SECURITIES PURCHASE AGREEMENT
EXHIBIT
10.5
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of May 3, 2006, among Sweetskinz Holdings, Inc., a Delaware corporation
(the “Company”),
and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser”
and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”)
and Rule 506 promulgated thereunder, the Company desires to issue and sell
to
each Purchaser, and each Purchaser, severally and not jointly, desires to
purchase from the Company, securities of the Company as more fully described
in
this Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1 Definitions.
In
addition to the terms defined elsewhere in this Agreement, for all purposes
of
this Agreement, the following terms have the meanings indicated in this Section
1.1:
“Action”
shall
have the meaning ascribed to such term in Section 3.1(j).
“Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person as such
terms are used in and construed under Rule 144 under the Securities Act. With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser will
be deemed to be an Affiliate of such Purchaser.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to
(i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“Closing
Price”
means
on any particular date (a) the last reported closing bid price per share of
Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
at 4:15 PM (New York time)), or (b) if there is no such price on such date,
then
the closing bid price on the Trading Market on the date nearest preceding
such
date
(as
reported by Bloomberg L.P. at 4:15 PM (New York time)), or (c) if the
Common Stock is not then listed or quoted on the Trading Market and if prices
for the Common Stock are then reported in the “pink sheets” published by the
National Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price
per
share of the Common Stock so reported, or (d) if the shares of Common Stock
are not then publicly traded the fair market value of a share of Common Stock
as
determined by an appraiser selected in good faith by the Purchasers of a
majority in interest of the Debentures then outstanding.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock of the Company, par value $.001 per share, and any other class
of securities into which such securities may hereafter have been reclassified
or
changed into.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including, without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that is
at
any time convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
“Company
Counsel”
means
Rubin, Bailin, Ortoli, LLP.
“Conversion
Price”
shall
have the meaning ascribed to such term in the Debentures.
“Debentures”
means,
the 5% Secured Convertible Debentures due, subject to the terms therein, 5
years
from their date of issuance, issued by the Company to the Purchasers hereunder,
in the form of Exhibit
A
hereto.
“Disclosure
Schedules”
means
the Disclosure Schedules of the Company delivered concurrently herewith.
“Effective
Date”
means
the date that the initial Registration Statement filed by the Company pursuant
to the Registration Rights Agreement is first declared effective by the
Commission.
“Escrow
Agent”
shall
mean Signature Bank.
“Escrow
Agreement”
shall
mean the Escrow Agreement of even date herewith among the Company, Oceana
Partners LLC and the Escrow Agent.
“Evaluation
Date”
shall
have the meaning ascribed to such term in Section 3.1(r).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
-2-
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees, officers
or
directors of the Company pursuant to any stock or option plan duly adopted
by a
majority of the non-employee members of the Board of Directors of the Company
or
a majority of the members of a committee of non-employee directors established
for such purpose, (b) securities upon the exercise or exchange of or conversion
of any Securities issued hereunder and/or securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities
or to
decrease the exercise, exchange or conversion price of any such securities,
(c)
securities issued pursuant to acquisitions or strategic transactions approved
by
a majority of the disinterested directors, provided any such issuance shall
only
be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities and (d) for purposes of Sections 4.14 and 4.15 only,
up
to $750,000 in equity financing with Accredited Investors in the form of shares
of Common Stock at a per share purchase price not less than $1.00 per share
(subject to forward and reverse stock splits, recapitalizations and the like
after the date hereof) and 100% warrant coverage (which warrants shall have
an
exercise price of not less than $1.15 (subject to forward and reverse stock
splits, recapitalizations and the like after the date hereof) and have terms
no
more favorable than the Warrants issued hereunder, provided that investors
shall
execute definitive agreements for the purchase of such securities and such
transactions shall have closed on or before May 14, 2006.
“FW”
means
Xxxxxxx Xxxxxxxxx LLP with offices located at 000 Xxxxxxxxx Xxxxxx, Xxxxx 0000,
Xxx Xxxx, Xxx Xxxx 00000-0000.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Intellectual
Property Rights”
shall
have the meaning ascribed to such term in Section 3.1(o).
“Legend
Removal Date”
shall
have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means
a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b).
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate”
shall
have the meaning ascribed to such term in Section 5.17.
-3-
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.14.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“PPM”
shall
have the meaning ascribed to such term in Section 3.1(x).
“Pre-Notice”
shall
have the meaning ascribed to such term in Section 4.14.
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.11.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated the date hereof, in the form of
Exhibit
B
attached
hereto, the terms and conditions of which are incorporated herein by reference
and deemed a part hereof.
“Registration
Statement”
means
a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers of the Underlying
Shares.
“Required
Approvals”
shall
have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum”
means,
as of any date, the maximum aggregate number of shares of Common Stock then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and Debentures (including Underlying Shares issuable
as
payment of interest), ignoring any conversion or exercise limits set forth
therein, and assuming that the Conversion Price is at all times on and after
the
date of determination 75% of the then Conversion Price on the Trading Day
immediately prior to the date of determination.
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“Securities”
means
the Debentures, the Warrants and the Underlying Shares.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Security
Agreement”
means
the Security Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit
F
attached
hereto.
-4-
“Security
Documents”
shall
mean the Security Agreement, the Subsidiary Guarantees and any other documents
and filing required thereunder in order to grant the Purchasers a first priority
security interest in the assets of the Company as provided in the Security
Agreement, including all UCC-1 filing receipts.
“Short
Sales”
shall
include all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act (but
shall not be deemed to include the location and/or reservation of borrowable
shares of Common Stock).
“Subscription
Amount”
means,
as to each Purchaser, the aggregate amount to be paid for Debentures and
Warrants purchased hereunder as specified below such Purchaser’s name on the
signature page of this Agreement and next to the heading “Subscription Amount”,
in United States Dollars and in immediately available funds.
“Subsequent
Financing”
shall
have the meaning ascribed to such term in Section 4.14.
“Subsequent
Financing Notice”
shall
have the meaning ascribed to such term in Section 4.14.
“Subsidiary”
means
any subsidiary of the Company as set forth on Schedule
3.1(a).
“Subsidiary
Guarantee”
means
the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor
of
the Purchasers, in the form of Exhibit
G
attached
hereto.
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq Capital Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market, the
OTC
Bulletin Board or the Pink Sheets.
“Transaction
Documents”
means
this Agreement, the Escrow Agreement, the Warrants, the Debentures, the Security
Agreement, the Security Documents and the Registration Rights Agreement and
any
other documents or agreements executed in connection with the transactions
contemplated hereunder.
“Underlying
Shares”
means
the shares of Common Stock issued and issuable upon conversion or redemption
of
the Debentures and upon exercise of the Warrants and issued and issuable in
lieu
of the cash payment of interest on the Debentures in accordance with the terms
of the Debentures.
“Warrants”
means
collectively the Common Stock purchase warrants, in the form of Exhibit
C
delivered to the Purchasers at the Closing in accordance with Section
2.2(a)
-5-
hereof,
which Warrants shall be exercisable immediately and have a term of exercise
equal to 3 years.
“Warrant
Shares”
means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing.
On the Closing Date, upon the terms and subject to the conditions set forth
herein, concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and each Purchaser agrees to
purchase in the aggregate, severally and not jointly, up to $6,000,000 of
Debentures and Warrants, with a minimum aggregate Subscription Amount of
$3,000,000. Notwithstanding the foregoing, in lieu of paying for the Debentures
and Warrants in cash, the Purchasers listed on Schedule 2.1 shall pay for such
securities by exchanging the promissory notes of Sweetskinz, Inc., a
wholly-owned subsidiary of the Company held by such Purchaser on the date
hereof, in the amounts set forth on Schedule 2.1. Each Purchaser shall deliver
to the Escrow Agent via wire transfer or a certified check immediately available
funds equal to their Subscription Amount and the Company shall deliver to each
Purchaser their respective Debentures and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and
2.3,
the Closing shall occur at the offices of FW, or such other location as the
parties shall mutually agree.
2.2 Deliveries
(a) On
or
prior to the Closing Date, the Company shall deliver or cause to be delivered
to
each Purchaser the following:
(i) this
Agreement duly executed by the Company;
(ii) a
legal
opinion of Company Counsel, in the form of Exhibit
D
attached
hereto;
(iii) a
Debenture with a principal amount equal to such Purchaser’s Subscription Amount,
registered in the name of such Purchaser;
(iv) a
Warrant
registered in the name of such Purchaser to purchase up to a number of shares
of
Common Stock equal to 100% of such Purchaser’s Subscription Amount divided by
$1.00, with an exercise price equal to $1.15, subject to adjustment therein;
(v) the
Security Agreement, duly executed by the Company and its Subsidiaries, along
with all the Security Documents, including the Subsidiary
Guarantees;
-6-
(vi) a
lock-up
agreement, in substantially the form attached hereto as Exhibit
E,
duly
executed by Xxxx Xxxxxx and Xxxxxx Xxxxxxx (provided,
however,
the
“Restriction Period” in the lock-up agreement executed by Xx. Xxxxxxx shall only
be for a period of one year following the Closing);
(vii) a
lock-up
agreement, in form and substance reasonably satisfactory to the Company, duly
executed by (i) the holders of at least 85% of the total options held by
unaffiliated option-holders and (ii) the former holders of at least 95% of
the
aggregate original face value of those certain convertible promissory notes
of
Sweetskinz, Inc. issued in the original aggregate principal amount of
$3,353,852.85; and
(viii) the
Registration Rights Agreement duly executed by the Company.
(b) On
or
prior to the Closing Date, each Purchaser shall deliver or cause to be delivered
to the Company (except as noted) the following:
(i) this
Agreement duly executed by such Purchaser (execution of which shall also
constitute execution of the Registration Rights Agreement and Security
Agreement); and
(ii) such
Purchaser’s Subscription Amount (cash Subscription Amounts to be delivered to
the Escrow Agent).
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of the Purchasers required to be performed
at or prior to the Closing Date shall have been performed;
and
(iii) the
delivery by the Purchasers of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required to be performed
at
or prior to the Closing Date shall have been performed;
-7-
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company since
the
date hereof;
(v) the
merger transaction by and among the Company, a newly formed, wholly-owned
subsidiary of the Company and Sweetskinz, Inc., a Pennsylvania corporation
(the
“Reverse Merger”) shall have been consummated on terms and conditions reasonably
satisfactory to the Purchasers and the Company shall have delivered the
Purchasers evidence thereof; and
(vi) from
the
date hereof to the Closing Date, trading in the Common Stock shall not have
been
suspended by the Commission or the Company’s principal Trading Market (except
for any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the Closing), and, at any time
prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by such service, or on any Trading Market, nor shall a banking moratorium have
been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities
or
other national or international calamity of such magnitude in its effect on,
or
any material adverse change in, any financial market which, in each case, in
the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable
to
purchase the Debentures at the Closing.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company. Except
as
set forth under the corresponding section of the Disclosure Schedules which
Disclosure Schedules shall be deemed a part hereof, the Company and Sweetskinz,
Inc., a wholly owned Subsidiary of the Company, hereby jointly and severally
make the representations and warranties set forth below to each
Purchaser:
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a).
The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the issued
and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
-8-
(b) Organization
and Qualification.
The
Company and each of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and
to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly qualified
to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect on
the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material
Adverse Effect”)
and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and
the consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company, its board of directors or its stockholders
in
connection therewith other than in connection with the Required Approvals.
Each
Transaction Document has been (or upon delivery will have been) duly executed
by
the Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of
general application affecting enforcement of creditors’ rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company,
the issuance and sale of the Securities and the consummation by the Company
of
the other transactions contemplated hereby and thereby do not and will not
(i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of,
any agreement, credit facility, debt or other
-9-
instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding
to
which the Company or any Subsidiary is a party or by which any property or
asset
of the Company or any Subsidiary is bound or affected, or (iii) subject to
the
Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which
any
property or asset of the Company or a Subsidiary is bound or affected; except
in
the case of each of clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals.
The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section
4.6
of this Agreement, (ii) the filing with the Commission of the Registration
Statement, (iii) application(s) to each applicable Trading Market for the
listing of the Underlying Shares for trading thereon in the time and manner
required thereby, and (iv) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities laws
(collectively, the “Required
Approvals”).
(f) Issuance
of the Securities.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the Company
other
than restrictions on transfer provided for in the Transaction Documents. The
Underlying Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of
the
Underlying Shares at least equal to the Required Minimum on the date hereof.
(g) Capitalization.
The
issued and outstanding capitalization of the Company immediately prior to the
Closing and following the consummation of the Reverse Merger is as set forth
on
Schedule
3.1(g).
The
Company has not issued any capital stock other than as set forth on Schedule
3.1(g). No Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe
for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or
may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of Company
securities to adjust the
-10-
exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the issuance
and
sale of the Securities. There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among
any
of the Company’s stockholders.
A
complete list of stockholders of record, with their shareholdings immediately
prior to the Closing, is included in Schedule
3.1(g).
(h) Financial
Statements.
The
audited financial statements of the Company and its Subsidiairies (including
Sweetskinz, Inc.) for the past two fiscal years are attached hereto as Schedule
3.1(h). Such financial statements comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect on the date hereof. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i) Material
Changes; Undisclosed Events, Liabilities or Developments.
Since
the date of the latest audited financial statements attached hereto as Schedule
3.1(h), except as specifically disclosed therein, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected
to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement, no event, liability or development has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the time
this
representation is made that has not been publicly disclosed 1 Trading Day prior
to the date that this representation is made.
-11-
(j) Litigation.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary or any of their respective properties before or by
any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could, if there
were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim
of
violation of or liability under federal or state securities laws or a claim
of
breach of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act. None of the
Company’s or its Subsidiaries’ employees is a member of a union that relates to
such employee’s relationship with the Company, and neither the Company or any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their
employees are good. No executive officer, to the knowledge of the Company,
is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement
or
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does
not
subject the Company or any of its Subsidiaries to any liability with respect
to
any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all U.S. federal, state, local and foreign laws and regulations relating
to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(k) Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect.
(l) Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is
in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could
not
have a Material Adverse Effect.
-12-
(m) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in
the
PPM, except where the failure to possess such permits could not have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n) Title
to Assets.
The
Company and the Subsidiaries have good and marketable title in fee simple to
all
real property owned by them that is material to the business of the Company
and
the Subsidiaries and good and marketable title in all personal property owned
by
them that is material to the business of the Company and the Subsidiaries,
in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the
use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the Subsidiaries
are
held by them under valid, subsisting and enforceable leases of which the Company
and the Subsidiaries are in compliance.
(o) Intellectual
Property.
(i) The
term
“Intellectual
Property Rights”
includes:
|
1.
|
the
name of the Company, all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications
(collectively, “Marks'');
|
|
2.
|
all
patents, patent applications, and inventions and discoveries that
may be
patentable (collectively, “Patents'');
|
|
3.
|
all
copyrights in both published works and published works (collectively,
“Copyrights”);
and
|
|
4.
|
all
know-how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, “Trade
Secrets'');
owned, used, or licensed by the Company as licensee or
licensor.
|
(ii) Agreements.
Neither
the Company nor its Subsidiaries has paid or received any royalties. Further,
neither the Company nor its Subsidiaries has any contracts relating to the
Intellectual Property Rights to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary is bound, except for any license
implied by the sale of a product and perpetual, paid-up licenses for commonly
available software programs with a value of less than $5,000 under which the
Company or any Subsidiary is the licensee.
-13-
(iii) Know-How
Necessary for the Business.
The
Intellectual Property Rights are all those necessary for the operation of the
Company’s businesses as it is currently conducted or as reflected in the
business plan given to the Purchaser. The Company is the owner of all right,
title, and interest in and to each of the Intellectual Property Rights, free
and
clear of all liens, security interests, charges, encumbrances, equities, and
other adverse claims, and has the right to use without payment to a third party
all of the Intellectual Property Rights. Neither the Company nor any Subsidiary
has received a written notice that the Intellectual Property Rights used by
the
Company or any Subsidiary violates or infringes upon the rights of any Person.
Except as set forth in Schedule
3.1(o),
all
former and current employees of the Company have executed written contracts
with
the Company that assign to the Company all rights to any inventions,
improvements, discoveries, or information relating to the business of the
Company. No employee of the Company has entered into any contract that restricts
or limits in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose information
concerning his work to anyone other than of the Company.
(iv) Know-How
Necessary for the Business.
Schedule
3.1(o)
contains
a complete and accurate list and summary description of all Patents. The Company
is the owner of all right, title and interest in and to each of the Patents,
free and clear of all liens, security interests, charges, encumbrances,
entities, and other adverse claims. All of the issued Patents are currently
in
compliance with formal legal requirements (including payment of filing,
examination, and maintenance fees and proofs of working or use), are valid
and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the Closing Date. No patent has been or
is
now involved in any interference, reissue, reexamination, or opposition
proceeding. To the Company’s knowledge, there is no potentially interfering
patent or patent application of any third party. To the Company’s knowledge, no
Patent is infringed. No Patent has been challenged or threatened in any way.
To
the Company’s knowledge, none of the products manufactured and sold, nor any
process or know-how used, by the Company infringes or is alleged to infringe
any
patent or other proprietary right of any other Person. All products made, used,
or sold under the Patents have been marked with the proper patent
notice.
(v) Trademarks.
Schedule
3.1(o)
contains
a complete and accurate list and summary description of all Marks. The Company
is the owner of all right, title, and interest in and to each of the Marks,
free
and clear of all liens, security interests, charges, encumbrances, equities,
and
other adverse claims. All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration tiling of
-14-
affidavits
of use and incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the Closing Date. No Xxxx has been or
is
now involved in any opposition, invalidation, or cancellation and, to the
Company’s knowledge, no such action is threatened with the respect to any of the
Marks. To the Company’s knowledge, there is no potentially interfering trademark
or trademark application of any third party. To the Company’s knowledge, no Xxxx
is infringed or has been challenged or threatened in any way. To the Company’s
knowledge, none of the Marks used by the Company infringes or is alleged to
infringe any trade name, trademark, or service xxxx of any third party. All
products and materials containing a Xxxx xxxx the proper federal registration
notice where permitted by law.
(vi) Copyrights.
Schedule
3.1(o)
contains
a complete and accurate list and summary description of all Copyrights. The
Company is the owner of all right, title, and interest in and to each of the
Copyrights, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims. All the Copyrights have been
registered and are currently in compliance with formal requirements, are valid
and enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the date of Closing. To the Company’s
knowledge, no Copyright is infringed or has been challenged or threatened in
any
way. To the Company’s knowledge, none of the subject matter of any of the
Copyrights infringes or is alleged to infringe any copyright of any third party
or is a derivative work based on the work of a third party. All works
encompassed by the Copyrights have been marked with the proper copyright
notice.
(i) Trade
Secrets.
With
respect to each Trade Secret, the documentation relating to such Trade Secret
is
current, accurate, and sufficient in detail and content to identify and explain
it and to allow its full and proper use without reliance on the knowledge or
memory of any individual. The Company has taken all reasonable precautions
to
protect the secrecy, confidentiality, and value of its Trade Secrets. The
Company has good title and an absolute (but not necessarily exclusive) right
to
use the Trade Secrets. The Trade Secrets are not part of the public knowledge
or
literature, and, to the Company’s knowledge, have not been used, divulged, or
appropriated either for the benefit of any Person (other the Company) or to
the
detriment of the Company. No Trade Secret is subject to any adverse claim or
has
been challenged or threatened in any way.
(p) Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers liability
insurance coverage at least equal to the aggregate Subscription Amount. To
the
best knowledge of
-15-
the
Company, such insurance contracts and policies are accurate and complete.
Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.
(q) Transactions
With Affiliates and Employees.
Except
as set forth on Schedule 3.1(q), none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $60,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
for
other employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) Xxxxxxxx-Xxxxx;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act
of 2002 which are applicable to it as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. By the filing date of the Registration
Statement, the Company shall have established disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company
and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities.
(s) Certain
Fees.
Except
as set forth on Schedule 3.1(s), no brokerage or finder’s fees or commissions
are or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by the Transaction Documents.
The
Purchasers shall have no obligation with respect to any fees or with respect
to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by the Transaction Documents.
(t) Private
Placement.
Assuming the accuracy of the Purchasers representations and warranties set
forth
in Section 3.2, no registration under the Securities
-16-
Act
is
required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading
Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(v) Registration
Rights.
Other
than each of the Purchasers, no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.
(w) Application
of Takeover Protections.
The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation
as a
result of the Company’s issuance of the Securities and the Purchasers’ ownership
of the Securities.
(x) Disclosure.
The
Company confirms that, neither it nor any other Person acting on its behalf
has
provided any of the Purchasers or their agents or counsel with any information
that constitutes or might constitute material, non-public information. The
Company understands and confirms that the Purchasers will rely on the foregoing
representations and covenants in effecting transactions in securities of the
Company. Attached hereto as Schedule 3.1(x) is a copy of a Company’s private
placement memorandum dated April 6, 2006 (which document contains, among other
information, risk factors concerning the Company and financial statements
required to be filed therewith) (the “PPM”). All disclosure provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, furnished by
or on
behalf of the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and warranties
and do not contain any untrue statement of a material fact or omit to state
any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.
(y) No
Integrated Offering.
Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2, neither the Company, nor any of its affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers
or
sales of any security or solicited any offers to buy any security,
under
-17-
circumstances
that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable
shareholder approval provisions, including, without limitation, under the rules
and regulations of any Trading Market on which any of the securities of the
Company are listed or designated.
(z) Solvency.
Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such amounts
are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The Company has
no
knowledge of any facts or circumstances which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. As of the date
hereof, neither the Company nor any Subsidiary has any outstanding secured
or
unsecured Indebtedness. For the purposes of this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect
of
Indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of
any lease payments
in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(aa) Tax
Status.
Except
as set forth on Schedule
3.1(aa)
and for
matters that would not, individually or in the aggregate, have or reasonably
be
expected to result in a Material Adverse Effect, the Company and each Subsidiary
has filed all necessary federal, state and foreign income and franchise tax
returns and has paid or accrued all taxes shown as due thereon, and the Company
has no knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
(bb) No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only
-18-
to
the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(cc) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(dd) Accountants.
The
Company’s accountants are set forth on Schedule
3.1(dd) of
the
Disclosure Schedule. To the knowledge of the Company, such accountants, who
the
Company expects will express their opinion with respect to the financial
statements to be included in the Company’s filing of the Registration Statement,
are a registered public accounting firm as required by the Securities
Act.
(ee) Acknowledgment
Regarding Purchasers’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Purchasers is acting solely
in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to this Agreement and
the
transactions contemplated hereby and any advice given by any Purchaser or any
of
their respective representatives or agents in connection with this Agreement
and
the transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Securities. The Company further represents to each Purchaser
that the Company’s decision to enter into this Agreement has been based solely
on the independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
(ff) Seniority.
As of
the Closing Date, no Indebtedness or other claim against the Company is senior
to the Debentures in right of payment, whether with respect to interest or
upon
liquidation or dissolution, or otherwise, other than indebtedness secured by
purchase money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as to
the
property covered thereby).
(gg) Acknowledgement
Regarding Purchasers’ Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 4.16 hereof), it is understood and agreed by the Company
(i)
that none of the Purchasers have been asked to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities
of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) that past or
future open market or other transactions by any Purchaser, including Short
Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions,
-19-
before
or
after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities;
(iii) that any Purchaser, and counter parties in “derivative” transactions to
which any such Purchaser is a party, directly or indirectly, presently may
have
a “short” position in the Common Stock, and (iv) that each Purchaser shall not
be deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. The
Company further understands and acknowledges that (a) one or more Purchasers
may
engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Underlying Shares deliverable with respect to Securities
are being determined and (b) such hedging activities (if any) could reduce
the
value of the existing stockholders' equity interests in the Company at and
after
the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute
a
breach of any of the Transaction Documents.
(hh) Manipulation
of Price.
The Company has not, and to its knowledge no one acting on its behalf has,
(i)
taken, directly or indirectly, any action designed to cause or to result in
the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or, paid any compensation for soliciting purchases of, any of the
Securities (other than for the placement agent’s placement of the Securities),
or (iii) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(ii) Manufacturing
and Marketing Rights.
The
Company has not granted rights to manufacture, produce, assemble, license,
market, or sell its products to any other Person and is not bound by any
agreement that affects the Company’s exclusive right to develop, manufacture,
assemble, distribute, market or sell its products.
(jj) Employees.
The
Company has no collective bargaining agreements with any of its employees.
There
is no labor union organizing activity pending or, to the Company’s knowledge,
threatened with respect to the Company. Except as set forth on Schedule
3.1(jj),
the
Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To the Company’s knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term
of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or
to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company’s knowledge the continued employment by the
Company of its present employees, and the performance of the Company’s contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer,
key
employee or group of employees intends to terminate his,
-20-
her
or
their employment with the Company nor does the Company have a present intention
to terminate the employment of any officer, key employee or group of
employees.
(kk) Obligations
of Management.
Each
officer and key employee of the Company is currently devoting substantially
all
of his or her business time to the conduct of business of the Company. The
Company is not aware that any officer or key employee of the Company is planning
to work less than full time at the Company in the future. No officer or key
employee is the currently working or, to the Company’s knowledge, plans to work
for a competitive enterprise, whether or not such officer of key employee is
or
will be compensated by such enterprise.
(ll) Environmental
and Safety Laws.
(i) The
Company is, and at all times has been, in full compliance with, and has not
been
and is not in violation of or liable under, any Environmental Law. The Company
has no basis to expect, nor has it or any other Person for whose conduct it
is
or may be held to be responsible received, any actual or threatened order,
notice, or other communication from (i) any governmental body or private citizen
acting in the public interest, or (ii) the current or prior owner or operator
of
any facilities, of any actual or potential violation or failure to comply with
any Environmental Law, or of any actual or threatened obligation to undertake
or
bear the cost of any environmental, health, and safety liabilities with respect
to any of the facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company has had an interest, or with respect
to
any property or facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by the Company,
or any other Person for whose conduct it are or may be held responsible, or
from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(ii) There
are
no pending or, to the knowledge of the Company, threatened claims, encumbrances,
or other restrictions of any nature, resulting from any environmental, health,
and safety liabilities or arising under or pursuant to any Environmental Law,
with respect to or affecting any of the facilities or any other properties
and
assets (whether real, personal, or mixed) in which the Company has or had an
interest.
(iii) The
Company has no knowledge of any basis to expect, nor has it or any other Person
for whose conduct it is or may be held responsible, received, any citation,
directive, inquiry, notice, order, summons, warning, or other communication
that
relates to Hazardous Materials, or any alleged, actual, or potential violation
or failure to comply with any Environmental Law, or of any alleged, actual,
or
potential obligation to undertake or bear the cost of any environmental, health,
and safety
-21-
liabilities
with respect to any of the facilities or any other properties or assets (whether
real, personal, or mixed) in which the Company had an interest, or with respect
to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by the Company,
or any other Person for whose conduct it is or may be held responsible, have
been transported, treated, stored, handled, transferred, disposed, recycled,
or
received.
(iv) Neither
the Company nor any other Person for whose conduct it is or may be held
responsible, had any environmental, health, and safety liabilities with respect
to the facilities or, to the knowledge of the Company, with respect to any
other
properties and assets (whether real, personal, or mixed) in which the Company
(or any predecessor), has or had an interest, or at any property geologically
or
hydrologically adjoining the facilities or any such other property or
assets.
(v) There
are
no Hazardous Materials present on or in the environment at the facilities or
at
any geologically or hydrologically adjoining property, including any Hazardous
Materials contained in barrels, above or underground storage tanks, landfills,
land deposits, dumps, equipment (whether moveable or fixed) or other containers,
either temporary or permanent, and deposited or located in land, water, sumps,
or any other part of the facilities or such adjoining property, or incorporated
into any structure therein or thereon. Neither the Company nor any other Person
for whose conduct it is or may be held responsible, or to the knowledge of
the
Company, any other Person, has permitted or conducted, or is aware of, any
hazardous activity conducted with respect to the facilities or any other
properties or assets (whether real, personal, or mixed) in which the Company
has
or had an interest except in full compliance with all applicable Environmental
Laws.
(vi) There
has
been no release or, to the knowledge of the Company, threat of release, of
any
Hazardous Materials at or from the facilities or at any other locations where
any Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the facilities, or from or
by
any other properties and assets (whether real, personal, or mixed) in which
the
Company has or had an interest, or to the knowledge of the Company any
geologically or hydrologically adjoining property, whether by the Company,
or
any other Person.
(vii) The
Company has delivered to the Purchasers true and complete copies and results
of
any reports, studies, analyses, tests, or monitoring possessed or initiated
by
the Company pertaining to Hazardous Materials in, on, or under the facilities,
or concerning compliance by the Company, or any other Person for whose conduct
they are or may be held responsible, with Environmental Laws.
-22-
(viii) For
the
purpose of this Section, Hazardous Material shall mean (i) materials which
are
listed or otherwise defined as “hazardous” or “toxic” under any applicable
federal, local or stated and/or foreign laws and regulations that govern the
existence and/or remedy of contamination on property, the protection of the
environment from contamination, the control of the hazardous wastes, or other
activities involving hazardous substances, including building materials or
(b)
petroleum products or nuclear materials.
(ix) For
the
purpose of this Section 3.1(ll), “Environmental Law” shall have the following
meaning:
|
1.
|
advising
appropriate authorities, employees, and the public intended or actual
releases of pollutants or hazardous substances or material, violations
of
discharge limits, or other prohibitions and of the commencements
of
activities, such as resource extraction or construction, that could
have
significant impact on the
environment;
|
|
2.
|
preventing
or reducing to acceptable levels the release of pollutants or hazardous
substances or materials into the
environment;
|
|
3.
|
reducing
the quantities, preventing the release, or minimizing the hazardous
characteristic of waste that are
generated;
|
|
4.
|
assuring
that products are designed, formulated, packaged, and used so that
they do
not present unreasonable risks to human health or the environment
when
used or disposed of;
|
|
5.
|
protecting
resources, species or ecological
amenities;
|
|
6.
|
reducing
to acceptable levels the risk inherent in the transportation of hazardous
substances, pollutants, oil or other potentially harmful
substances;
|
|
7.
|
cleaning
up pollutants that have been released, preventing the threat of release
or
paying the costs of such clean up or prevention;
or
|
|
8.
|
making
responsible parties pay private parties, or groups of them, for damages
done to their health or to the environment, or permitting self appointed
representatives of the public interest to recover for injuries done
to
public assets.
|
(mm) Minute
Books.
The
minute books of the Company made available to the Purchasers contain a complete
summary of all meetings of directors and stockholders since the time of
incorporation.
-23-
(nn) Elections.
To the
Company’s knowledge, all elections and notices permitted by Section 83(b) of the
Code and any analogous provisions of applicable state tax laws have been timely
filed by all employees who have purchased shares of the Common Stock under
agreements that provide for the vesting of such shares of Common
Stock.
(oo) Accounts
Receivable.
Neither
the Company nor any Subsidiary has any material accounts
receivable.
(pp) Inventory.
All
inventory of the Company and the Subsidiaries, whether or not reflected in
the
balance sheet or interim balance sheet, consists of a quality and quantity
usable and salable in the ordinary course of business, except for obsolete
items
and items of below standard quality, all of which have been written off or
written down to net realizable value in the balance sheet or interim balance
sheet or on the accounting records of the Company and the Subsidiaries as of
the
Closing Date, as the case may be. All inventories not written off have been
priced at the lower of cost or market on the last in, first out basis. The
quantities of each item of inventory (whether raw materials, work-in-process,
or
finished goods) are not excessive, but are reasonable in the present
circumstances of the Company and the Subsidiaries.
(qq) Employee
Benefits.
(i) Definitions.
As used
in this Section, the following terms shall have the meanings set forth
below.
“Company
Other Benefit Obligation”
means
an Other Benefit Obligation owed, adopted, or followed by the Company or an
ERISA Affiliate of the Company.
“Company
Plan”
means
all Plans of which the Company or an ERISA Affiliate. If the Company is or
was a
Plan Sponsor, or to which the Company or an ERISA Affiliate of the Company
otherwise contributes or has contributed, or in which the Company or an ERISA
Affiliate of the Company otherwise participates or as participated. All
references to Plans are to Company Plans unless the context requires there
wise.
“Company
VEDA”
means
a
VEDA whose members include employees of the Company or any ERISA Affiliate
of
the Company.
“ERISA”
means
the Employee Retirement Income Security Act of 1974 or any successor law, and
regulations and rules issued pursuant to that Act or any successor
law.
“ERISA
Affiliate”
means,
with respect to the Company, any other person that, together with the Company,
would be treated as a single employer under the Internal Revenue Code Section
414.
-24-
“Multi-Employer
Plan”
has
the
meaning given in ERISA § 3(37)(A).
“Other
Benefit Obligations”
means
all obligations, arrangements, or customary practices, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, or agents, other
than obligations, arrangements, and practices that are Plans. Other Benefit
Obligations include consulting agreements under which the compensation paid
does
not depend upon the amount of service rendered, sabbatical policies, severance
payment policies, and fringe benefits within the meaning of the Internal Revenue
Code Section 132.
“Plan
Sponsor”
has
the
meaning given in ERISA § 3(16)(B).
“PBGC”
means
the Pension Benefit Guaranty Corporation or any successor thereto.
“Pension
Plan”
has
the
meaning given in ERISA § 3(2)(A).
“Plan”
has
the
meaning given in ERISA § 3(3).
“Qualified
Plan”
means
any Plan that meets or purports to meet the requirements of the Internal Revenue
Code Section 40l(a).
“Title
IV Plans”
means.
all pension Plans that are subject to Title IV of ERISA, 29 U.S.C. § 1301 et
seq., other than Multi-Employer Plans.
“VEBA”
means
a
voluntary employees' beneficiary association under the Internal Revenue Code
Section 501(c)(9).
“Welfare
Plan”
has
the
meaning given in ERISA § 3(1).
(ii) Disclosure
Schedules.
Schedule
3.1(qq)
contains
a complete and accurate list of all outstanding options as well as the
following:
|
1.
|
all
Company Plans, Company Other Benefit Obligations, and Company VEBAs,
and
identifies as such all Company Plans that are (A) defined benefit
Pension
Plans, (B) Qualified Plans, (C) Title IV Plans, or (D) Multi-Employer
Plans;
|
|
2.
|
(A)
all ERISA Affiliates of the Company, and (B) all Plans of which any
such
ERISA Affiliate is or was a Plan Sponsor, in which any such ERISA
Affiliate participates or has participated, or to which any such
ERISA
Affiliate contributes or has
contributed;
|
|
3.
|
for
each Multiemployer Plan, as of its last valuation date,
the
|
-25-
amount
of
potential withdrawal liability of the Company and the Company’s other ERISA
Affiliates, calculated according to information made available pursuant to
ERISA
§ 4221(e);
|
4.
|
a
calculation of the liability of the Company for post-retirement benefits
other than pensions, made in accordance with Financial. Accounting
Statement 106 of the Financial Accounting Standards Board, regardless
of
whether the Company is required by this Statement to disclose such
information; and
|
|
5.
|
the
financial cost of all obligations owed under any Company Plan or
Company
Other Benefit Obligation that is not subject to the disclosure and
reporting requirements of ERISA.
|
(iii) Deliverables
under ERISA.
The
Company has delivered to the Purchasers, or will deliver to the Purchasers
within ten days of the date of this Agreement:
|
1.
|
all
documents that set forth the terms of each Company Plan, Company
Other
Benefit Obligation, or Company VEBA and of any related trust, including
(A) all plan descriptions and summary plan descriptions of Company
Plans
for which the Company are required to prepare, file, and distribute
plan
descriptions and summary plan descriptions, and (B) all summaries
and
descriptions furnished to. participants and beneficiaries regarding
Company Plans, Company Other Benefit Obligations, and Company VEBAs
for
which a plan description or summary plan description is not
required;
|
|
2.
|
all
personnel, payroll, and employee manuals and
policies;
|
|
3.
|
all
collective bargaining agreements pursuant to which contributions
have been
made or obligations incurred (including both pension and welfare
benefits)
by the Company and the ERISA Affiliates of the Company, and all collective
bargaining agreements pursuant to which contributions are being made
or
obligations are owed by such
entities;
|
|
4.
|
a
written description of any Company Plan or Company Other Benefit
Obligation that is not otherwise in
writing;
|
|
5.
|
all
registration statements filed with respect to any Company
Plan;
|
|
6.
|
all
insurance policies purchased by or to provide benefits under the
Company
Plan;
|
|
7.
|
all
contracts with third party administrators, actuaries, investment
managers,
consultants, and other independent contractors
that
|
-26-
relate
to
any Company Plan, Company Other Benefit Obligation, or Company
VEBA;
|
8.
|
all
reports submitted within the four years preceding the date to this
Agreement by a third party administrators, actuaries, investment
managers,
consultants, or other independent contractors with respect to any
Company
Plan, Company Other Benefit Obligation, or Company VEBA;
|
|
9.
|
all
notifications to employees of their rights under ERISA § 601 et seq. and
Section 4980B of the Internal Revenue
Code;
|
|
10.
|
the
Form 5500 filed in each of the most recent three plan years with
respect
to each Company Plan, including all schedules thereto and the opinions
of
independent accountants;
|
|
11.
|
all
notices that were given by the Company or any ERISA Affiliate of
the
Company or any Company Plan to the Internal Revenue Service, the
PBGC, or
any participant or beneficiary, pursuant to statute, within the four
years
preceding the date of this Agreement, including notices that are
expressly
mentioned elsewhere in this
Section;
|
|
12.
|
all
notices that were given by the Internal Revenue Service, the PBGC,
or the
Department of Labor to the Company, any ERISA Affiliate of the Company,
or
any Company Plan within the four years preceding the date of this
Agreement;
|
|
13.
|
with
respect to Qualified Plans and VEBAs, the most recent determination
letter
for each Plan of the Company that is a Qualified Plan;
and
|
|
14.
|
with
respect to Title IV Plans the Form PBGC-l filed for each of the three
most
recent plan years.
|
(iv) Representations.
Except
as set forth in Schedule
3.1(qq):
|
1.
|
The
Company has performed all of its respective obligations under all
Company
Plans, Company Other Benefit Obligations, and Company VEBAs. The
Company
has made appropriate entries in its financial records and statements
for
all obligations and liabilities under such Plans, VEBAs, and Obligations
that have accrued but are not due.
|
|
2.
|
No
statement, either written or oral, bas been made by the Company to
any
Person with regard to any Plan or Other Benefit Obligation that was
not in
accordance with the Plan or Other Benefit Obligation and that could
have
an adverse economic
|
-27-
consequence
to the Company or to Purchaser.
|
3.
|
The
Company, with respect to all Company Plans, Company Other Benefits
Obligations, and Company VEBAs, are, and each Company Plan, Company
Other
Benefit Obligation, and Company VEBA is, in full compliance with
ERISA,
the Internal Revenue Code, and other applicable law including the
provisions of such law expressly mentioned in this Section, and with
any
applicable collective bargaining
agreement.
|
|
a.
|
No
transaction prohibited by ERISA § 406 and no “prohibited transaction”
under the Internal Revenue Code Section 4975(c) have occurred with
respect
to any Company Plan.
|
|
b.
|
The
Company has no liability to the Internal Revenue Service with respect
to
any Plan, including any liability imposed by Chapter 43 of the Internal
Revenue Code.
|
|
c.
|
The
Company has no any liability to the PBGC with respect to any Plan
or has
any liability under XXXXX § 000 xx
§0000.
|
|
d.
|
All
filings required by ERISA and the Internal Revenue Code as to each
Plan
have been timely filed, and all notices and disclosures to participants
required by either ERISA or the Internal Revenue Code have been timely
provided.
|
|
e.
|
All
contributions and payments made or accrued with respect to all Company
Plans, Company Other Benefit Obligations and Company VEBAs are deductible
under Sections § 162 or § 404 of the Internal Revenue Code. No amount, or
any asset of any Company Plan or Company VEBA, is subject to tax
as
unrelated business taxable income.
|
|
4.
|
Each
Company Plan can be terminated within 30 calendar days, without payment
of
any additional contribution or amount and without the vesting or
acceleration 'of any benefits promised by such
Plan.
|
|
5.
|
Since
the formation of the Company, there has been no establishment or
amendment
of any Company Plan, Company VEBA, or Company Other Benefit
Obligation.
|
|
6.
|
No
event has occurred or circumstance exists that could result in
a
|
-28-
material
increase in premium costs of Company Plans and Company Other Benefit Obligations
that are insured, or a material increase in benefit costs of such Plans and
Obligations that are self-insured.
|
7.
|
Other
than claims for benefits submitted by participants or beneficiaries,
no
claim against or legal proceeding involving, any Company Plan, Company
Other Benefit Obligation or Company VEBA is pending or, to the Company’s
knowledge is threatened.
|
|
8.
|
No
Company Plan is a stock bonus, pension, or profit-sharing plan within
the
meaning Section 401 (a) of the Internal Revenue
Code.
|
|
9.
|
Each
Qualified Plan of the Company is qualified in form and operation
under
Section 401(a) of the Internal Revenue Code; each trust for each
such Plan
is exempt from federal income tax under Section 501(a) of the Internal
Revenue Code. Each Company VEBA is exempt from federal income tax.
No
event has occurred or circumstance exists that will or could give
rise to
disqualification or loss of tax-exempt status of any such Plan or
trust.
|
|
10.
|
The
Company and each ERISA Affiliate of the Company has met the minimum
funding standard, and has made all contributions required, under
ERISA §
302 and Section 402 of the Internal Revenue
Code.
|
|
11.
|
No
Company Plan is subject to Title IV of
ERISA
|
|
12.
|
The
Company has paid all amounts due to the PBGC pursuant to ERISA §
4007.
|
|
13.
|
Neither
the Company nor any ERISA Affiliate of the Company has ceased operations
at any facility or has withdrawn from any Title IV Plan in a manner
that
would subject to any entity or Company to liability under ERISA § 4062(
e), § 4063, or § 4064.
|
|
14.
|
Neither
the Company nor any ERISA Affiliate of the Company has filed a notice
of
intent to terminate any Plan or has adopted any amendment to treat
a Plan
as terminated. The PBGC has not instituted proceedings to treat any
Company Plan as terminated. No event has occurred or circumstance
exists
that may constitute grounds under ERISA § 4042 for the termination of, or
the appointment of a trustee to administer, any Company Plan.
|
|
15.
|
No
amendment has been made, or is reasonably expected
to
|
-29-
be
made
to any Plan that has required or could require the provision of security under
ERISA § 307 or Section 401(a)(29) of the Internal Revenue Code.
|
16.
|
No
accumulated funding deficiency, whether or not waived, exists with
respect
to any Company Plan; no event has occurred or circumstance exists
that may
result in an accumulated funding deficiency as of the last day of
the
current plan year of any such Plan.
|
|
17.
|
The
actuarial report for each pension plan of the Company and each ERISA
Affiliate of the Company fairly presents the financial condition
and the
results of operations of each such Plan in accordance with
GAAP.
|
|
18.
|
Since
the last valuation date for each pension plan of the Company and
each
ERISA Affiliate of the Company, no event has occurred or circumstance
exists that would increase the amount of benefits under any such
Plan or
that would cause the excess of Plan assets over benefit liabilities
(as
defined in ERISA § 4001) to decrease, or the amount by which benefit
liabilities exceed assets to
increase.
|
|
19.
|
No
reportable event (as defined in ERISA § 4043 and in regulations issued
thereunder) has occurred.
|
|
20.
|
The
Company does not have any knowledge of any facts or circumstances
that may
give rise to any liability of any Company or the Purchasers to the
PBGC
under Title IV of ERISA.
|
|
21.
|
Neither
the Company nor any ERISA Affiliate of the Company has ever established,
maintained, or contributed to or otherwise participated in, or had
an
obligation to maintain, contribute to, or otherwise participate in,
any
Multi-Employer Plan.
|
|
22.
|
Neither
the Company nor any ERISA Affiliate of the Company has withdrawn
from any
Multi-Employer Plan with respect to which there is any outstanding
liability as of the date of this Agreement. No event has occurred
or
circumstance exists that presents a risk of the occurrence of any
withdrawal from, or the participation, termination, reorganization.
or
insolvency of, any Multi-Employer Plan that could result in any liability
of either the Company or any purchaser to a Multi-Employer
Plan.
|
|
23.
|
Neither
the Company nor any ERISA Affiliate of the Company has received notice
from any Multi-Employer Plan that it is in reorganization or is insolvent,
that increased contributions
|
-30-
may
be
required to avoid a reduction in plan benefits or the imposition of any excise
tax, or that such Plan intends to terminate or has terminated.
|
24.
|
No
Multi-Employer Plan to which the Company or any ERISA Affiliate of
the
Company contributes or has contributed is a party to any pending
merger or
asset or liability transfer or is subject to any proceeding brought
by the
PBGC.
|
|
25.
|
Except
to the extent required under ERISA § 601 et seq. and Section 4980B of the
Internal Revenue Code, the Company does not provide health or welfare
benefits for any retired or former employee or is obligated to provide
health or welfare benefits to any active employee following such
employee's retirement or other termination of
service.
|
|
26.
|
The
Company has the right to modify and terminate benefits to retirees
(other
than pensions) with respect to both retired and active
employees.
|
|
27.
|
The
Company has complied with the provisions of ERISA § 601 et seq. and
Section 4980B of the Internal Revenue
Code.
|
|
28.
|
No
payment that is owed or may become due to any director, officer,
employee,
or agent of the Company will be non-deductible to the Company or
subject
to tax under Sections 2800 or 4999 of the Internal Revenue Code;
nor will
the Company be required to “gross up” or otherwise compensate any such
person because of the imposition of any excise tax on a payment to
such
person.
|
|
29.
|
The
consummation of the transaction contemplated under the Transaction
Documents will not result in the payment, vesting, or acceleration
of any
benefit.
|
(rr) Returns
and Complaints.
The
Company has received no customer complaints concerning its products and/or
services, nor has it had any of its products returned by a purchaser thereof,
other than minor, nonrecurring warranty problems.
3.2 Representations
and Warranties of the Purchasers.
Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization;
Authority.
Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or similar action on the
part of such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser
in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
-31-
(b) Own
Account.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities
law, has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law and
has
no arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not limiting
such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable state
securities law. Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. Such Purchaser does not have any agreement
or
understanding, directly or indirectly, with any Person to distribute any of
the
Securities.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and at the date hereof
it is, and on each date on which it exercises any Warrants or converts any
Debentures it will be either: (i) an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii)
a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act. Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) Experience
of Such Purchaser.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters
so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment.
(e) General
Solicitation.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than the transaction contemplated hereunder, such Purchaser has not directly
or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including Short
Sales, in the securities of the Company during the period commencing
from
the time
that such Purchaser first received a term sheet from the Company or any other
Person setting forth the material terms of the transactions contemplated
hereunder until the date hereof (“Discussion
Time”).
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have
no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the representation set
forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement. Other than to other Persons party to this Agreement,
such Purchaser has maintained the confidentiality of all disclosures made to
it
in connection with this transaction (including the existence and terms of this
transaction).
-32-
The
Company acknowledges and agrees that each Purchaser does not make or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
3.2.
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company
or
to an affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section 4.1(b), the Company may require the transferor thereof to provide to
the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing
to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1(b), of a legend on any of the Securities in the following form:
THESE
SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
-33-
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject
to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further,
no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under
the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement
(including the Registration Statement) covering the resale of such security
is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares
are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the Company’s
transfer agent to effect the removal of the legend hereunder. If all or any
portion of a Debenture or Warrant is converted or exercised (as applicable)
at a
time when there is an effective registration statement to cover the resale
of
the Underlying Shares, or if such Underlying Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission) then such Underlying Shares shall be
issued free of all legends. The Company agrees that following the Effective
Date
or at such time as such legend is no longer required under this Section 4.1(c),
it will, no later than three Trading Days following the delivery by a Purchaser
to the Company or the Company’s transfer agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend (such third
Trading Day, the “Legend
Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The Company
may
not make any notation on its records or give instructions to any transfer agent
of the Company that enlarge the restrictions on transfer set forth in this
Section. Certificates for Underlying Shares subject to legend removal hereunder
shall be transmitted by the transfer agent of the Company to the Purchasers
by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System.
-34-
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Underlying Shares (based on the Closing Price of the Common
Stock
on the date such Securities are submitted to the Company’s transfer agent)
delivered for removal of the restrictive legend and subject to Section 4.1(c),
$10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after
such
damages have begun to accrue) for each Trading Day after the second Trading
Day
following the Legend Removal Date until such certificate is delivered without
a
legend. Nothing herein shall limit such Purchaser’s right to pursue actual
damages for the Company’s failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser shall
have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(e) Each
Purchaser, severally and not jointly with the other Purchasers, agrees that
the
removal of the restrictive legend from certificates representing Securities
as
set forth in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
(f) Until
the
one year anniversary of the Effective Date, the Company shall not undertake
a
reverse or forward stock split or reclassification of the Common Stock without
the prior written consent of the Purchasers holding a majority in interest
of
the Debentures.
4.2 Acknowledgment
of Dilution. The Company acknowledges that the issuance of the Securities
may result in dilution of the outstanding shares of Common Stock, which dilution
may be substantial under certain market conditions. The Company further
acknowledges that its obligations under the Transaction Documents, including
without limitation its obligation to issue the Underlying Shares pursuant to
the
Transaction Documents, are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction, regardless of the effect
of
any such dilution or any claim the Company may have against any Purchaser and
regardless of the dilutive effect that such issuance may have on the ownership
of the other stockholders of the Company.
4.3 Furnishing
of Information.
As long
as any Purchaser owns Securities, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company once it is required
to
file reports pursuant to Exchange Act. Until such time and as long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers
and
make publicly available in accordance with Rule 144(c) such information as
is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to
time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule
144.
-35-
4.4 Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the
sale
of the Securities to the Purchasers or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.
4.5 Conversion
and Exercise Procedures. The form of Notice of Exercise included in the
Warrants and the form of Notice of Conversion included in the
Debentures set
forth
the totality of the procedures required of the Purchasers in order to exercise
the Warrants or convert the Debentures. No additional legal opinion or other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Debentures. The Company shall honor exercises
of
the Warrants and conversions of the Debentures and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set forth
in
the Transaction Documents.
4.6 Securities
Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. Eastern time on
the Trading Day immediately following the date hereof, issue a press release
reasonably acceptable to Oceana Partners, LLC disclosing the material terms
of
the transactions contemplated hereby. In addition, the Company shall attach
all
Transaction Documents to the Registration Statement or, if sooner filed, the
first current or periodic report it files with the Commission. The Company
and
each Purchaser shall consult with each other in issuing any other press releases
with respect to the transactions contemplated hereby, and neither the Company
nor any Purchaser shall issue any such press release or otherwise make any
such
public statement without the prior consent of the Company, with respect to
any
press release of any Purchaser, or without the prior consent of each Purchaser
specifically named in such press release, with respect to any press release
of
the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in
any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by
the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
-36-
4.7 Shareholder
Rights Plan. No claim will be made or enforced by the Company or, to the
knowledge of the Company, any other Person that any Purchaser is an “Acquiring
Person” under any shareholder rights plan or similar plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue
of
receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Purchasers. The Company shall conduct
its
business in a manner so that it will not become subject to the Investment
Company Act.
4.8 Non-Public
Information. The Company covenants and agrees that neither it nor any other
Person acting on its behalf will provide any Purchaser or its agents or counsel
with any information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the
Company.
4.9 Use
of
Proceeds. The Company shall use the net proceeds from the sale of the
Securities hereunder for working capital purposes, and not for the satisfaction
of any portion of the Company’s debt (other than payment of trade payables in
the ordinary course of the Company’s business and prior practices), to redeem
any Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 Reimbursement.
If any Purchaser becomes involved in any capacity in any Proceeding by or
against any Person who is a stockholder of the Company (except as a result
of
sales, pledges, margin sales and similar transactions by such Purchaser to
or
with any current stockholder), solely as a result of such Purchaser’s
acquisition of the Securities under this Agreement, the Company will reimburse
such Purchaser for its reasonable legal and other expenses (including the cost
of any investigation preparation and travel in connection therewith) incurred
in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same
terms
and conditions to any Affiliates of the Purchasers who are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchasers and any such Affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability
to
the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement,
except if such claim arises primarily from a breach of such Purchaser’s
representations, warranties or covenants under the Transaction Documents or
any
agreements or understandings such Purchaser may have with any such stockholder
or any violations by the Purchaser of state or federal securities laws or any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance.
-37-
4.11 Indemnification
of Purchasers. Subject to the provisions of this Section 4.11, the Company
will indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities
Act
and Section 20 of the Exchange Act), and the directors, officers, agents,
members, partners or employees (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) of such controlling persons (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result
of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser, or
any
of them or their respective Affiliates, by any stockholder of the Company who
is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon
a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state
or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action
shall
be brought against any Purchaser Party in respect of which indemnity may be
sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing. Any Purchaser Party shall
have
the right to employ separate counsel in any such action and participate in
the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense
and
to employ counsel or (iii) in such action there is, in the reasonable opinion
of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party. The Company
will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement
or
in the other Transaction Documents.
4.12 Reservation
and Listing of Common Stock.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction
Documents.
(b) If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then
the
Board of Directors of the Company shall use commercially reasonable efforts
to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event not later
than the 75th day after such date.
-38-
(c) The
Company hereby agrees to use best efforts to maintain the listing of the Common
Stock on a Trading Market, and as soon as reasonably practicable following
the
Closing (but not later than the earlier of the Effective Date and the first
anniversary of the Closing Date) to list a number of shares of Common Stock
equal to at least the Required Minimum. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Trading Market,
it
will include in such application all of the Underlying Shares in an amount
equal
to at least the Required Minimum as of the date of such application, and will
take such other action as is necessary to cause all of the Underlying Shares
to
be listed on such other Trading Market as promptly as possible. The Company
will
take all action reasonably necessary to continue the listing and trading of
its
Common Stock on a Trading Market and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the Trading Market.
4.13 Equal
Treatment of Purchasers. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of
any
of the Transaction Documents unless the same consideration is also offered
to
all of the parties to the Transaction Documents. For clarification purposes,
this provision constitutes a separate right granted to each Purchaser by the
Company and negotiated separately by each Purchaser, and is intended to treat
for the Company the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.14 Participation
in Future Financing.
(a) From
the
date hereof until the date that is the nine month anniversary of the Effective
Date, upon any financing by the Company or any of its Subsidiaries of Common
Stock or Common Stock Equivalents (a “Subsequent
Financing”),
each
Purchaser shall have the right to participate in up to an amount of the
Subsequent Financing equal to 50% of the Subsequent Financing (the “Participation
Maximum”).
(b) At
least
5 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Purchaser a written notice of its intention to effect
a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent
Financing Notice”).
Upon the request of a Purchaser, and only upon a request by such Purchaser,
for
a Subsequent Financing Notice, the Company shall promptly, but no later than
1
Trading Day after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of proceeds
intended to be raised thereunder, the Person with whom such Subsequent Financing
is proposed to be effected, and attached to which shall be a term sheet or
similar document relating thereto.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice that the Purchaser
is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Purchaser as of such
5th
Trading
Day, such Purchaser shall be deemed to have notified the Company that it does
not elect to participate.
-39-
(d) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, notifications
by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less than
the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and to the Persons
set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking
to
purchase more than the aggregate amount of the Participation Maximum, each
such
Purchaser shall have the right to purchase the greater of (a) their Pro Rata
Portion (as defined below) of the Participation Maximum and (b) the difference
between the Participation Maximum and the aggregate amount of participation
by
all other Purchasers. “Pro
Rata Portion”
is
the
ratio of (x) the Subscription Amount of Securities purchased on the Closing
Date
by a Purchaser participating under this Section 4.14 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing Date
by
all Purchasers participating under this Section 4.14.
(f) The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above
in
this Section 4.14, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.14 shall not apply in respect of an Exempt
Issuance.
4.15 Subsequent
Equity Sales.
(a) From
the
date hereof until the 4 month anniversary of the Effective Date, neither the
Company nor any Subsidiary shall issue shares of Common Stock or Common Stock
Equivalents; provided, however, the 4 month period set forth in this Section
4.15 shall be extended for the number of Trading Days during such period in
which (i) trading in the Common Stock is suspended by any Trading Market, or
(ii) following the Effective Date, the Registration Statement is not effective
or the prospectus included in the Registration Statement may not be used by
the
Purchasers for the resale of the Underlying Shares.
-40-
(b) From
the
date hereof until the 24 month anniversary of the Effective Date, the Company
shall be prohibited from effecting or entering into an agreement to effect
any
Subsequent Financing involving a “Variable Rate Transaction”. The term
“Variable
Rate Transaction”
shall
mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line
of
credit, whereby the Company may sell securities at a future determined price.
Any Purchaser shall be entitled to obtain injunctive relief against the Company
to preclude any such issuance, which remedy shall be in addition to any right
to
collect damages.
(c) Notwithstanding
the foregoing, this Section 4.15 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.16 Short
Sales and Confidentiality After The Date Hereof. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after
the
Discussion Time and ending at the time that the transactions contemplated by
this Agreement are first publicly announced as described
in
Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any
other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock “against the box” prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Notwithstanding
the foregoing, no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in Short Sales in the securities of the Company
after the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.6. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such
Purchaser's assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions
of
such Purchaser's assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made
the
investment decision to purchase the Securities covered by this
Agreement.
-41-
4.17 Delivery
of Securities After Closing. The Company shall deliver, or cause to be
delivered, the respective Securities purchased by each Purchaser to such
Purchaser within 5 Trading Days of the Closing Date.
4.18 Form
D; Blue Sky Filings. The
Company agrees to timely file a Form D with respect to the Securities as
required under Regulation D and to provide a copy thereof, promptly upon request
of any Purchaser. The Company shall, on or before or after the Closing Date,
take such action as the Company shall reasonably determine is necessary in
order
to obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.19 Post-Closing
Lock-Up Agreements. In the event that during the Restriction Period (as
defined in the form of lock-up agreement attached hereto as Exhibit E), any
officers or directors of the Company that did not deliver a lock up agreement
hereunder, beneficially own more than 0.5% of the then outstanding Common Stock,
the Company hereby agrees to cause such officer(s) or director(s) to execute
a
lock up agreement prohibiting the transfer of such securities during the
Restriction Period and otherwise substantially similar to the form of the lock
up agreement attached hereto as Exhibit E. The Company hereby agrees that it
will not issue any Common Stock or Common Stock Equivalents to any officer
and
director that would beneficially own more than 0.5% of the outstanding Common
Stock following such issuance unless and until such officer or director has
executed and delivered each Purchaser a lock up agreement in accordance with
this section 4.19.
ARTICLE
V.
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before May 5, 2006;
provided, however, that no such termination will affect the right of any party
to xxx for any breach by the other party (or parties).
5.2 Fees
and Expenses. At the Closing, the Company has agreed to reimburse Bushido
Capital Master Fund LP (“Bushido”) the non-accountable sum of $30,000, for its
actual, reasonable, out-of-pocket legal fees and expenses, $10,000 of which
shall have been paid prior to the Closing. Except as expressly set forth in
the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities.
5.3 Entire
Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
-42-
5.4 Notices.
Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto prior to 5:30 p.m. (New York City time)
on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
set
forth on the signature pages attached hereto on a day that is not a Trading
Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the
2nd
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.5 Amendments;
Waivers. No provision of this Agreement may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and
the
Purchasers holding 66% or more in interest of the then outstanding Securities
or, in the case of a waiver, by the party against whom enforcement of any such
waiver is sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.
5.6 Headings.
The headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
5.7 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit
of the parties and their successors and permitted assigns. The Company may
not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Purchaser. Any Purchaser may assign any or all of its
rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof
that
apply to the “Purchasers”.
5.8 No
Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is
not
for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.11.
5.9 Governing
Law. All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each party agrees
that all legal proceedings concerning the
-43-
interpretations,
enforcement and defense of the transactions contemplated by this Agreement
and
any other Transaction Documents (whether brought against a party hereto or
its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival.
The representations and warranties contained herein shall survive the Closing
and the delivery of the Securities.
5.11 Execution.
This Agreement may be executed in two or more counterparts, all of which when
taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.
5.12 Severability.
If any provision of this Agreement is held to be invalid or unenforceable in
any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and
the
parties will attempt to agree upon a valid and enforceable provision that is
a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
5.13 Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) the Transaction Documents,
whenever any Purchaser exercises a right, election, demand or option under
a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to
the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
-44-
5.14 Replacement
of Securities. If any certificate or instrument evidencing any Securities is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof, or in
lieu of and substitution therefor, a new certificate or instrument, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and customary and reasonable indemnity, if requested.
The
applicants for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs associated with the issuance of such
replacement Securities.
5.15 Remedies.
In addition to being entitled to exercise all rights provided herein or granted
by law, including recovery of damages, each of the Purchasers and the Company
will be entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be
adequate.
5.16 Payment
Set Aside. To the extent that the Company makes a payment or payments to any
Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds
of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation
or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
5.17 Usury.
To the extent it may lawfully do so, the Company hereby agrees not to insist
upon or plead or in any manner whatsoever claim, and will resist any and all
efforts to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest
or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of
the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser’s election.
-45-
5.18 Independent
Nature of Purchasers’ Obligations and Rights. The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any
way for the performance of the obligations of any other Purchaser under any
Transaction Document. Nothing contained herein or in any Transaction Document,
and no action taken by any Purchaser pursuant thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture
or
any other kind of entity, or create a presumption that the Purchasers are in
any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Purchaser shall
be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser
to
be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in their review
and negotiation of the Transaction Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through FW. FW does not represent all of the
Purchasers but only Bushido. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the
Purchasers.
5.19 Liquidated
Damages. The Company’s obligations to pay any partial liquidated damages or
other amounts owing under the Transaction Documents is a continuing obligation
of the Company and shall not terminate until all unpaid partial liquidated
damages and other amounts have been paid notwithstanding the fact that the
instrument or security pursuant to which such partial liquidated damages or
other amounts are due and payable shall have been canceled.
5.20 Construction.
The parties agree that each of them and/or their respective counsel has reviewed
and had an opportunity to revise the Transaction Documents and, therefore,
the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
5.21 Registration
Rights Agreement and Security Agreement. The parties acknowledge that the
provisions of the Registration Rights Agreement and the Security Agreement
in
the forms attached hereto as Exhibit B and Exhibit F, respectively, are
incorporated by reference and made a part hereof, and that each Purchaser's
signature hereto will operate to be effective as such Purchaser's signature
to
the Registration Rights Agreement and Security Agreement.
(Signature
Pages Follow)
-46-
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as
of
the date first indicated above.
|
SWEETSKINZ
HOLDINGS, INC.
|
Address
for Notice:
|
|
By:
/s/ Xxxxxxxxxxx Xxxxxx
Name:
Xxxxxxxxxxx X. Xxxxxx
Title:
President
|
0000
Xxxxxxx Xxxxxx
Xxxxxxxxxxxx,
XX 00000
|
|
SWEETSKINZ,
INC.
By:
/s/ Xxxxxx Xxxxxxx
Name:
Xxxxxx Xxxxxxx
Title:
Chief Executive Officer
By:
/s/ Xxxx Xxxxxx
Name:
Xxxx Xxxxxx
Title:
Chief Technology Officer
|
0000
Xxxxxxx Xxxxxx
Xxxxxxxxxxxx,
XX 00000
|
|
With
a copy to (which shall not constitute notice):
|
Rubin,
Bailin, Ortoli LLP
000
Xxxx Xxxxxx
Xxx
Xxxx, XX 00000
Attn:
Xxxxxxx Xxxxxxxxxx
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
-47-
[PURCHASER
SIGNATURE PAGES TO SKNZ SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above. EXECUTION
OF THIS AGREEMENT BY ANY PURCHASER SHALL BE DEEMED TO CONSTITUTE EXECUTION
OF
THE REGISTRATION RIGHTS AGREEMENT ANNEXED HERETO AS EXHIBIT B AND THE SECURITY
AGREEMENT ANNEXED HERETO AS EXHIBIT F BY SUCH PURCHASER.
Name
of
Purchaser:
_____________________________________________________________________________
Signature
of Authorized Signatory of Purchaser:
______________________________________________________
Name
of
Authorized Signatory:
____________________________________________________________________
Title
of
Authorized Signatory:
_____________________________________________________________________
Email
Address of
Purchaser:_______________________________________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as above):
Subscription
Amount:
Warrant
Shares:
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
-48-
