PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 16th day of
November, 2004 by and among WPCS International Incorporated, a Delaware
corporation (the "Company"), and the Investors set forth on the signature pages
affixed hereto (each an "Investor" and collectively the "Investors").
Recitals
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended; and
B. The Investors wish to purchase from the Company, and the Company
wishes to sell and issue to the Investors, upon the terms and conditions stated
in this Agreement, (i) an aggregate of 25,000,000 shares of the Company's Common
Stock, par value $0.0001 per share (together with any securities into which such
shares may be reclassified the "Common Stock"), at purchase price of $0.40 per
share, and (ii) warrants to purchase an aggregate of 25,000,000 shares of Common
Stock at an exercise price of $0.70 per share (subject to adjustment)in the form
attached hereto as Exhibit A (the "Warrants"); and
C. Contemporaneous with the sale of the Common Stock and Warrants, the
parties hereto will execute and deliver a Registration Rights Agreement, in the
form attached hereto as Exhibit B (the "Registration Rights Agreement"),
pursuant to which the Company will agree to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, and applicable state securities laws.
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere
in this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly through one or more intermediaries Controls, is
controlled by, or is under common control with, such Person.
"Business Day" means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.
"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
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
"Company's Knowledge" means the actual knowledge of the executive
officers (as defined in Rule 405 under the 0000 Xxx) of the Company, after due
inquiry.
"Confidential Information" means trade secrets, confidential
information and know-how (including but not limited to ideas, formulae,
compositions, processes, procedures and techniques, research and development
information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans,
and customer and supplier lists and related information).
"Control" (including the terms "controlling", "controlled by" or
"under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Effective Date" means the date on which the initial Registration
Statement (as defined in the Registration Rights Agreement) is declared
effective by the SEC.
"Effectiveness Deadline" means the date on which the initial Registration
Statement (as so defined) is required to be declared effective by the SEC under
the terms of the Registration Rights Agreement.
"Intellectual Property" means all of the following: (i) patents,
patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice); (ii) trademarks, service
marks, trade dress, trade names, corporate names, logos, slogans and Internet
domain names, together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).
"Material Adverse Effect" means a material adverse effect on (i) the
assets, liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.
"Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
"Purchase Price" means Ten Million Dollars ($10,000,000).
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"Reverse Split" means a reverse split of the Common Stock in such
proportion as is authorized by the Company's Board of Directors in the good
faith exercise of its business judgment, but in no event less than
one-for-twelve.
"SEC Filings" has the meaning set forth in Section 4.6.
"Registration Statement" has the meaning set forth in the Registration
Rights Agreement.
"Securities" means the Shares, the Warrants and the Warrant Shares.
"Shares" means the shares of Common Stock being purchased by the
Investors hereunder.
"Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Transaction Documents" means this Agreement, the Warrants, the
Registration Rights Agreement and the Voting Agreement.
"Voting Agreement" means a Voting Agreement in the form attached
hereto as Exhibit C.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
"1933 Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Shares and Warrants. Subject to the terms
and conditions of this Agreement, on the Closing Date, each of the Investors
shall severally, and not jointly, purchase, and the Company shall sell and issue
to the Investors, the Shares and Warrants in the respective amounts set forth
opposite the Investors' names on the signature pages attached hereto in exchange
for the Purchase Price as specified in Section 3 below.
3. Closing. Upon confirmation that the other conditions to closing
specified herein have been satisfied or duly waived by the Investors, the
Company shall deliver to Xxxxxxxxxx Xxxxxxx PC, in trust, a certificate or
certificates, registered in such name or names as the Investors may designate,
representing the Shares and Warrants, with instructions that such certificates
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are to be held for release to the Investors only upon payment in full of the
Purchase Price to the Company by all the Investors. Upon such receipt by
Xxxxxxxxxx Xxxxxxx PC of the certificates, each Investor shall promptly, but no
more than one Business Day thereafter, cause a wire transfer in same day funds
to be sent to the account of the Company as instructed in writing by the
Company, in an amount representing such Investor's pro rata portion of the
Purchase Price as set forth on the signature pages to this Agreement. On the
date (the "Closing Date") the Company receives the Purchase Price, the
certificates evidencing the Shares and Warrants shall be released to the
Investors (the "Closing"). The Closing of the purchase and sale of the Shares
and Warrants shall take place at the offices of Xxxxxxxxxx Xxxxxxx PC, 1251
Avenue of the Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other
location and on such other date as the Company and the Investors shall mutually
agree.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the "Disclosure Schedules"):
4. 1 Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not and could not reasonably be expected to have a
Material Adverse Effect. The Company's Subsidiaries are listed on Schedule 4.1
hereto.
4.2 Authorization. The Company has full power and authority and,
except for the preparation and delivery of the Information Statement
contemplated by Section 7.9, has taken all requisite action on the part of the
Company, its officers, directors and stockholders necessary for (i) the
authorization, execution and delivery of the Transaction Documents, (ii)
authorization of the performance of all obligations of the Company hereunder or
thereunder, (iii) the authorization, issuance (or reservation for issuance) and
delivery of the Securities and (iv) the consummation of the Reverse Split. The
Transaction Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors'
rights generally.
4.3 Capitalization. Schedule 4.3 sets forth (a) the authorized
capital stock of the Company on the date hereof; (b) the number of shares of
capital stock issued and outstanding; (c) the number of shares of capital stock
issuable pursuant to the Company's stock plans; and (d) the number of shares of
capital stock issuable and reserved for issuance pursuant to securities (other
than the Shares and the Warrants) exercisable for, or convertible into or
exchangeable for any shares of capital stock of the Company. All of the issued
and outstanding shares of the Company's capital stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive
rights and were issued in full compliance with applicable state and federal
securities law and any rights of third parties. Except as described on Schedule
4.3, all of the issued and outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued and are fully paid,
nonassessable and free of pre-emptive rights, were issued in full compliance
with applicable state and federal securities law and any rights of third parties
and are owned by the Company, beneficially and of record, subject to no lien,
encumbrance or other adverse claim. Except as described on Schedule 4.3, no
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Person is entitled to pre-emptive or similar statutory or contractual rights
with respect to any securities of the Company. Except as described on Schedule
4.3, there are no outstanding warrants, options, convertible securities or other
rights, agreements or arrangements of any character under which the Company or
any of its Subsidiaries is or may be obligated to issue any equity securities of
any kind and except as contemplated by this Agreement, neither the Company nor
any of its Subsidiaries is currently in negotiations for the issuance of any
equity securities of any kind. Except as described on Schedule 4.3 and except
for the Registration Rights Agreement, there are no voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among the Company and any of the securityholders of the Company
relating to the securities of the Company held by them. Except as described on
Schedule 4.3 and except as provided in the Registration Rights Agreement, no
Person has the right to require the Company to register any securities of the
Company under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the account
of any other Person.
Except as described on Schedule 4.3, the issuance and sale of the
Securities hereunder will not obligate the Company to issue shares of Common
Stock or other securities to any other Person (other than the Investors) and
will not result in the adjustment of the exercise, conversion, exchange or reset
price of any outstanding security.
Except as described on Schedule 4.3, the Company does not have
outstanding stockholder purchase rights or "poison pill" or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.
4.4 Valid Issuance. The Shares have been duly and validly
authorized and, when issued and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws. The Warrants have been duly and validly
authorized. Upon the due exercise of the Warrants, the Warrant Shares will be
validly issued, fully paid and non-assessable free and clear of all encumbrances
and restrictions, except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws and except for
those created by the Investors. The Company has reserved a sufficient number of
shares of Common Stock for issuance upon the exercise of the Warrants, free and
clear of all encumbrances and restrictions, except for restrictions on transfer
set forth in the Transaction Documents or imposed by applicable securities laws
and except for those created by the Investors.
4.5 Consents. Except for the preparation and delivery of the
Information Statement contemplated by Section 7.9, the execution, delivery and
performance by the Company of the Transaction Documents, the consummation of the
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Reverse Split and the offer, issuance and sale of the Securities require no
consent of, action by or in respect of, or filing with, any Person, governmental
body, agency, or official other than filings that have been made pursuant to
applicable state securities laws, the filing of an amendment to the Company's
Certificate of Incorporation to effectuate the Reverse Split and post-sale
filings pursuant to applicable state and federal securities laws which the
Company undertakes to file within the applicable time periods. Subject to the
accuracy of the representations and warranties of each Investor set forth in
Section 5 hereof, the Company has taken all action necessary to exempt (i) the
issuance and sale of the Securities, (ii) the issuance of the Warrant Shares
upon due exercise of the Warrants, and (iii) the other transactions contemplated
by the Transaction Documents from the provisions of any shareholder rights plan
or other "poison pill" arrangement, any anti-takeover, business combination or
control share law or statute binding on the Company or to which the Company or
any of its assets and properties may be subject and any provision of the
Company's Certificate of Incorporation or By-laws that is or could reasonably be
expected to become applicable to the Investors as a result of the transactions
contemplated hereby, including without limitation, the issuance of the
Securities and the ownership, disposition or voting of the Securities by the
Investors or the exercise of any right granted to the Investors pursuant to this
Agreement or the other Transaction Documents.
4.6 Delivery of SEC Filings; Business. The Company has made
available to the Investors through the XXXXX system, true and complete copies of
the Company's most recent Annual Report on Form 10-KSB for the fiscal year ended
April 30, 2004 (the "10-KSB"), and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the 10-KSB and prior to the date
hereof (collectively, the "SEC Filings"). The SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period. The Company
and its Subsidiaries are engaged in all material respects only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.
4.7 Use of Proceeds. The net proceeds of the sale of the Shares
and the Warrants hereunder shall be used by the Company for acquisitions,
working capital and general corporate purposes.
4.8 No Material Adverse Change. Since April 30, 2004, except for
the Reverse Split and except as identified and described in the SEC Filings or
as described on Schedule 4.8, there has not been:
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected in
the financial statements included in the Company's Quarterly Report on Form
10-QSB for the quarter ended July 31, 2004, except for changes in the ordinary
course of business which have not and could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
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(iii) any material damage, destruction or loss, whether or
not covered by insurance to any assets or properties of the Company or its
Subsidiaries;
(iv) any waiver, not in the ordinary course of business, by
the Company or any Subsidiary of a material right or of a material debt owed to
it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or a Subsidiary, except
in the ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the Company
and its Subsidiaries taken as a whole (as such business is presently conducted
and as it is proposed to be conducted);
(vi) any change or amendment to the Company's Certificate of
Incorporation or by-laws, or material change to any material contract or
arrangement by which the Company or any Subsidiary is bound or to which any of
their respective assets or properties is subject;
(vii) any material labor difficulties or labor union
organizing activities with respect to employees of the Company or any
Subsidiary;
(viii) any material transaction entered into by the Company
or a Subsidiary other than in the ordinary course of business;
(ix) the loss of the services of any key employee, or
material change in the composition or duties of the senior management of the
Company or any Subsidiary;
(x) the loss or threatened loss of any customer which has
had or could reasonably be expected to have a Material Adverse Effect; or
(xi) any other event or condition of any character that has
had or could reasonably be expected to have a Material Adverse Effect.
4.9 SEC Filings.
(a) At the time of filing thereof, the SEC Filings complied
as to form in all material respects with the requirements of the 1934 Act and
did 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 the
light of the circumstances under which they were made, not misleading.
(b) Each registration statement and any amendment thereto
filed by the Company since January 1, 2001 pursuant to the 1933 Act and the
rules and regulations thereunder, as of the date such statement or amendment
became effective, complied as to form in all material respects with the 1933 Act
and did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
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statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
4.10 No Conflict, Breach, Violation or Default. The execution,
delivery and performance of the Transaction Documents by the Company and the
issuance and sale of the Securities will not conflict with or result in a breach
or violation of any of the terms and provisions of, or constitute a default
under (i) the Company's Certificate of Incorporation or the Company's Bylaws,
both as in effect on the date hereof (true and complete copies of which have
been made available to the Investors through the XXXXX system), or (ii)(a) any
statute, rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
or any of their respective assets or properties, or (b) any agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or a Subsidiary is bound or to which any of their respective assets or
properties is subject.
4.11 Tax Matters. Except as described on Schedule 4.11, the Company
and each Subsidiary has timely prepared and filed all tax returns required to
have been filed by the Company or such Subsidiary with all appropriate
governmental agencies and timely paid all taxes shown thereon or otherwise owed
by it. The charges, accruals and reserves on the books of the Company in respect
of taxes for all fiscal periods are adequate in all material respects, and there
are no material unpaid assessments against the Company or any Subsidiary nor, to
the Company's Knowledge, any basis for the assessment of any additional taxes,
penalties or interest for any fiscal period or audits by any federal, state or
local taxing authority except for any assessment which is not material to the
Company and its Subsidiaries, taken as a whole. All taxes and other assessments
and levies that the Company or any Subsidiary is required to withhold or to
collect for payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due. There are no tax liens or claims
pending or, to the Company's Knowledge, threatened against the Company or any
Subsidiary or any of their respective assets or property. Except as described on
Schedule 4.11, there are no outstanding tax sharing agreements or other such
arrangements between the Company and any Subsidiary or other corporation or
entity.
4.12 Title to Properties. Except as disclosed in the SEC Filings, the
Company and each Subsidiary has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
4.13 Certificates, Authorities and Permits. The Company and each
Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
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now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
4.14 No Labor Disputes. No material labor dispute with the employees
of the Company or any Subsidiary exists or, to the Company's Knowledge, is
imminent.
4.15 Intellectual Property.
(a) All Intellectual Property of the Company and its
Subsidiaries is currently in compliance with all legal requirements (including
timely filings, proofs and payments of fees) and is valid and enforceable. No
Intellectual Property of the Company or its Subsidiaries which is necessary for
the conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted has been or is now
involved in any cancellation, dispute or litigation, and, to the Company's
Knowledge, no such action is threatened. No patent of the Company or its
Subsidiaries has been or is now involved in any interference, reissue,
re-examination or opposition proceeding.
(b) All of the licenses and sublicenses and consent, royalty
or other agreements concerning Intellectual Property which are necessary for the
conduct of the Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound
(other than generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $10,000 per
license) (collectively, "License Agreements") are valid and binding obligations
of the Company or its Subsidiaries that are parties thereto and, to the
Company's Knowledge, the other parties thereto, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.
(c) The Company and its Subsidiaries own or have the valid
right to use all of the Intellectual Property that is necessary for the conduct
of the Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted and for the
ownership, maintenance and operation of the Company's and its Subsidiaries'
properties and assets, free and clear of all liens, encumbrances, adverse claims
or obligations to license all such owned Intellectual Property and Confidential
Information, other than licenses entered into in the ordinary course of the
Company's and its Subsidiaries' businesses. The Company and its Subsidiaries
have a valid and enforceable right to use all third party Intellectual Property
and Confidential Information used or held for use in the respective businesses
of the Company and its Subsidiaries.
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(d) The conduct of the Company's and its Subsidiaries'
businesses as currently conducted does not infringe or otherwise impair or
conflict with (collectively, "Infringe") any Intellectual Property rights of any
third party or any confidentiality obligation owed to a third party, and, to the
Company's Knowledge, the Intellectual Property and Confidential Information of
the Company and its Subsidiaries which are necessary for the conduct of
Company's and each of its Subsidiaries' respective businesses as currently
conducted or as currently proposed to be conducted are not being Infringed by
any third party. There is no litigation or order pending or outstanding or, to
the Company's Knowledge, threatened or imminent, that seeks to limit or
challenge or that concerns the ownership, use, validity or enforceability of any
Intellectual Property or Confidential Information of the Company and its
Subsidiaries and the Company's and its Subsidiaries' use of any Intellectual
Property or Confidential Information owned by a third party, and, to the
Company's Knowledge, there is no valid basis for the same.
(e) The consummation of the transactions contemplated hereby
and by the other Transaction Documents will not result in the alteration, loss,
impairment of or restriction on the Company's or any of its Subsidiaries'
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted.
(f) The Company and its Subsidiaries have taken reasonable
steps to protect the Company's and its Subsidiaries' rights in their
Intellectual Property and Confidential Information. Each employee, consultant
and contractor who has had access to Confidential Information which is necessary
for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company's standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company's or its
Subsidiaries' Confidential Information to any third party.
4.16 Environmental Matters. Neither the Company nor any Subsidiary is
in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws, is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending or, to the Company's Knowledge, threatened
investigation that might lead to such a claim.
4.17 Litigation. Except as described on Schedule 4.17, there are no
pending actions, suits or proceedings against or affecting the Company, its
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Subsidiaries or any of its or their properties; and to the Company's Knowledge,
no such actions, suits or proceedings are threatened or contemplated.
4.18 Financial Statements. The financial statements included in each
SEC Filing present fairly, in all material respects, the consolidated financial
position of the Company as of the dates shown and its consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with United States generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as may be
disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-QSB under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described on Schedule 4.18, neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.
4.19 Insurance Coverage. Except as described on Schedule 4.19, the
Company and each Subsidiary maintains in full force and effect insurance
coverage that is customary for comparably situated companies for the business
being conducted and properties owned or leased by the Company and each
Subsidiary, and the Company reasonably believes such insurance coverage to be
adequate against all liabilities, claims and risks against which it is customary
for comparably situated companies to insure.
4.20 Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company, other than as
described in Schedule 4.20.
4.21 No Directed Selling Efforts or General Solicitation. Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.
4.22 No Integrated Offering. 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 Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
4.23 Private Placement. The offer and sale of the Securities to the
Investors as contemplated hereby is exempt from the registration requirements of
the 1933 Act.
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4.24 Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company's Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
4.25 Transactions with Affiliates. Except as disclosed in the SEC
Filings or as disclosed on Schedule 4.25, none of the officers or directors of
the Company and, to the Company's Knowledge, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than as holders of stock options and/or warrants, and 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
Company's Knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
4.26 Internal Controls. The Company is in material compliance with the
provisions of the Xxxxxxxx-Xxxxx Act of 2002 currently applicable to the
Company. 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 generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including the Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed period report under the
1934 Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the end of the period covered by the most recently filed
periodic report under the 1934 Act (such date, the "Evaluation Date"). The
Company presented in its most recently filed periodic report under the 1934 Act
the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K) or, to the Company's Knowledge, in other factors that
could significantly affect the Company's internal controls. The Company
12
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP and the applicable
requirements of the 0000 Xxx.
4.27 Disclosures. Neither the Company nor any Person acting on its
behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information. The written materials delivered to the Investors in connection with
the transactions contemplated by the Transaction Documents do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading.
5. Representations and Warranties of the Investors. Each of the
Investors hereby severally, and not jointly, represents and warrants to the
Company that:
5.1 Organization and Existence. Such Investor is a validly
existing corporation, limited partnership or limited liability company and has
all requisite corporate, partnership or limited liability company power and
authority to invest in the Securities pursuant to this Agreement.
5.2 Authorization. The execution, delivery and performance
by such Investor of the Transaction Documents to which such Investor is a party
have been duly authorized and will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
5.3 Purchase Entirely for Own Account. The Securities to be
received by such Investor hereunder will be acquired for such Investor's own
account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of the 1933 Act, and such Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the same in violation of the 1933 Act without prejudice, however,
to such Investor's right at all times to sell or otherwise dispose of all or any
part of such Securities in compliance with applicable federal and state
securities laws. Nothing contained herein shall be deemed a representation or
warranty by such Investor to hold the Securities for any period of time. Such
Investor is not a broker-dealer registered with the SEC under the 1934 Act or an
entity engaged in a business that would require it to be so registered.
5.4 Investment Experience. Such Investor acknowledges that
it can bear the economic risk and complete loss of its investment in the
Securities and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
contemplated hereby.
5.5 Disclosure of Information. Such Investor has had an
opportunity to receive all information related to the Company requested by it
and to ask questions of and receive answers from the Company regarding the
Company, its business and the terms and conditions of the offering of the
Securities. Such Investor acknowledges receipt of copies of the SEC Filings.
13
Neither such inquiries nor any other due diligence investigation conducted by
such Investor shall modify, amend or affect such Investor's right to rely on the
Company's representations and warranties contained in this Agreement.
5.6 Restricted Securities. Such Investor understands that
the Securities are characterized as "restricted securities" under the U.S.
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, except as provided
below, certificates evidencing the Securities may bear the following or any
similar legend:
(a) "The securities represented hereby may not be
transferred unless (i) such securities have been registered for sale pursuant to
the Securities Act of 1933, as amended, (ii) such securities may be sold
pursuant to Rule 144(k), or (iii) the Company has received an opinion of counsel
reasonably satisfactory to it that such transfer may lawfully be made without
registration under the Securities Act of 1933 or qualification under applicable
state securities laws."
(b) If required by the authorities of any state in
connection with the issuance of sale of the Securities, the legend required by
such state authority.
5.8 Accredited Investor. Such Investor is an accredited
investor as defined in Rule 501(a) of Regulation D, as amended, under the 0000
Xxx.
5.9 No General Solicitation. Such Investor did not learn of
the investment in the Securities as a result of any public advertising or
general solicitation.
5.10 Brokers and Finders. No Person will have, as a result
of the transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.
5.11 Prohibited Transactions. During the last thirty (30)
days prior to the date hereof, neither such Investor nor any Affiliate of such
Investor which (x) had knowledge of the transactions contemplated hereby, (y)
has or shares discretion relating to such Investor's investments or trading or
information concerning such Investor's investments, including in respect of the
Securities, or (z) is subject to such Investor's review or input concerning such
Affiliate's investments or trading (collectively, "Trading Affiliates") has,
directly or indirectly, effected or agreed to effect any short sale, whether or
not against the box, established any "put equivalent position" (as defined in
Rule 16a-1(h) under the 0000 Xxx) with respect to the Common Stock, granted any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
14
sought to hedge its position in the Securities (each, a "Prohibited
Transaction"). Prior to the earliest to occur of (i) the termination of this
Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline, such
Investor shall not, and shall cause its Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction. Such Investor acknowledges
that the representations, warranties and covenants contained in this Section
5.11 are being made for the benefit of the Investors as well as the Company and
that each of the other Investors shall have an independent right to assert any
claims against such Investor arising out of any breach or violation of the
provisions of this Section 5.11.
6. Conditions to Closing.
6.1 Conditions to the Investors' Obligations. The obligation
of each Investor to purchase the Shares and the Warrants at the Closing is
subject to the fulfillment to such Investor's satisfaction, on or prior to the
Closing Date, of the following conditions, any of which may be waived by such
Investor (as to itself only):
(a) The representations and warranties made by the Company
in Section 4 hereof qualified as to materiality shall be true and correct at all
times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct as of such earlier
date, and, the representations and warranties made by the Company in Section 4
hereof not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
material respects all obligations and conditions herein required to be performed
or observed by it on or prior to the Closing Date.
(b) The Company shall have obtained any and all consents,
permits, approvals, registrations and waivers necessary or appropriate for
consummation of the purchase and sale of the Securities, the consummation of the
Reverse Split and the consummation of the other transactions contemplated by the
Transaction Documents, all of which shall be in full force and effect.
(c) The Company shall have executed and delivered the
Registration Rights Agreement.
(d) The Company shall have received executed Voting
Agreements from the holders of not less than a majority of the outstanding
Common Stock irrevocably consenting to the Reverse Split.
(e) No judgment, writ, order, injunction, award or decree of
or by any court, or judge, justice or magistrate, including any bankruptcy court
or judge, or any order of or by any governmental authority, shall have been
issued, and no action or proceeding shall have been instituted by any
governmental authority, enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents.
15
(f) The Company shall have delivered a Certificate, executed
on behalf of the Company by its Chief Executive Officer or its Chief Financial
Officer, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in subsections (a), (b), (d), (e) and (i) of this Section
6.1.
(g) The Company shall have delivered a Certificate, executed
on behalf of the Company by its Secretary, dated as of the Closing Date,
certifying the resolutions adopted by the Board of Directors of the Company
approving the transactions contemplated by this Agreement and the other
Transaction Documents (including the Reverse Split) and the issuance of the
Securities, certifying the current versions of the Certificate of Incorporation
and Bylaws of the Company and certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on behalf of the
Company.
(h) The Investors shall have received an opinion from
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP, the Company's counsel, dated as of the
Closing Date, in form and substance reasonably acceptable to the Investors and
addressing such legal matters as the Investors may reasonably request.
(i) No stop order or suspension of trading shall have been
imposed by Nasdaq, the SEC or any other governmental or regulatory body with
respect to public trading in the Common Stock.
6.2 Conditions to Obligations of the Company. The Company's
obligation to sell and issue the Shares and the Warrants at the Closing is
subject to the fulfillment to the satisfaction of the Company on or prior to the
Closing Date of the following conditions, any of which may be waived by the
Company:
(a) The representations and warranties made by the Investors
in Section 5 hereof, other than the representations and warranties contained in
Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the "Investment
Representations"), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date. The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date. The Investors
shall have performed in all material respects all obligations and conditions
herein required to be performed or observed by them on or prior to the Closing
Date.
(b) The Investors shall have executed and delivered the
Registration Rights Agreement.
(c) The Investors shall have delivered the Purchase Price to
the Company.
6.3 Termination of Obligations to Effect Closing; Effects.
(a) The obligations of the Company, on the one hand, and the
Investors, on the other hand, to effect the Closing shall terminate as follows:
(i) Upon the mutual written consent of the Company and the
Investors;
(ii) By the Company if any of the conditions set forth in
Section 6.2 shall have become incapable of fulfillment, and shall not have been
waived by the Company;
(iii) By an Investor (with respect to itself only) if any of
the conditions set forth in Section 6.1 shall have become incapable of
fulfillment, and shall not have been waived by the Investor; or
(iv) By either the Company or any Investor (with respect to
itself only) if the Closing has not occurred on or prior to November 19, 2004;
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party's seeking to
terminate its obligation to effect the Closing.
16
(b) In the event of termination by the Company or any
Investor of its obligations to effect the Closing pursuant to this Section 6.3,
written notice thereof shall forthwith be given to the other Investors and the
other Investors shall have the right to terminate their obligations to effect
the Closing upon written notice to the Company and the other Investors. Nothing
in this Section 6.3 shall be deemed to release any party from any liability for
any breach by such party of the terms and provisions of this Agreement or the
other Transaction Documents or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement
or the other Transaction Documents.
7. Covenants and Agreements of the Company.
7.1 Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of providing for the exercise of the
Warrants, such number of shares of Common Stock as shall from time to time equal
the number of shares sufficient to permit the exercise of the Warrants issued
pursuant to this Agreement in accordance with their respective terms.
7.2 Reports. The Company will furnish to such Investors
and/or their assignees such information relating to the Company and its
Subsidiaries as from time to time may reasonably be requested by such Investors
and/or their assignees; provided, however, that the Company shall not disclose
material nonpublic information to the Investors, or to advisors to or
representatives of the Investors, unless prior to disclosure of such information
the Company identifies such information as being material nonpublic information
and provides the Investors, such advisors and representatives with the
opportunity to accept or refuse to accept such material nonpublic information
for review and any Investor wishing to obtain such information enters into an
appropriate confidentiality agreement with the Company with respect thereto.
7.3 No Conflicting Agreements. The Company will not take any
action, enter into any agreement or make any commitment that would conflict or
interfere in any material respect with the Company's obligations to the
Investors under the Transaction Documents.
7.4 Insurance. The Company shall not materially reduce the
insurance coverages described in Section 4.19.
7.5 Compliance with Laws. The Company will comply in all
material respects with all applicable laws, rules, regulations, orders and
decrees of all governmental authorities.
7.6 Listing of Underlying Shares and Related Matters.
Promptly following the Closing, the Company shall take all commercially
reasonable action to cause the Shares and the Warrant Shares to be listed on the
Nasdaq SmallCap Market, including effectuating the Reverse Split. Further, if
the Company applies to have its Common Stock or other securities traded on any
other principal stock exchange or market, it shall include in such application
the Shares and the Warrant Shares and will take such other action as is
necessary to cause such Common Stock to be so listed. The Company will use
commercially reasonable efforts to effect and continue the listing and trading
of its Common Stock on the Nasdaq SmallCap Market and, in accordance, therewith,
will use commercially reasonable efforts to comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
such market or exchange, as applicable.
7.7 Termination of Covenants. The provisions of Sections 7.2
through 7.5 shall terminate and be of no further force and effect on the date on
which the Company's obligations under the Registration Rights Agreement to
register or maintain the effectiveness of any registration covering the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate.
7.8 Removal of Legends. Upon the earlier of (i) registration
for resale pursuant to the Registration Rights Agreement and receipt by the
Company of the Investor's written confirmation that such Securities will not be
disposed of except in compliance with the prospectus delivery requirements of
the 1933 Act or (ii) Rule 144(k) becoming available the Company shall, upon an
Investor's written request, promptly cause certificates evidencing the
Investor's Securities to be replaced with certificates which do not bear such
restrictive legends, and Warrant Shares subsequently issued upon due exercise of
the Warrants shall not bear such restrictive legends provided the provisions of
either clause (i) or clause (ii) above, as applicable, are satisfied with
respect to such Warrant Shares. When the Company is required to cause unlegended
certificates to replace previously issued legended certificates, if unlegended
certificates are not delivered to an Investor within three (3) Business Days of
submission by that Investor of legended certificate(s) to the Company's transfer
agent together with a representation letter in customary form, the Company shall
17
be liable to the Investor for liquidated damages in an amount equal to 1.5% of
the aggregate purchase price of the Securities evidenced by such certificate(s)
for each thirty (30) day period (or portion thereof) beyond such three (3)
Business Day that the unlegended certificates have not been so delivered.
7.9 Information Statement. Promptly following the Closing,
the Company shall take all action necessary to effectuate the Reverse Split. In
connection therewith, the Company will promptly prepare and file with the SEC an
information statement and, after receiving and promptly responding to any
comments of the SEC thereon, shall promptly mail such information statement to
the stockholders of the Company (as so mailed, the "Information Statement").
Each Investor shall promptly furnish in writing to the Company such information
relating to such Investor and its investment in the Company as the Company may
reasonably request for inclusion in the Information Statement. The Company will
comply with Section 14(c) of the 1934 Act and the rules promulgated thereunder
in relation to the Information Statement, and the Information Statement shall
not, on the date that the Information Statement (or any amendment thereof or
supplement thereto) is first mailed to stockholders, or at the time that the
Reverse Split is effectuated, contain any statement which, at the time and in
light of the circumstances under which it was made, is false or misleading with
respect to any material fact, or which omits to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
same subject matter which has become false or misleading. If the Company should
discover at any time prior to the effectuation of the Reverse Split, any event
relating to the Company or any of its Subsidiaries or any of their respective
affiliates, officers or directors that is required to be set forth in a
supplement or amendment to the Information Statement, in addition to the
Company's obligations under the 1934 Act, the Company will promptly inform the
Investors thereof.
7.10 Director Designee.
(a) So long as Special Situations Fund III, L.P. ("SSF")
and/or one or more of its Affiliates collectively are the beneficial owners of
at least 10% of the outstanding Common Stock (determined in accordance with Rule
13d-3 under the 1934 Act), SSF shall have the right to designate one person for
election to the board of directors of the Company (the "SSF Designee"). The
Company shall use its commercially reasonable efforts to cause the SSF Designee
to be elected to the Company's board of directors. SSF shall have the right to
remove or replace any SSF Designee by giving notice to such SSF Designee and the
Company. The Company shall use its commercially reasonable efforts to effect the
removal or replacement of any such SSF Designee.
(b) Subject to any limitations imposed by applicable law,
the SSF Designee shall be entitled to the same perquisites, including stock
options, reimbursement of expenses and other similar rights in connection with
such person's membership on the Board of Directors of the Company, as every
other non-employee member of the Board of Directors of the Company.
18
(c) If requested by SSF, the Company shall procure and
maintain directors' and officers' liability insurance in such amounts and
covering such risks as SSF may reasonably request in connection with the service
of the SSF Designee on the Company's board of directors.
7.11 Prohibited Sales. From and after the Closing Date and
continuing for a period until the earlier to occur of (i) three (3) years
thereafter, or (ii) the date on which the Investors beneficially own in the
aggregate less than 10% of the Company's outstanding Common Stock, the Company
will not, and will cause its Subsidiaries not to, issue any:
(i) shares of preferred stock which are convertible
into shares of Common Stock other than on a
conversion ratio which is fixed, except in the
case of normal adjustments which may include
customary anti-dilution provisions, among other
things, but which shall not include in any case
any adjustment in the conversion ratio of such
shares of Preferred Stock as a result of the
market price of the Common Stock after the date of
closing of the issuance of such shares of
preferred stock;
(ii) convertible debt in the Company which is
convertible into shares of Common Stock of the
Company other than on a conversion ratio which is
fixed, except in the case of normal adjustments
which may include customary anti-dilution
provisions, among other things, but which shall
not include in any case any adjustment in the
conversion ratio of such convertible debt based on
the market price of the Common Stock after the
date of closing of the issuance of such
convertible debt; or
(iii) shares of Common Stock of the Company other than
for a fixed price at the time of issuance of such
shares of Common Stock, except in the case of
normal adjustments which may include customary
anti-dilution provisions, among other things, but
which shall not include in any case any
adjustments to the issued shares of Common Stock
which require the issuance of additional shares of
Common Stock during that time based on the market
price of the Common Stock.
8. Survival and Indemnification.
8.1 Survival. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement.
8.2 Indemnification. The Company agrees to indemnify and
hold harmless each Investor and its Affiliates and their respective directors,
officers, employees and agents from and against any and all losses, claims,
damages, liabilities and expenses (including without limitation reasonable
attorney fees and disbursements and other expenses incurred in connection with
investigating, preparing or defending any action, claim or proceeding, pending
or threatened and the costs of enforcement thereof) (collectively, "Losses") to
which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by or to be performed on
19
the part of the Company under the Transaction Documents, and will reimburse any
such Person for all such amounts as they are incurred by such Person.
8.3 Conduct of Indemnification Proceedings. Promptly after
receipt by any Person (the "Indemnified Person") of notice of any demand, claim
or circumstances which would or might give rise to a claim or the commencement
of any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be
assigned by a party hereto without the prior written consent of the Company or
the Investors, as applicable, provided, however, that an Investor may assign its
rights and delegate its duties hereunder in whole or in part to an Affiliate or
to a third party acquiring some or all of its Securities in a private
transaction without the prior written consent of the Company or the other
Investors, after notice duly given by such Investor to the Company and the other
Investors, provided, that no such assignment or obligation shall affect the
obligations of such Investor hereunder. The provisions of this Agreement shall
inure to the benefit of and be binding upon the respective permitted successors
and assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.2 Counterparts; Faxes. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement may
20
also be executed via facsimile, which shall be deemed an original.
9.3 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one business day after
delivery to such carrier. All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days' advance written notice to the other party:
If to the Company:
WPCS International Incorporated
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxx 00
Xxxxx, Xxxxxxxxxxxx 00000
Attention:
Fax:
With a copy to:
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxx, Esq.
Fax: (000) 000-0000
If to the Investors:
to the addresses set forth on the signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs
and expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of counsel to the Investors, not to exceed $30,000.
Such expenses shall be paid not later than the Closing. The Company shall
reimburse the Investors upon demand for all reasonable out-of-pocket expenses
incurred by the Investors, including without limitation reimbursement of
attorneys' fees and disbursements, in connection with any amendment,
21
modification or waiver of this Agreement or the other Transaction Documents. In
the event that legal proceedings are commenced by any party to this Agreement
against another party to this Agreement in connection with this Agreement or the
other Transaction Documents, the party or parties which do not prevail in such
proceedings shall severally, but not jointly, pay their pro rata share of the
reasonable attorneys' fees and other reasonable out-of-pocket costs and expenses
incurred by the prevailing party in such proceedings.
9.6 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investors.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such Securities, and the Company.
9.7 Publicity. Except as set forth below, no public release
or announcement concerning the transactions contemplated hereby shall be issued
by the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day immediately following the Closing Date, the Company
shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement. No later than the third trading day following
the Closing Date, the Company will file a Current Report on Form 8-K attaching
the press release described in the foregoing sentence as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and
notices in the manner and time required by the SEC. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Investor, or
include the name of any Investor in any filing with the SEC (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the 0000 Xxx)
or any regulatory agency or Nasdaq, without the prior written consent of such
Investor, except to the extent such disclosure is required by law or trading
market regulations, in which case the Company shall provide the Investors with
prior notice of such disclosure.
9.8 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
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9.9 Entire Agreement. This Agreement, including the Exhibits
and the Disclosure Schedules, and the other Transaction Documents constitute the
entire agreement among the parties hereof with respect to the subject matter
hereof and thereof and supersede all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter hereof
and thereof.
9.10 Further Assurances. The parties shall execute and
deliver all such further instruments and documents and take all such other
actions as may reasonably be required to carry out the transactions contemplated
hereby and to evidence the fulfillment of the agreements herein contained.
9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial. This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York without regard to the choice of law
principles thereof. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
9.12 Independent Nature of Investors' Obligations and
Rights. The obligations of each Investor under any Transaction Document are
several and not joint with the obligations of any other Investor, and no
Investor shall be responsible in any way for the performance of the obligations
of any other Investor under any Transaction Document. The decision of each
Investor to purchase Securities pursuant to the Transaction Documents has been
made by such Investor independently of any other Investor. Nothing contained
herein or in any Transaction Document, and no action taken by any Investor
pursuant thereto, shall be deemed to constitute the Investors as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Investor acknowledges that no other Investor has
acted as agent for such Investor in connection with making its investment
hereunder and that no Investor will be acting as agent of such Investor in
connection with monitoring its investment in the Securities or enforcing its
rights under the Transaction Documents. Each Investor 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 Investor to be joined as an
additional party in any proceeding for such purpose. The Company acknowledges
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that each of the Investors has been provided with the same Transaction Documents
for the purpose of closing a transaction with multiple Investors and not because
it was required or requested to do so by any Investor.
[signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement
or caused their duly authorized officers to execute this Agreement as of the
date first above written.
The Company: WPCS INTERNATIONAL INCORPORATED
By:/s/ XXXXXX XXXXXXX
------------------
Name: Xxxxxx Xxxxxxx
Title: Chief Executive Officer
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