as practicable (but in no event later than the fifth
(5th) Business Day or, in the event that stockholder approval is required, the
forty-fifth (45th) day following such date) to increase the Reserved Amount to
not less than the sum of (x) the number of Warrant Shares issuable upon exercise
of the Series C Warrants PLUS (y) one hundred and fifty percent (150%) of the
number of Warrant Shares issuable under the Series D Warrants. The initial
Reserved Amount shall be allocated PRO RATA among the Investors based on the
number of Shares issued to each Investor at the Closing. Each increase in the
Reserved Amount shall be allocated PRO RATA among the Investors based on the
number of Outstanding Registrable Securities. In the event that an Investor
shall sell or otherwise transfer any of such Investor's Registrable Securities,
each transferee shall be allocated a PRO RATA portion of such transferor's
Reserved Amount. Any portion of the Reserved Amount allocated to any Investor or
other Person which no longer holds any Registrable Securities shall be
reallocated to the remaining Investors PRO RATA based on the number of
Outstanding Registrable Securities.
4.4 USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Purchased Securities for general corporate purposes only, in the ordinary
course of its business and consistent with past practice; PROVIDED, HOWEVER,
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that the Company shall not use such proceeds (i) to pay down, repurchase or
redeem any notes or securities issued by the Company or any Subsidiary, (ii) to
pay any dividend or make any distribution on any such securities, or (iii) to
repay any loan made to or incurred by any Key Employee or Affiliate of the
Company.
4.5 USE OF INVESTOR NAME. Except as may be required by applicable law,
the Company shall not use, directly or indirectly, any Investor's name or the
name of any of its affiliates in any advertisement, announcement, press release
or other similar communication unless it has received the prior written consent
of such Investor for the specific use contemplated or as otherwise required by
applicable law or regulation.
4.6 COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. On or prior to the
Closing Date, the Company shall execute and deliver irrevocable written
instructions to the transfer agent for its Common Stock (the "TRANSFER AGENT"),
and provide each Investor with a copy thereof, directing the Transfer Agent (i)
to issue certificates representing Warrant Shares upon exercise of the Warrants,
in the name and amount specified by such Investor and (ii) to deliver such
certificates to such Investor no later than the close of business on the third
(3rd) Business Day following the related Exercise Date (as defined in the Series
C Warrants or Series D Warrants, as the case may be). Warrant Shares shall not
contain any restrictive legend except as may be required by the terms of this
Agreement. The Company shall instruct the transfer agent that, in lieu of
delivering physical certificates representing shares of Common Stock to an
Investor upon exercise of a Warrant, and as long as (x) the Transfer Agent is a
participant in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, (y) such Investor has not informed the Company that it wishes
to receive physical certificates therefor, and (z) no legend is required to
appear on any physical certificate when issued, the transfer agent may effect
delivery of Warrant Shares by crediting the account of such Investor or its
nominee at DTC for the number of shares for which delivery is required hereunder
within the time frame specified above for delivery of certificates. The Company
represents to and agrees with each Investor that it will not give any
instruction to the Transfer Agent that will conflict with the foregoing
instruction or otherwise restrict such Investor's right to exercise a Warrant or
to receive Warrant Shares upon such exercise. In the event that the Company's
relationship with the Transfer Agent should be terminated for any reason, the
Company shall use its best efforts to cause the Transfer Agent to continue
acting as transfer agent pursuant to the terms hereof until such time that a
successor transfer agent is appointed by the Company and receives the
instructions described above.
4.7 NO ADVERSE ACTION. The Company and its Subsidiaries shall refrain,
while any Registrable Securities are outstanding, from taking any action or
entering into any arrangement which in any way materially and adversely violates
the terms of this Agreement or the Warrants.
4.8 LIMITATIONS ON DISPOSITION. No Investor shall sell, transfer,
assign or dispose of any Securities, unless:
(a) there is then in effect an effective registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
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(b) such Investor has notified the Company in writing of any
such disposition and furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration of such Securities under the Securities Act; PROVIDED, HOWEVER,
that no such opinion of counsel will be required (A) if the sale, transfer or
assignment complies with federal and state securities laws and is made to an
Affiliate of such Investor which is also an "accredited investor" as that term
is defined in Rule 501 of Regulation D, (B) if the sale, transfer or assignment
is made pursuant to Rule 144 and such Investor provides the Company with
evidence reasonably satisfactory to the Company that the proposed transaction
satisfies the requirements of Rule 144 or (C) in connection with a BONA FIDE
pledge or hypothecation of any Securities under a margin arrangement with a
broker-dealer or other financial institution.
4.9 DISCLOSURE OF INFORMATION. The Company agrees that it will not at
any time disclose material non-public information to any Investor without first
receiving such Investor's written consent to such disclosure.
4.10 ANTI-DILUTION. If, at any time prior to the fifth anniversary of
the date of this Agreement, the Company issues or sells, or in accordance with
subparagraph (iii) of paragraph (c) of the Series D Warrant, is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Share Price on the date of such issuance
or sale (or deemed issuance or sale) (a "DILUTIVE ISSUANCE"), then the Company
shall issue additional shares of Common Stock to the Investors calculated as
follows:
(a) If such Dilutive Issuance occurs prior to the Effective
Date, the number of additional shares of Common Stock to be issued to each
Investor for each share of Common Stock then held by such Investor shall be
equal to (i) a fraction the numerator of which is the Share Price and the
denominator of which is the per share consideration received for the additional
shares of Common Stock so issued, sold or deemed issued or sold in such Dilutive
Issuance (which, in the case of a deemed issuance or sale, shall be calculated
in accordance with subparagraph (iii) of paragraph (c) of the Series D Warrant)
MINUS (ii) one (1). Notwithstanding the foregoing, prior to the Effective Date,
the Company shall not engage in any transaction that would result in the
issuance or deemed issuance of shares of Common Stock (other than Excluded
Securities (as defined below)) for no consideration.
(b) If such Dilutive Issuance occurs on or after the Effective
Date, then effective immediately upon the Dilutive Issuance, the number
additional shares of Common Stock to be issued to each Investor for each share
of Common Stock then held by such Investor shall be equal to (i) a fraction the
numerator of which is the Share Price and the denominator of which is the
Adjustment Factor MINUS (ii) one (1). The Adjustment Factor shall equal:
N0+/-N1
-------
N0+N2
where:
N0 = the number of shares of Common Stock outstanding
immediately prior to the issuance, sale or deemed
issuance or sale of such additional shares of Common
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Stock in such Dilutive Issuance (without taking into
account any shares of Common Stock issuable upon
conversion, exchange or exercise of any securities or
other instruments which are convertible into or
exercisable or exchangeable for Common Stock
("CONVERTIBLE SECURITIES") or options, warrants or
other rights to purchase or subscribe for Common
Stock or Convertible Securities ("PURCHASE Rights"),
including the Additional Investment Rights and
Warrants);
Nl = the number of shares of Common Stock which the
aggregate consideration, if any, received or
receivable by the Company for the total number of
such additional shares of Common Stock so issued,
sold or deemed issued or sold in such Dilutive
Issuance (which, in the case of a deemed issuance or
sale, shall be calculated in accordance with
subparagraph (iii) below) would purchase at the
Exercise Price in effect immediately prior to such
Dilutive Issuance; and
N2 = the number of such additional shares of Common
Stock so issued, sold or deemed issued or sold in
such Dilutive Issuance.
Notwithstanding the foregoing, no additional shares of Common Stock shall be
issued pursuant to this Section 4.10 upon the issuance of any Excluded
Securities. For purposes hereof, "EXCLUDED SECURITIES" means (i) securities
purchased under this Agreement; (ii) securities issued upon exercise of the
Warrants; (iii) shares of Common Stock issuable or issued to (A) employees or
directors from time to time upon the exercise of options, in such case granted
or to be granted in the discretion of the Board of Directors pursuant to one or
more stock option plans or restricted stock plans in effect as of the date
hereof or adopted after the date hereof by the independent members of the Board
of Directors with substantially the same terms as such plans in effect as of the
date hereof, and (B) vendors pursuant to warrants to purchase Common Stock that
are outstanding on the date hereof or issued hereafter, provided such issuances
are approved by the Board of Directors; (iv) shares of Common Stock issued in
connection with any stock split, stock dividend or recapitalization of the
Company; (v) shares of Common Stock issued in connection with the acquisition by
the Company of any corporation or other entity occurring after the Effective
Date and as long as a fairness opinion with respect to such acquisition is
rendered by an investment bank of national recognition; and (vi) shares of
Common Stock issued in connection with any Convertible Securities or Purchase
Rights outstanding on the date hereof.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING. Each
Investor's obligations to effect the Closing, including without limitation its
obligation to purchase the Purchased Securities at the Closing, are conditioned
upon the fulfillment or waiver by such Investor of each of the following events
as of the Closing Date:
5.1.1 the representations and warranties of the Company set
forth in this Agreement and in the other Transaction
Documents shall be true and correct in all material
respects as of such date as if made on such date
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(except that to the extent that any such
representation or warranty relates to a particular
date, in which case such representation or warranty
shall be true and correct in all respects as of that
particular date);
5.1.2 the Company shall have complied with or performed in
all material respects all of the agreements,
obligations and conditions set forth in this
Agreement and in the other Transaction Documents that
are required to be complied with or performed by the
Company on or before the Closing;
5.1.3 the Closing Date shall occur on a date that is not
later than June 15, 2004;
5.1.4 the Company shall have delivered to such Investor a
certificate, signed by the Chief Executive Officer
and Chief Financial Officer of the Company,
certifying that the conditions specified in this
paragraph 5.1 have been fulfilled as of the Closing,
it being understood that such Investor may rely on
such certificate as though it were a representation
and warranty of the Company made herein;
5.1.5 the Company shall have delivered to such Investor an
opinion of counsel for the Company, dated as of such
date, in substantially the form set forth on Exhibit
5.1.5 hereto;
5.1.6 the Company shall have delivered to ` such Investor
duly executed certificates representing the Shares,
Series C Warrant and Series D Warrant being purchased
by such Investor;
5.1.7 the Company shall have executed and delivered to such
Investor the Registration Rights Agreement;
5.1.8 there shall have been no material adverse change in
the Company's consolidated business or financial
condition since the date of the Company's most recent
unaudited financial statements contained in the
Disclosure Documents;
5.1.9 there shall be no injunction, restraining order or
decree of any nature of any court or Government
Authority of competent jurisdiction that is in effect
that restrains or prohibits the consummation of the
transactions contemplated hereby or by the other
Transaction Documents; and
5.1.10 the aggregate Purchase Price to be paid at the
Closing by the Investors for the Purchased Securities
shall be at least $1,250,000.
5.2 CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING., The Company's
obligations to effect the Closing are conditioned upon the fulfillment or waiver
by the Company of each of the following events as of the Closing Date:
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5.2.1 the representations and warranties of each Investor
shall be true and correct in all material respects as
of such date as if made on such date (except that to
the extent that any such representation or warranty
relates to a particular date, in which case such
representation or warranty shall be true and correct
in all respects as of that particular date);
5.2.2 each Investor shall have complied with or performed
all of the agreements, obligations and conditions set
forth in this Agreement that are required to be
complied with or performed by such Investor on or
before the Closing;
5.2.3 there shall be no injunction, restraining order or
decree of any nature of any court or Government
Authority of competent jurisdiction that is in effect
that restrains or prohibits the consummation of the
transactions contemplated hereby or by the other
Transaction Documents;
5.2.4 each Investor shall have executed each Transaction
Document to which it is a party and delivered the
same to the Company; and
5.2.5 each Investor shall have delivered to the Company the
Purchase Price for the Purchased Securities being
purchased by it at the Closing by wire transfer of
immediately available funds.
6. MISCELLANEOUS.
6.1 SURVIVAL; SEVERABILITY. The representations, warranties, covenants
and indemnities made by the parties herein and in the other Transaction
Documents shall survive the Closing notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that in
such case the parties shall negotiate in good faith to replace such provision
with a new provision which is not illegal, unenforceable or void, as long as
such new provision does not materially change the economic benefits of this
Agreement to the parties.
6.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. The Investor may assign its rights and obligations hereunder,
in connection with any private sale or transfer of the Purchased Securities in
accordance with the terms hereof, as long as, as a condition precedent to such
transfer, the transferee executes an acknowledgment agreeing to be bound by the
applicable provisions of this Agreement, in which case the term "Investor" shall
be deemed to refer to such transferee as though such transferee were an original
signatory hereto. The Company may not assign its rights or obligations under
this Agreement.
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6.3 NO RELIANCE. Each party acknowledges that (i) it has such knowledge
in business and financial matters as to be fully capable of evaluating this
Agreement, the other Transaction Documents, and the transactions contemplated
hereby and thereby, (ii) it is not relying on any advice or representation of
any other party in connection with entering into this Agreement, the other
Transaction Documents, or such transactions (other than the representations made
in this Agreement or the other Transaction Documents), (iii) it has not received
from such party any assurance or guarantee as to the merits (whether legal,
regulatory, tax, financial or otherwise) of entering into this Agreement or the
other Transaction Documents or the performance of its obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the extent that it
has deemed necessary, and has entered into this Agreement and the other
Transaction Documents based on its own independent judgment and on the advice of
its advisors as it has deemed necessary, and not on any view (whether written or
oral) expressed by such other party.
6.4 INDEPENDENT NATURE OF INVESTORS' OBLIGATIONS AND RIGHTS. The
obligations of each Investor hereunder are several and not joint with the
obligations of the other Investors hereunder, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor hereunder. Nothing contained herein or in any other agreement or
document delivered at the Closing, and no action taken by any Investor pursuant
hereto or thereto, shall be deemed to constitute the Investors as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert with respect to
such obligations or the transactions contemplated by this Agreement. Each
Investor shall be entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement or the other Transaction
Documents, and it shall not be necessary for any other Investor to be joined as
an additional party in any proceeding for such purpose.
6.5 INJUNCTIVE RELIEF. The Company acknowledges and agrees that a
breach by it of its obligations hereunder will cause irreparable harm to each
Investor and that the remedy or remedies at law for any such breach will be
inadequate and agrees, in the event of any such breach, in addition to all other
available remedies, such Investor shall be entitled to an injunction restraining
any breach and requiring immediate and specific performance of such obligations
without the necessity of showing economic loss.
6.6 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and construed under the laws of the State of New York applicable to contracts
made and to be performed entirely within the State of New York. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City of Santa Xxxx, County of Orange, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby, and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding involving any Investor or permitted
assignee of an Investor, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
-23-
6.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. This Agreement may be
executed and delivered by facsimile transmission.
6.8 HEADINGS. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
6.9 NOTICES. Any notice, demand or request required or permitted to be
given by the Company or an Investor pursuant to the terms of this Agreement
shall be in writing and shall be deemed delivered (i) when delivered personally
or by verifiable facsimile transmission, unless such delivery is made on a day
that is not a Business Day, in which case such delivery will be deemed to be
made on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to an overnight courier and (iii) on the Business Day actually
received if deposited in the U.S. mail (certified or registered mail, return
receipt requested, postage prepaid), addressed as follows:
IF TO THE COMPANY:
Raptor Networks Technology, Inc.
00 Xxxxxxxxxx Xxxx, Xxxxx 000
Xxxxx Xxxxx, XX 00000
Attn: Xxx Xxxxxxxxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
WITH A COPY TO:
Xxxxxx X. Xxxxxxx, Esq.
000 X.X. Xxxxx Xxxxxx Xx.
Xxxxxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
and if to any Investor, to such address for such Investor as shall appear on the
signature page hereof executed by such Investor, or as shall be designated by
such Investor in writing to the Company in accordance with this Section 6.9.
6.10 EXPENSES; PLACEMENT FEES. The Company and each Investor shall pay
all costs and expenses that it incurs in connection with the negotiation,
execution, delivery and performance of this Agreement or the other Transaction
Documents, PROVIDED, HOWEVER, that that the Company shall, at the Closing, pay
up to $10,000 in immediately available funds for legal fees and expenses
incurred by Xxxxx Peabody LLP in connection with its review of this Agreement
and the other Transaction Documents. At the Closing, the amount due for such
fees and expenses (which also may include fees and expenses estimated to be
-24-
incurred for completion of the transaction and post-closing matters) may be
netted out of the Purchase Price payable by Uptrend Investment, Inc.
Notwithstanding anything herein to the contrary, if the Closing does not occur,
each of the parties hereto shall be responsible for all of their respective
costs and expenses in connection with the transaction contemplated herein.
6.11 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other
Transaction Documents constitute the entire agreement between the parties with
regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the holders of at least two-thirds (2/3) of the number of
Outstanding Registrable Securities, and no provision hereof may be waived other
than by a written instrument signed by the party against whom enforcement of any
such waiver is sought.
[Signature Pages to Follow]
-25-
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
RAPTOR NETWORKS TECHNOLOGY, INC.
By: ___________________________________________
Name: Xxxxxx Xxxxxxxxxxxxxxx
Title: President
COMPANY SIGNATURE PAGE TO THE SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
INVESTORS:
_____________________________________________________
(PRINT FULL NAME OF INVESTOR)
_____________________________________________________
(SIGN NAME)
_____________________________________________________
(TITLE, IF APPLICABLE)
Address: ____________________________________________
____________________________________________
Tel:
____________________________________________
Fax:
____________________________________________
Shares to be Purchased: _____________________________
INVESTORS' SIGNATURE PAGE TO THE SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
INVESTORS:
_____________________________________________________
(PRINT FULL NAME OF INVESTOR)
_____________________________________________________
(SIGN NAME)
_____________________________________________________
(TITLE, IF APPLICABLE)
Address: ____________________________________________
____________________________________________
Tel:
____________________________________________
Fax:
____________________________________________
Shares to be Purchased: _____________________________
INVESTORS' SIGNATURE PAGE TO THE SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
INVESTORS:
_____________________________________________________
(PRINT FULL NAME OF INVESTOR)
_____________________________________________________
(SIGN NAME)
_____________________________________________________
(TITLE, IF APPLICABLE)
Address: ____________________________________________
____________________________________________
Tel:
____________________________________________
Fax:
____________________________________________
Shares to be Purchased: _____________________________
INVESTORS' SIGNATURE PAGE TO THE SECURITIES PURCHASE AGREEMENT
