SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of May
21, 2008 between ABC Funding, Inc., a Nevada corporation (the "Company"), and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings set forth in this Section 1.1:
"Acquiring Person" shall have the meaning ascribed to such term in
Section 4.7.
"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 405 under the Securities Act.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day except Saturday, Sunday, any day which
is a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required
by law or other governmental action to close.
"Charter Amendment" shall have the meaning ascribed to such term in
Section 4.12 hereof.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
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"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 Statement" means the Closing Statement in the form Annex A
attached hereto.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter be 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 Xxxxxxxx & Xxxxxx LLP, with offices located at 000
Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000.
"Conversion Price" shall have the meaning ascribed to such term in the
Debentures.
"Debentures" means the Senior Secured Convertible Debentures due, subject
to the terms therein, 4 months from their date of issuance, issued by the
Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.
"Disclosure Schedules" shall have the meaning ascribed to such term in
Section 3.1.
"Discussion Time" shall have the meaning ascribed to such term in Section
3.2(f).
"Effective Date" means the date that the initial Registration Statement
filed by the Company pursuant to the Registration Rights Agreement is first
declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term in Section
3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to current and/or future employees, officers or directors of the Company
pursuant to any employment agreement (provided that future such issuances do not
exceed 8 million shares (provided that any Common Stock Equivalents shall have
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an exercise price of not less than the prevailing market price at the time of
issuance) in the 12 month period from the date hereof, subject to adjustment for
reverse and forward stock splits and the like, and in such amounts as is
reasonable and customary in the industry thereafter), or stock or option plan
duly adopted for such purpose, by a majority of the non-employee members of the
Board of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into shares of Common
Stock issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities. Notwithstanding anything herein to the contrary, in no
event shall the Voyager Equity Raise or any other financing undertaken in
connection with the Voyager Acquisition be deemed an Exempt Issuance.
"FWS" means Xxxxxxx Xxxxxxxxx & Xxxxx 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).
"Indebtedness" shall have the meaning ascribed to such term in Section
3.1(aa).
"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.
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"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.
"Pledge Agreement" means the pledge and security agreement, in the form of
Exhibit G attached hereto, among the Company, the Purchasers and Xxxx Xxxxxx.
"Principal Amount" shall mean the principal amount of the Debentures which
shall be 1.125% of the Subscription Amount paid for such Debenture.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.
"Public Information Failure" shall have the meaning ascribed to such term
in Section 4.3(b).
"Public Information Failure Payments" shall have the meaning ascribed to
such term in Section 4.3(b).
"Purchaser Party" shall have the meaning ascribed to such term in Section
4.10.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated the date hereof, among the Company and the Purchasers, in the form of
Exhibit B attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by each Purchaser as provided for in the
Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"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 in full of all Warrants or conversion in full of all Debentures,
ignoring any conversion or exercise limits set forth therein, and assuming that
the Conversion Price is at all times on and after the date of determination 75%
of the then Conversion Price on the Trading Day immediately prior to the date of
determination.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
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"Securities" means the Debentures, the Warrants, the Warrant Shares and
the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Security Agreement" means the Security Agreement, dated the date hereof,
among the Company and the Purchasers, in the form of Exhibit E attached hereto.
"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 and the Subsidiaries as provided in the Security Agreement, including
all UCC-1 filing receipts.
"Short Sales" means 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.
"Subsidiary" means any subsidiary of the Company as set forth on Schedule
3.1(a) and shall, where applicable, also include any direct or indirect
subsidiary of the Company formed or acquired after the date hereof.
"Subsidiary Guarantee" means the Subsidiary Guarantee, dated the date
hereof, by each Subsidiary in favor of the Purchasers, in the form of Exhibit F
attached hereto.
"Trading Day" means a day on which the principal Trading Market is open
for trading.
"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
American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market,
the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin
Board.
"Transaction Documents" means this Agreement, the Debentures, the
Warrants, the Security Agreement, the Registration Rights Agreement, the
Subsidiary Guarantee, the Pledge Agreement, all exhibits and schedules thereto
and hereto and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"Transfer Agent" means The American Stock Transfer & Trust Company, the
current transfer agent of the Company, with a mailing address of 0000 00xx
Xxxxxx, Xxxxxxxx, Xxx Xxxx 00000 and a facsimile number of (000) 000-0000, and
any successor transfer agent of the Company.
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"Underlying Shares" means the shares of Common Stock issued and issuable
upon conversion or redemption of the Debentures and upon exercise of the
Warrants.
"Variable Rate Transaction" shall have the meaning ascribed to such term
in Section 4.13.
"Voyager Acquisition" shall mean the purchase by the Company of all of the
capital stock of Voyager Gas Corporation, as contemplated by that certain Stock
Purchase and Sale Agreement of even date herewith between the Company and
Voyager Holdings LP.
"Voyager Equity Raise" shall mean a private placement of equity securities
by the Company, in an amount between $10 million to $15 million, proceeds of
which shall be used to fund a portion of the Voyager Acquisition and for working
capital.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time)); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
listed or quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the "Pink Sheets" published by Pink Sheets,
LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Purchasers of a majority in interest of the Securities then outstanding and
reasonably acceptable to the Company, the fees and expenses of which shall be
paid by the Company.
"Warrants" means, collectively, the Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of
exercise equal to 3 years, in the form of Exhibit C attached hereto.
"Warrant Shares" means the shares of Common Stock issuable upon exercise
of the Warrants.
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ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase, up to an
aggregate of $800,000 in principal amount of the Debentures. Each Purchaser
shall deliver to the Company or to such account(s) as may be designated by the
Company via wire transfer, immediately available funds equal to its Subscription
Amount and the Company shall deliver to each Purchaser its respective Debenture
and a Warrant, as determined pursuant to Section 2.2(a), and the Company and
each Purchaser shall deliver the other items set forth in Section 2.2
deliverable at the Closing. Upon satisfaction of the covenants and conditions
set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS
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 and the Registration Rights Agreement duly
executed by the Company;
(ii) a legal opinion of Company Counsel, substantially in the
form of Exhibit D attached hereto;
(iii) a Debenture with a principal amount equal to such
Purchaser's Principal 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 such
Purchaser's pro-rata share of 2.4 million, with an exercise price
equal to $0.33, subject to adjustment therein;
(v) the Security Agreement, duly executed by the Company and
each Subsidiary, along with all of the Security Documents, including
the Subsidiary Guarantee, duly executed by the parties thereto; and
(vi) the Pledge Agreement duly executed by the Company and the
other parties thereto, together with all deliverable thereunder.
(b) On or prior to the Closing Date, each Purchaser shall deliver or
cause to be delivered to the Company the following:
(i) this Agreement and the Registration Rights Agreement duly
executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account as specified in writing by the Company;
(iii) the Security Agreement duly executed by such Purchaser;
and
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(iv) the Pledge Agreement duly executed by such Purchaser.
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 on the Closing Date
of the representations and warranties of the Purchasers contained
herein;
(ii) all obligations, covenants and agreements of each
Purchaser required to be performed at or prior to the Closing Date
shall have been performed;
(iii) the Company shall issue to Libra Finance S.A. a Warrant
to purchase up to 600,000 shares of Common Stock, subject to
adjustment therein and otherwise identical to the Warrants issued to
the Purchasers; and
(iv) the delivery by each Purchaser 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 when made and 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;
(iii) the Company shall have signed concurrently with this
Agreement, a definitive Stock Purchase and Sale Agreement for the
Voyager Acquisition;
(iv) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(v) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(vi) except as set forth on Schedule 2.3(b), all outstanding
indebtedness of the Company outstanding prior to the date hereof
shall have converted into preferred stock of the Company with rights
and preferences as set forth in the Certificates of Designation
filed with the Secretary of State of Nevada on May 15, 2008; and
(vii) 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
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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 L.P. 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 Securities at the
Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in
the Disclosure Schedules, which Disclosure Schedules shall be deemed a part
hereof and shall qualify any representation or otherwise made herein to the
extent of the disclosure contained in the corresponding section of the
Disclosure Schedules, the Company hereby makes the following representations and
warranties 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 of 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, all other references to the Subsidiaries or any of them in
the Transaction Documents shall be disregarded.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization, 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 nor 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
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any Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company, the Board of
Directors or the Company's stockholders in connection therewith other than
in connection with the Required Approvals. Each Transaction Document to
which it is a party 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 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.
(d) No Conflicts. The execution, delivery and performance by the
Company of the Transaction Documents, the issuance and sale of the
Securities and the consummation by it to which it is a party 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, (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would
become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected or (iii) subject to the Required
Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary
is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound
or affected; except in the case of each of clauses (ii) and (iii), such as
could not have or reasonably be expected to result in a Material Adverse
Effect.
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(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) the filings required pursuant to
Section 4.6 of this Agreement, (ii) the filing with the Commission of the
Registration Statement, (iii) the notice and/or application(s) to each
applicable Trading Market for the issuance and sale of the Securities and
the listing of the Underlying Shares for trading thereon in the time and
manner required thereby, (iv) the filing of Form D with the Commission and
such filings as are required to be made under applicable state securities
laws and (v) the filing of an Information Statement with the Commission
with respect to the Charter Amendment and the subsequent filing of the
Charter Amendment in the State of Nevada (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 other
than restrictions on transfer provided for in the Transaction Documents.
Upon the effectiveness of the Charter Amendment, the Company will have
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 capitalization of the Company is as set
forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the
number of shares of Common Stock owned beneficially, and of record, by
Affiliates of the Company as of the date hereof and immediately following
the Closing Date. The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other than
pursuant to the exercise of employee stock options under the Company's
stock option plans, the issuance of shares of Common Stock to employees
pursuant to the Company's employee stock purchase plans and pursuant to
the conversion and/or exercise of Common Stock Equivalents outstanding as
of the date of the most recently filed periodic report under the Exchange
Act. 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, scrip 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
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the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors or
others is required for the issuance and sale of the Securities. There are
no stockholders agreements, voting agreements or other similar agreements
with respect to the Company's capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the
Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by the Company under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the "SEC
Reports") on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of
any such extension. As of their respective dates, the SEC Reports complied
in all material respects with the requirements of the Securities Act and
the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company has never been an issuer subject to
Rule 144(i) under the Securities Act. The financial statements of the
Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present 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
included within the SEC Reports, except as specifically disclosed in a
subsequent SEC Report filed prior to the date hereof: (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
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be reflected in the Company's financial statements pursuant to GAAP or
disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (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 or as set forth on Schedule 3.1(i), 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
or deemed made that has not been publicly disclosed at least 1 Trading Day
prior to the date that this representation is made.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or
any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) could, if
there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(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. 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 or such Subsidiary, and neither the Company nor 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 in favor of any third party, 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
13
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.
(l) Compliance. Except as set forth on Schedule 3.1(l), 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 or
reasonably be expected to result in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be
expected to result in a Material Adverse Effect ("Material Permits"), and
neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good
and marketable title in all personal property owned by them 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 with which the Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights
and similar rights as described in the SEC Reports as necessary or
material for use in connection with their respective businesses and which
the failure to so have could have a Material Adverse Effect (collectively,
the "Intellectual Property Rights"). Neither the Company nor any
14
Subsidiary has received a notice (written or otherwise) that any of the
Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of
the Company, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the
Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and
value of all of their intellectual properties, except where failure to do
so could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
(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 insurance coverage at least equal to
the aggregate Subscription Amount. 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
in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) 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. The
Company has 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 information
15
required to be disclosed by the Company in the reports it files or submits
under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms. The
Company's certifying officers have evaluated the effectiveness of the
Company's disclosure controls and procedures as of the end of the period
covered by the Company's most recently filed periodic report under the
Exchange Act (such date, the "Evaluation Date"). The Company presented in
its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in
the Company's internal control over financial reporting (as such term is
defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting.
(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 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 of 1940, as amended.
(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) Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
16
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(x) Application of Takeover Protections. The Company and the 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.
(y) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the Company confirms that neither it nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with
any information that it believes constitutes or might constitute material,
non-public information. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All disclosure furnished by or
on behalf of the Company to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, is true and correct and does 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
press releases disseminated by the Company during the twelve months
preceding the date of this Agreement taken as a whole do not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when
made, not misleading. 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.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of (i) the Securities Act
which would require the registration of any such securities under the
Securities Act, or (ii) any applicable shareholder approval provisions of
any Trading Market on which any of the securities of the Company are
listed or designated.
17
(aa) Indebtedness. Schedule 3.1(aa) sets forth as of the date hereof
all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the purposes of this Agreement, "Indebtedness" means (x) 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),
(y) 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
(z) 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.
(bb) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid
or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company
has offered the Securities for sale only to the Purchasers and certain
other "accredited investors" within the meaning of Rule 501 under the
Securities Act.
(dd) 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.
(ee) Accountants. The Company's accounting firm is set forth on
Schedule 3.1(ee) of the Disclosure Schedules. To the knowledge and belief
of the Company, such accounting firm: (i) is a registered public
accounting firm as required by the Exchange Act and (ii) shall express its
opinion with respect to the financial statements to be included in the
Company's Annual Report for the year ending June 30, 2008.
(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
18
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) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and the Company is current
with respect to any fees owed to its accountants and lawyers which could
affect the Company's ability to perform any of its obligations under any
of the Transaction Documents.
(hh) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated
thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the
Purchasers' purchase of the Securities. The Company further represents to
each Purchaser that the Company's decision to enter into this Agreement
and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
(ii) Acknowledgment Regarding Purchasers' Trading Activity.
Notwithstanding anything in this Agreement or elsewhere herein to the
contrary (except for Sections 3.2(f) and 4.16 hereof), it is understood
and acknowledged by the Company that: (i) none of the Purchasers has been
asked to agree by the Company, 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) past or future open
market or other transactions by any Purchaser, specifically including,
without limitation, Short Sales or "derivative" transactions, before or
after the closing of this or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded
securities, (iii) any Purchaser, and counter-parties in "derivative"
transactions to which any such Purchaser is a party, directly or
indirectly, may presently have a "short" position in the Common Stock and
(iv) 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 (y) 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 (z) 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.
19
(jj) Regulation M Compliance. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of
the securities of the Company, or (iii) paid or agreed to pay to any
Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and
(iii), compensation paid to the Company's placement agent in connection
with the placement of the Securities.
(kk) Stock Option Plans. There is no stock option plan currently in
effect.
3.2 Representations and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser, hereby 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 and delivery of the
Transaction Documents and performance by such Purchaser of the
transactions contemplated by the Transaction Documents have been duly
authorized by all necessary corporate or similar action on the part of
such Purchaser. Each Transaction Document to which it is a party has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except: (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Own Account. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation
of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of
the Securities Act or any applicable state securities law and has no
direct or indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell
the Securities pursuant to a registration statement or otherwise in
compliance with applicable federal and state securities laws) in violation
20
of the Securities Act or any applicable state securities law. Such
Purchaser is acquiring the Securities hereunder in the ordinary course of
its business.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and as of 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 consummating the transactions 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 purchases
or sales, including Short Sales, of the securities of the Company during
the period commencing from the time that such Purchaser first received a
term sheet (written or oral) from the Company or any other Person
representing the Company 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).
21
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, the Registration Rights 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, of a legend on any of the Securities in the following
form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] HAS [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. THIS
SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS
SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be bound
by the provisions of this Agreement and the Registration Rights Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the Registration Rights
22
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 (as defined in the Registration Rights Agreement)
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, (ii) following any sale of such Underlying Shares pursuant to Rule
144, (iii) if such Underlying Shares are eligible for sale under Rule 144,
without the requirement for the Company to be in compliance with the
current public information required under Rule 144 as to such Underlying
Shares and without volume or manner-of-sale restrictions 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 Transfer Agent promptly after the Effective Date if
required by the Transfer Agent to effect the removal of the legend
hereunder. If all or any portion of a Debenture is converted or Warrant is
exercised 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, without the requirement for the Company to be
in compliance with the current public information required under Rule 144
as to such Underlying Shares and without volume or manner-of-sale
restrictions 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 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 the Transfer Agent that enlarge the restrictions on
transfer set forth in this Section 4. Certificates for Underlying Shares
subject to legend removal hereunder shall be transmitted by the Transfer
Agent to the Purchaser by crediting the account of the Purchaser's prime
broker with the Depository Trust Company System as directed by such
Purchaser.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to the
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 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
23
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 such 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, and that if Securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of distribution
set forth therein, and acknowledges 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 upon this
understanding.
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; Public Information.
(a) If the Common Stock is not registered under Section 12(b) or
12(g) of the Exchange Act on the date hereof, the Company agrees to cause
the Common Stock to be registered under Section 12(g) of the Exchange Act
on or before the 60th calendar day following the date hereof. Until the
time that no Purchaser owns Securities, the Company covenants maintain the
registration of the Common Stock under Section 12(b) or 12(g) of the
Exchange Act and to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to the Exchange Act.
As long as any Purchaser owns Securities, if the Company is not required
to file reports pursuant to the Exchange Act, it will prepare and furnish
to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take
such further action as any holder of Securities may reasonably request, to
the extent required from time to time to enable such Person to sell such
Securities without registration under the Securities Act within the
requirements of the exemption provided by Rule 144.
(b) At any time during the period commencing from the six (6) month
anniversary of the date hereof and ending at such time that all of the
Securities may be sold without the requirement for the Company to be in
compliance with Rule 144(c)(1) and otherwise without restriction or
limitation pursuant to Rule 144, if the Company shall fail for any reason
to satisfy the current public information requirement under Rule 144(c) (a
"Public Information Failure") then, in addition to such Purchaser's other
24
available remedies, the Company shall pay to a Purchaser, in cash, as
partial liquidated damages and not as a penalty, by reason of any such
delay in or reduction of its ability to sell the Securities, an amount in
cash equal to two percent (2.0%) of the aggregate Subscription Amount of
such Purchaser's Securities on the day of a Public Information Failure and
on every thirtieth (30th) day (pro rated for periods totaling less than
thirty days) thereafter until the earlier of (a) the date such Public
Information Failure is cured and (b) such time that such public
information is no longer required for the Purchasers to transfer the
Underlying Shares pursuant to Rule 144. The payments to which a Purchaser
shall be entitled pursuant to this Section 4.3(b) are referred to herein
as "Public Information Failure Payments." Public Information Failure
Payments shall be paid on the earlier of (i) the last day of the calendar
month during which such Public Information Failure Payments are incurred
and (ii) the third (3rd) Business Day after the event or failure giving
rise to the Public Information Failure Payments is cured. In the event the
Company fails to make Public Information Failure Payments in a timely
manner, such Public Information Failure Payments shall bear interest at
the rate of 1.5% per month (prorated for partial months) until paid in
full. Nothing herein shall limit such Purchaser's right to pursue actual
damages for the Public Information Failure, 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.
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 to the Purchasers 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.
4.5 Conversion and Exercise Procedures. Each of 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, 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.
(New York City time) on the second Trading Day immediately following the date
hereof, issue a Current Report on Form 8-K, disclosing the material terms of the
transactions contemplated hereby and including the Transaction Documents as
exhibits thereto. The Company and each Purchaser shall consult with each other
in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release nor otherwise make any such public statement without the
prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with respect to any
press release of the Company, which consent shall not unreasonably be withheld
25
or delayed, 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:
(a) as required by federal securities law in connection with (i) any
registration statement contemplated by the Registration Rights Agreement and
(ii) the filing of final Transaction Documents (including signature pages
thereto) with the Commission and (b) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under this clause
(b).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover 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.
4.8 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, 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 covenant 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 the down payment of the purchase price for the
Voyager Acquisition, and shall not use such proceeds for: (a) 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), (b) the
redemption of any Common Stock or Common Stock Equivalents or (c) the settlement
of any outstanding litigation.
4.10 Indemnification of Purchasers. Subject to the provisions of this
Section 4.10, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
26
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
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (y) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (z) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents.
4.11 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may then 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 shall use commercially
reasonable efforts to amend the Company's certificate or articles of
incorporation to increase the number of authorized but unissued shares of
Common Stock to at least the Required Minimum at such time, as soon as
possible and in any event not later than the 75th day after such date.
(c) The Company shall, if applicable: (i) in the time and manner
required by the principal Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a number
of shares of Common Stock at least equal to the Required Minimum on the
27
date of such application, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing on such Trading Market
as soon as possible thereafter, (iii) provide to the Purchasers evidence
of such listing and (iv) maintain the listing of such Common Stock on any
date at least equal to the Required Minimum on such date on such Trading
Market or another Trading Market.
4.12 Charter Amendment. The Company has obtained the required written
consent of its Board of Directors and a majority of its shareholders for the
purpose of filing an amendment the Company's Articles of Incorporation to, among
other things, increase the number of shares of Common Stock that the Company is
authorized to issue from 24,000,000 to 149,000,000 (the "Charter Amendment"). As
soon as practicable following the date hereof, the Company shall use its
reasonable best efforts to cause a definitive Information Statement on Schedule
14C to be effective with the Commission and, on the twenty-first (21st) day
following the mailing of such definitive Information Statement to the Company's
shareholders, file the Charter Amendment with the Secretary of State of the
State of Nevada and cause the Charter Amendment to be effective.
4.13 Subsequent Equity Sales. From the date hereof until such time as no
Purchaser holds any of the Securities, the Company shall be prohibited from
effecting or entering into an agreement to effect any Subsequent Financing
involving a Variable Rate Transaction. "Variable Rate Transaction" means 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 price, exercise price 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.
4.14 Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents. Further, the Company shall not make
any payment of principal of the Debentures in amounts which are disproportionate
to the respective principal amounts outstanding on the Debentures at any
applicable time. For clarification purposes, this provision constitutes a
separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the
Purchasers as a class and shall not in any way be construed as the Purchasers
acting in concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.
4.15 Short Sales and Confidentiality After The Date Hereof. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it, nor any Affiliate acting on its behalf or pursuant to any
28
understanding with it, will execute any Short Sales during the period commencing
with the Discussion Time and ending at such time 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 the existence and terms of this transaction and
the information included in the Transaction Documents and the Disclosure
Schedules. Notwithstanding the foregoing, no Purchaser makes any representation,
warranty or covenant hereby that it will not engage in Short Sales in the
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.
4.16 Form D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.17 Capital Changes. Until such time as there are no Debentures
outstanding, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in principal amount outstanding of the Debentures.
4.18 Most Favored Nation Provision. From the date hereof until such time
that the Debentures are no longer outstanding, if the Company or any Subsidiary
proposes to issue any Common Stock or Common Stock Equivalents (such an
issuance, a "Subsequent Financing"), each Purchaser may elect, in its sole
discretion, to exchange all or some of the Debentures then held by such
Purchaser for any securities issued in a Subsequent Financing on a $1.00 for
$1.00 (the Purchaser shall not be required to surrender any of the Warrants in
such exchange and shall receive any additionally consideration, such as warrants
or stock, given to the investors in the Subsequent Financing as if the Purchaser
had paid cash consideration) basis based on the outstanding principal amount of
such Debentures, along with any liquidated damages and other amounts owing
thereon, and the effective price at which such securities are to be sold in such
Subsequent Financing; provided, however, that this Section 4.18 shall not apply
with respect to (i) an Exempt Issuance or (ii) an underwritten public offering
of Common Stock. At least 10 Trading Days prior to the closing of any 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
29
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
and the Person or Persons through or with whom such Subsequent Financing is
proposed to be effected and shall include a term sheet or similar document
relating thereto as an attachment. Any Purchaser desiring to exercise its rights
pursuant to this Section in respect of such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 10th Trading Day after all of the Purchasers have received the Pre-Notice
that the Purchaser desires to exercise its rights pursuant to this Section and
the amount of Debentures as to which it desires to exercise such rights.
Notwithstanding anything herein to the contrary, any financing undertake in
connection with the Voyager Acquisition, including the Voyager Equity Raise,
shall be deemed to be a Subsequent Financing and the Company will ensure that
the Purchaser has ample time and opportunity to exercise its rights under this
Section 4.18 in connection with any such raise.
4.19 Additional Warrants. If the warrant coverage in any Subsequent
Financing is greater than 100% (i.e., for each share of Common Stock purchased
(or share of Common Stock underlying convertible preferred stock or convertible
debt purchased) warrants exercisable for more than one share of Common Stock are
to be issued), the Company shall issue each Purchaser additional warrants (the
"Additional Warrants"), in the form of the Warrants, exercisable for a number of
shares of Common Stock equal to a number based on the amount that would be
issuable to such Purchaser if it had participated in such Subsequent Financing
in an amount equal to its Subscription Amount hereunder less the number of
Warrant Shares (as adjusted for forward and reverse stock splits, stock
dividends and the like that occur after the date hereof) underlying the Warrants
initially issued to such Purchaser hereunder. Such Additional Warrants shall be
issued to the Purchaser within one Business Day of the Closing of such
Subsequent Financing. Upon the issuance of any Additional Warrants, each
Transaction Document shall be deemed to be amended so that the term "Warrants"
includes such Additional Warrants, and the term "Warrant Shares" includes the
shares of Common Stock underlying such Additional Warrants.
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
23, 2008; provided, however, that such termination will not 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
Alpha Capital ("Alpha") the non-accountable sum of $20,000 for its legal fees
and expenses, none of which has been paid prior to the Closing. The Company
shall deliver to each Purchaser, prior to the Closing, a completed and executed
copy of the Closing Statement attached hereto as Annex A. Except as expressly
30
set forth in the Transaction Documents to the contrary, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchasers holding at least 67% in
interest of the Securities then outstanding or, in the case of a waiver, by the
party against whom enforcement of any such waived provision is sought. No waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right.
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.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers."
31
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 4.10.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys' fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
5.10 Survival. The representations and warranties shall survive the
Closing and the delivery of the Securities for the applicable statute of
limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or ".pdf" signature page were an original
thereof.
5.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
32
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of a conversion of a Debenture or
exercise of a Warrant, the Purchaser shall be required to return any shares of
Common Stock subject to any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
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.
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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 deemed 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
deemed interest or default interest, or both of them, when aggregated with any
other sums in the nature of such 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, deemed
interest in excess of the Maximum Rate is paid by the Company to any Purchaser
with respect to indebtedness evidenced by the Transaction Documents, such excess
shall be applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FWS. FWS
does not represent all of the Purchasers but only Alpha. 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.
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5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.
5.21 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.
5.22 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.
(Signature Pages Follow)
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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.
ABC FUNDING, INC. Address for Notice:
By: Fax:
-----------------------------------------
Name: Xxxxxx Xxxxxxxxxxx
Title: Chief Executive Officer
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGES TO AFDG SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: _____________________________________________________________
Signature of Authorized Signatory of Purchaser: ________________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Authorized Signatory: _________________________________________
Facsimile Number of Authorized Signatory: ______________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription Amount: _____________
Principal Amount (1.125% of the Subscription Amount): ___________________
Warrant Shares: _________________
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
37
