SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of May 7, 2007, by and among MDI,
Inc., a Delaware corporation, with headquarters located at 00000 Xxx Xxxxx Xxxxxx, Xxx Xxxxxxx,
Xxxxx 00000 (the “Company”), and the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer” and collectively, the “Buyers”).
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as
amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.
B. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of shares of the Common Stock, $0.01
par value per share, of the Company (the “Common Stock”), set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers (which aggregate number for all Buyers together shall be
2,395,210 shares of Common Stock and shall collectively be referred to herein as the “Common
Shares”), and (ii) Warrants in substantially the form attached hereto as Exhibit A (the
“Warrants”), to acquire up to that number of shares of Common Stock (as exercised, collectively,
the “Warrant Shares”) set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers.
C. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the form attached hereto
as Exhibit B (the “Registration Rights Agreement”), pursuant to which the Company has
agreed to provide certain registration rights with respect to the Registrable Securities (as
defined in the Registration Rights Agreement), under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
D. The Common Shares, the Warrants and the Warrant Shares are collectively referred to herein
as the “Securities”.
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES AND WARRANTS.
(a) Common Shares and Warrants. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and
each Buyer severally, but not jointly, agrees to purchase from the Company on the Closing Date (as
defined below), the number of Common Shares as is set forth opposite such Buyer’s name in column
(3) on the Schedule of Buyers, along with Warrants to acquire that number of Warrant Shares as is
set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers.
(b) Closing. The closing (the “Closing”) of the purchase of the Common Shares and the
Warrants by the Buyers shall occur at the offices of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City Time, on the date hereof.
(c) Purchase Price. (i) The aggregate purchase price for the Common Shares and the
Warrants to be purchased by each Buyer (the “Purchase Price”) shall be the amount set forth
opposite such Buyer’s name in column (5) on the Schedule of Buyers which shall be equal to the
amount of $1.67 per Common Share.
(ii) The Buyers and the Company agree that the Common Shares and the Warrants constitute an
“investment unit” for purposes of Section 1273(c)(2) of the Internal Revenue Code of 1986, as
amended (the “Code”). The Buyers and the Company mutually agree that the allocation of the issue
price of such investment unit between the Common Shares and the Warrants in accordance with Section
1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h) shall be an aggregate amount of
$150,000 allocated to the Warrants and the balance of the Purchase Price allocated to the Common
Shares, and neither the Buyers nor the Company shall take any position inconsistent with such
allocation in any tax return or in any judicial or administrative proceeding in respect of taxes.
(d) Form of Payment. On the Closing Date, (i) each Buyer shall pay its portion of the
Purchase Price to the Company for the Common Shares and the Warrants to be issued and sold to such
Buyer at the Closing, by wire transfer of immediately available funds in accordance with the
Company’s written wire instructions set forth on Schedule 1(d) (less, in the case of Xxxxxx
Bay Fund LP the amount withheld pursuant to Section 4(g)) and (ii) the Company shall (A) instruct
its transfer agent to deliver to each Buyer one or more stock certificates within three (3)
Business Days after the Closing, free and clear of all restrictive and other legends (except as
expressly provided in Section 2(h) hereof), evidencing the number of Common Shares such Buyer is
purchasing as is set forth opposite such Buyer’s name in column (3) of the Schedule of Buyers and
(B) deliver to each Buyer the Warrants (exercisable for the number of shares of Common Stock as is
set forth opposite such Buyer’s name in columns (4) on the Schedule of Buyers), each duly executed
on behalf of the Company and registered in the name of such Buyer or its designee.
2. BUYER’S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) Organization; Authority. Such Buyer is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with the requisite
power and authority to enter into and to consummate the transactions contemplated by the
Transaction Documents (as defined below) to which it is a party and otherwise to carry out its
obligations hereunder and thereunder.
(b) No Public Sale or Distribution. Such Buyer is (i) acquiring the Common Shares and
the Warrants and (ii) upon exercise of the Warrants will acquire the Warrant Shares, in each case,
for its own account and not with a view towards, or for resale in connection with,
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the public sale or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Such Buyer is acquiring the Securities
hereunder in the ordinary course of its business. Such Buyer does not presently have any agreement
or understanding, directly or indirectly, with any Person to distribute any of the Securities.
(c) Accredited Investor Status. Such Buyer is an “accredited investor” as that term
is defined in Rule 501(a) of Regulation D.
(d) Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying in part upon the
truth and accuracy of, and such Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine
the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.
(e) Information. Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors,
if any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein. Such Buyer understands that its
investment in the Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
(f) No Governmental Review. Such Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability of the investment in
the Securities nor have such authorities passed upon or endorsed the merits of the offering of the
Securities.
(g) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not being registered under
the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act, as amended, (or a successor rule thereto) (collectively, “Rule
144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
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Securities under circumstances in which the seller (or the Person (as defined in Section 3(s))
through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the
0000 Xxx) may require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other Person is under any
obligation to register the Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder. Notwithstanding the foregoing, the
Securities may be pledged in connection with a bona fide margin account or other loan or financing
arrangement secured by the Securities and such pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction Document (as defined in
Section 3(b)), including, without limitation, this Section 2(g).
(h) Legends. Such Buyer understands that the certificates or other instruments
representing the Common Shares and the Warrants and, until such time as the resale of the Warrant
Shares have been registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Warrant Shares, except as set forth below, shall
bear any legend as required by the “blue sky” laws of any state and a restrictive legend in
substantially the following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE [EXERCISABLE] HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
The legend set forth above shall be removed and the Company shall issue a certificate without such
legend to the holder of the Securities upon which it is stamped or issue to such holder by
electronic delivery at the applicable balance account at The Depository Trust Company (“DTC”), if,
unless otherwise required by state securities laws, (i) such Securities are registered for resale
under the 1933 Act, (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a generally acceptable form, to the effect
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that such sale, assignment or transfer of the Securities may be made without registration under the
applicable requirements of the 1933 Act, or (iii) such holder provides the Company with reasonable
assurance that the Securities can be sold, assigned or transferred pursuant to Rule 144(k). If the
Company shall fail for any reason or for no reason to issue to the holder of the Securities within
three (3) Trading Days (as defined in the Warrants) (after the occurrence of any of (i) through
(iii) above, a certificate without such legend to the holder or to issue such Securities to such
holder by electronic delivery at the applicable balance account at DTC, and if on or after such
Trading Day the holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the holder of such Securities that the holder
anticipated receiving without legend from the Company (a “Buy-In”), then the Company shall, within
three (3) Business Days after the holder’s request and in the holder’s discretion, either (i) pay
cash to the holder in an amount equal to the holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which
point the Company’s obligation to deliver such unlegended Securities shall terminate, or (ii)
promptly honor its obligation to deliver to the holder such unlegended Securities as provided above
and pay cash to the holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the date
of exercise.
(i) Validity; Enforcement. This Agreement and the Registration Rights Agreement have
been duly and validly authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in
accordance with their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies.
(j) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.
(k) Residency. Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
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(a) Organization and Qualification. Each of the Company and its “Subsidiaries” (which
for purposes of this Agreement means any joint venture or any entity in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar interest) are entities duly
organized and validly existing and in good standing under the laws of the jurisdiction in which
they are formed, and have the requisite power and authorization to own their properties and to
carry on their business as now being conducted. Each of the Company and its Subsidiaries is duly
qualified as a foreign entity to do business and is in good standing in every jurisdiction in which
its ownership of property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in good standing would
not reasonably be expected to have a Material Adverse Effect. As used in this Agreement, “Material
Adverse Effect” means any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the Company, its
Subsidiaries, individually or taken as a whole, or on the transactions contemplated hereby or in
the other Transaction Documents or by the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company has no Subsidiaries
except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the requisite power and
authority to enter into and perform its obligations under this Agreement, the Warrants, the
Registration Rights Agreement, and each of the other agreements entered into by the parties hereto
in connection with the transactions contemplated by this Agreement (collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Common Shares, the issuance of the Warrants and the reservation for issuance and
issuance of the Warrant Shares issuable upon exercise of the Warrants have been duly authorized by
the Company’s board of directors and (other than the filing with the SEC of one or more
Registration Statements in accordance with the requirements of the Registration Rights Agreement
and any other filings as may be required by any state securities agencies), no further filing,
consent, or authorization is required by the Company, its board of directors or its stockholders.
This Agreement and the other Transaction Documents of even date herewith have been duly executed
and delivered by the Company, and constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.
(c) Issuance of Securities. The Common Shares and the Warrants are duly authorized
and, upon issuance in accordance with the terms hereof, shall be validly issued and free from all
taxes, liens and charges with respect to the issue thereof and the Common Shares shall be fully
paid and nonassessable with the holders being entitled to all rights accorded to a holder of Common
Stock. As of the Closing Date, the Company shall have duly authorized and reserved for issuance a
number of shares of Common Stock which equals the number of Warrant Shares. The Company shall, so
long as any of the Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued Capital Stock, solely
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for the purpose of effecting the exercise of the Warrants, 100% of the number of shares of
Common Stock issuable upon exercise of the Warrants. Upon exercise in accordance with the
Warrants, the Warrant Shares will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all
rights accorded to a holder of Common Stock. The offer and issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Common Shares, the Warrants,
and reservation for issuance of the Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation (as defined in Section 3(r)) of the Company or any certificate of
incorporation, certificate of formation, any certificate of designations or other constituent
document of any of its Subsidiaries, any capital stock of the Company or Bylaws (as defined in
Section 3(r)) or (ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of The NASDAQ Capital Market (the “Principal Market”)) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected.
(e) Consents. The Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court, governmental agency or any regulatory
or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transaction Documents, in each case in accordance with
the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been obtained or effected
on or prior to the Closing Date, and the Company and its Subsidiaries are unaware of any facts or
circumstances which might prevent the Company from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence. The Company is not in violation of the
requirements of the Principal Market and has no knowledge of any facts that would reasonably lead
to delisting or suspension of the Common Stock in the foreseeable future.
(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges
and agrees that each Buyer is acting solely in the capacity of arm’s length purchaser with respect
to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer
is (i) an officer or director of the Company, (ii) an “affiliate” of the Company or any of its
Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of the Company, a “beneficial
owner” of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the “1934 Act”)). The Company further acknowledges
that no Buyer is acting as a financial advisor or fiduciary of the Company or any of its
Subsidiaries (or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in
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connection with the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to such Buyer’s purchase of the Securities. The Company further represents to
each Buyer that the Company’s decision to enter into the Transaction Documents has been based
solely on the independent evaluation by the Company and its representatives.
(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of
its Subsidiaries or affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of Regulation D) in
connection with the offer or sale of the Securities. The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than
for persons engaged by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, attorney’s fees and out-of-pocket
expenses) arising in connection with any such claim. The Company has not engaged any placement
agent or other agent in connection with the sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on 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
require registration of any of the Securities under the 1933 Act or cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the securities of the
Company are listed or designated. None of the Company, its Subsidiaries, their affiliates and any
Person acting on their behalf will take any action or steps referred to in the preceding sentence
that would require registration of any of the Securities under the 1933 Act or cause the offering
of the Securities to be integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that the number of
Warrant Shares issuable upon exercise of the Warrants will increase in certain circumstances. The
Company further acknowledges that its obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
(j) Application of Takeover Protections; Rights Agreement. The Company and its board
of directors have taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of Incorporation or any
certificates of designations or the laws of the jurisdiction of its formation or incorporation
which is or could become applicable to any Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company’s issuance of the Securities and any
Buyer’s ownership of the Securities. The Company has not adopted a stockholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change
in control of the Company.
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(k) SEC Documents; Financial Statements. During the two (2) years prior to the date
hereof, the Company has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the “SEC Documents”). The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of each of the SEC Documents not
available on the XXXXX system that have been requested by each Buyer. As of their respective
dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act
and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC, 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. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with respect thereto as
in effect as of the time of filing. Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to the Buyers which is
not included in the SEC Documents, including, without limitation, information referred to in
Section 2(e) of this Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made not misleading.
(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l), since
December 31, 2006 there has been no material adverse change and no material adverse development in
the business, assets, properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company or its Subsidiaries. Except as disclosed in Schedule
3(l), since December 31, 2006, neither the Company nor any of its Subsidiaries has (i) declared
or paid any dividends, (ii) sold any assets, individually or in the aggregate, in excess of
$100,000 outside of the ordinary course of business or (iii) had capital expenditures, individually
or in the aggregate, in excess of $100,000. Neither the Company nor any of its Subsidiaries has
taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so.
The Company and its Subsidiaries, individually and on a consolidated basis, are not as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing
will not, be Insolvent (as defined below). For purposes of this Section 3(l), “Insolvent” means,
with respect to any Person (as defined in Section 3(s)) (i) the present fair saleable value of such
Person’s assets is less than the amount required to pay such Person’s total Indebtedness (as
defined in Section 3(s)), (ii) such Person is unable to pay its debts and liabilities,
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subordinated, contingent or otherwise, as such debts and liabilities become absolute and
matured, (iii) such Person intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature or (iv) such Person has unreasonably small capital
with which to conduct the business in which it is engaged as such business is now conducted and is
proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances. No event,
liability, development or circumstance has occurred or exists, or is contemplated to occur with
respect to the Company, its Subsidiaries or their respective business, properties, prospects,
operations or financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to
an issuance and sale by the Company of its Common Stock and which has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor its Subsidiaries
is in violation of any term of or in default under its Certificate of Incorporation, any
certificate of designation, preferences or rights of any other outstanding series of preferred
stock of the Company or Bylaws or their organizational charter or certificate of incorporation or
bylaws, respectively. Neither the Company nor any of its Subsidiaries is in violation of any
judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company
or its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business
in violation of any of the foregoing, except in all cases for possible violations which would not,
individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Without limiting the generality of the foregoing, the Company is not in violation of any of the
rules, regulations or requirements of the Principal Market and has no knowledge of any facts or
circumstances that would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. During the two (2) years prior to the date hereof, (i)
the Common Stock has been designated for quotation on the Principal Market, (ii) trading in the
Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has
received no communication, written or oral, from the SEC or the Principal Market regarding the
suspension or delisting of the Common Stock from the Principal Market, except for notifications
from the Principal Market that the Company has failed to meet the minimum bid price requirements,
which notifications have been disclosed by the Company through its issuances of press releases and
through its filing of Form 8-Ks with the SEC. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory authorities necessary
to conduct their respective businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a Material Adverse
Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate, authorization or permit.
(o) Foreign Corrupt Practices. Neither the Company nor any of its Subsidiaries nor
any director, officer, agent, employee or other Person acting on behalf of the Company or any of
its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
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corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic government
official or employee.
(p) Xxxxxxxx-Xxxxx Act. The Company is in compliance with any and all applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and any
and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of
the date hereof.
(q) Transactions With Affiliates. Except as set forth on Schedule 3(q), none
of the officers, directors or employees of the Company or any of its Subsidiaries is presently a
party to any transaction with the Company or any of its Subsidiaries (other than for ordinary
course services as employees, officers or 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 such officer, director
or employee or, to the knowledge of the Company or any of its Subsidiaries, any corporation,
partnership, trust or other entity in which any such officer, director, or employee has a
substantial interest or is an officer, director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (i) 100,000,000 shares of Common Stock, of which as of the date hereof,
29,628,592 are issued and outstanding and 12,578,549 shares are reserved for issuance pursuant to
securities (other than the Warrants) exercisable or exchangeable for, or convertible into, shares
of Common Stock (10,000,000 shares reserved for stock options and 2,578,549 shares reserved for
warrants) and (ii) (x) 2,000,000 shares of preferred stock, 195,351 of which, as of the date
hereof, are issued and outstanding and designated as Series A LIBOR+2% cumulative preferred stock.
All of such outstanding shares have been, or upon issuance will be, validly issued and are fully
paid and nonassessable. Except as set forth on Schedule 3(r): (i) none of the Company’s
capital stock is subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) except for the stock options and warrants
described above, there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights convertible into,
or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness (as defined in Section 3(s)) of the Company or any
of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv)
there are no financing statements securing obligations in any material amounts, either singly or in
the aggregate, filed in connection with the Company or any of its Subsidiaries; (v) there are no
agreements or arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except pursuant to the
Registration Rights Agreement); (vi) there are no outstanding securities or
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instruments of the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or
any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Securities; (viii) the Company
does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar
plan or agreement; and (ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents, other than
those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses
and which, individually or in the aggregate, do not or would not have a Material Adverse Effect.
The Company has furnished to the Buyers true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”), and the terms of all securities convertible into, or exercisable or exchangeable for,
shares of Common Stock and the material rights of the holders thereof in respect thereto.
(s) Indebtedness and Other Contracts. Except as set forth on Schedule 3(s) or
in the Company’s Form 10-KSB for the quarter ended December 31, 2006, neither the Company nor any
of its Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be expected to result in a
Material Adverse Effect, (iii) is in violation of any term of or in default under any contract,
agreement or instrument relating to any Indebtedness, except where such violations and defaults
would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the performance of
which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse
Effect. Schedule 3(s) and the Company’s Form 10-KSB for the quarter ended December 31,
2006, provides a detailed description of the material terms of any such outstanding Indebtedness.
For purposes of this Agreement: (x) “Indebtedness” of any Person means, without duplication (A)
all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation, “capital leases” in
accordance with generally accepted accounting principles) (other than trade payables entered into
in the ordinary course of business), (C) all reimbursement or payment obligations with respect to
letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all indebtedness created or
arising under any conditional sale or other title retention agreement, or incurred as financing, in
either case with respect to any property or assets acquired with the proceeds of such indebtedness
(even though the rights and remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property), (F) all monetary obligations under
any leasing or similar arrangement which, in connection with generally accepted accounting
principles, consistently applied for the periods covered thereby, is classified as a capital lease,
(G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any
mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or
assets (including accounts and contract rights) owned by any Person, even
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though the Person which owns such assets or property has not assumed or become liable for the
payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other obligation of another Person
if the primary purpose or intent of the Person incurring such liability, or the primary effect
thereof, is to provide assurance to the obligee of such liability that such liability will be paid
or discharged, or that any agreements relating thereto will be complied with, or that the holders
of such liability will be protected (in whole or in part) against loss with respect thereto; and
(z) “Person” means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.
(t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the
Company’s Subsidiaries or any of the Company’s or its Subsidiaries’ officers or directors, whether
of a civil or criminal nature or otherwise, which has or is reasonably expected to have a Material
Adverse Effect.
(u) Insurance. The Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such 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 at a cost that would not have a Material Adverse Effect.
(v) Employee Relations. (i) Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or employs any member of a union. The Company and its
Subsidiaries believe that their relations with their employees are good. No executive officer of
the Company or any of its Subsidiaries (as defined in Rule 501(f) of the 0000 Xxx) has notified the
Company or any such Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer’s employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries is, or is now expected
to be, in violation of any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other contract or agreement or
any restrictive covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters.
(ii) The Company and its Subsidiaries are in compliance with all federal, state, local and
foreign laws and regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours,
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except where failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(w) Title. The Company and its Subsidiaries have good and marketable title in fee
simple to all real property and good and marketable title to all personal property owned by them
which is material to the business of the Company and its Subsidiaries, in each case free and clear
of all liens, encumbrances and defects except such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, original works of authorship, trade secrets and other intellectual
property rights and all applications related thereto (“Intellectual Property Rights”) necessary to
conduct their respective businesses as now conducted. None of the Company’s or its Subsidiaries’
Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire,
terminate or be abandoned, within three years from the date of this Agreement. The Company does
not have any knowledge of any infringement by the Company or any of its Subsidiaries of
Intellectual Property Rights of others. There is no claim, action or proceeding being made or
brought, or to the knowledge of the Company, being threatened, against the Company or any of its
Subsidiaries regarding its Intellectual Property Rights. The Company is unaware of any facts or
circumstances which might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property Rights.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with
any and all Environmental Laws (as hereinafter defined), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply
could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution
or protection of human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into
the environment, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or
approved thereunder.
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(z) Subsidiary Rights. The Company or one of its Subsidiaries has the unrestricted
right to vote, and (subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the Company or such
Subsidiary.
(aa) Tax Status. The Company and each of its Subsidiaries (i) has made or filed all
foreign, federal and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(bb) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to maintain asset and
liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in
accordance with management’s general or specific authorization and (iv) the recorded accountability
for assets and liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14 under the 0000 Xxx) that
are effective in ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within
the time periods specified in the rules and forms of the SEC, including, without limitation,
controls and procedures designed in to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is accumulated and communicated
to the Company’s management, including its principal executive officer or officers and its
principal financial officer or officers, as appropriate, to allow timely decisions regarding
required disclosure. During the twelve months prior to the date hereof neither the Company nor any
of its Subsidiaries have received any notice or correspondence from any accountant relating to any
potential material weakness in any part of the system of internal accounting controls of the
Company or any of its Subsidiaries.
(cc) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.
(dd) Investment Company Status. The Company is not, and upon consummation of the sale
of the Securities will not be, an “investment company,” a company controlled by an “investment
company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of 1940, as amended.
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(ee) Acknowledgement Regarding Buyers’ Trading Activity. Except as contemplated in
Section 4(o), it is understood and acknowledged by the Company (i) that none of the Buyers have
been asked by the Company or its Subsidiaries to agree, nor has any Buyer agreed with the Company
or its Subsidiaries, to desist from purchasing or selling, long and/or short, securities of the
Company, or “derivative” securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that any Buyer, and counterparties in “derivative”
transactions to which any such Buyer is a party, directly or indirectly, presently may have a
“short” position in the Common Stock, and (iii) that each Buyer shall not be deemed to have any
affiliation with or control over any arm’s length counterparty in any “derivative” transaction.
Except as contemplated in Section 4(o), the Company further understands and acknowledges that one
or more Buyers may engage in hedging and/or trading activities at various times during the period
that the Securities are outstanding, including, without limitation, during the periods that the
value of the Common Shares and the Warrant Shares deliverable with respect to Securities are being
determined and (b) such hedging and/or trading activities, if any, can reduce the value of the
existing stockholders’ equity interest in the Company both at and after the time the hedging and/or
trading activities are being conducted. Except as contemplated in Section 4(o), the Company
acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach
of this Agreement, the Warrants or any of the documents executed in connection herewith.
(ff) Manipulation of Price. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other securities of the Company.
(gg) U.S. Real Property Holding Corporation. The Company is not, has never been, and
so long as any Securities remain outstanding, shall not become, a U.S. real property holding
corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and
the Company shall so certify upon Buyer’s request.
(hh) Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other
than income or similar taxes) which are required to be paid in connection with the sale and
transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully
paid or provided for by the Company, and all laws imposing such taxes will be or will have been
complied with.
(ii) Disclosure. The Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic information. The
Company understands and confirms that each of the Buyers will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided to the Buyers
regarding the Company and its Subsidiaries, their business and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company 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
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therein, in the light of the circumstances under which they were made, not misleading. Each
press release issued by the Company or its Subsidiaries during the twelve (12) months preceding the
date of this Agreement did not at the time of release 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 the light of the circumstances under which they are made, not
misleading. No event or circumstance has occurred or information exists with respect to the
Company or any of its Subsidiaries or either of their respective businesses, properties, prospects,
operations or financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so publicly announced or
disclosed.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts to timely satisfy each of the
covenants and conditions to be satisfied by it as provided in Section 4 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify
the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from
such qualification), and shall provide evidence of any such action so taken to the Buyers on or
prior to the Closing Date. The Company shall make all filings and reports relating to the offer
and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of
the United States following the Closing Date.
(c) Reporting Status. Until the date on which the Buyers shall have sold all the
Common Shares and Warrant Shares, and none of the Common Shares or Warrants is outstanding (the
“Reporting Period”), the Company shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would
no longer require or otherwise permit such termination.
(d) Use of Proceeds The Company will use the proceeds from the sale of the Securities
for general corporate purposes, and not for (A) the repayment of any outstanding Indebtedness of
the Company or any of its Subsidiaries or (B) redemption or repurchase of any of its or its
Subsidiaries’ equity securities.
(e) Financial Information. The Company agrees to send the following to each Investor
(as defined in the Registration Rights Agreement) during the Reporting Period (i) unless the
following are filed with the SEC through XXXXX and are available to the public through the XXXXX
system, within four (4) Business Day after the filing thereof with the SEC, a copy of its Annual
Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any interim reports or any
consolidated balance sheets, income statements, stockholders’ equity statements and/or cash flow
statements for any period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the
- 17 -
1933 Act and (ii) copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making available or giving
thereof to the stockholders. As used herein “Business Day” means any day other than a Saturday,
Sunday or other day on which commercial banks in the City of New York are authorized or required by
law to remain closed.
(f) Listing. The Company shall promptly secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national securities exchange
and automated quotation system, if any, upon which the Common Stock is then listed (subject to
official notice of issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company shall maintain the
Common Stocks’ authorization for quotation on the Principal Market. Neither the Company nor any of
its Subsidiaries shall take any action which would be reasonably expected to result in the
delisting or suspension of the Common Stock on the Principal Market. The Company shall pay all
fees and expenses in connection with satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall reimburse Xxxxxx Bay Fund LP or its designee(s) for all
reasonable costs and expenses incurred in connection with the transactions contemplated by the
Transaction Documents (including all reasonable legal fees and disbursements in connection
therewith, documentation and implementation of the transactions contemplated by the Transaction
Documents and due diligence expenses in connection therewith), in an amount not to exceed $40,000,
which amount may be withheld by such Buyer from its Purchase Price at the Closing or paid by the
Company upon termination of this Agreement. The Company shall be responsible for the payment of
any placement agent’s fees or commissions, financial advisory fees, or broker’s commissions (other
than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, reasonable attorney’s fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment.
(h) Pledge of Securities. The Company acknowledges and agrees that the Securities may
be pledged by an Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document. The Company hereby agrees to execute and
deliver such documentation as a pledgee of the Securities may reasonably request in connection with
a pledge of the Securities to such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York City time, on May 7, 2007, the Company shall issue a press release and file a
Current Report on Form 8-K describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this Agreement), the form of
Warrant, and the form of the Registration Rights Agreement) as exhibits
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to such filing (including all attachments, the “8-K Filing”). From and after the filing of
the 8-K Filing with the SEC, no Buyer shall be in possession of any material, nonpublic information
received from the Company, any of its Subsidiaries or any of its respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. The Company shall not, and shall
cause each of its Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide any Buyer with any material, nonpublic information regarding the
Company or any of its Subsidiaries from and after the filing of the 8-K Filing with the SEC without
the express written consent of such Buyer or as may be required under the terms of the Transaction
Documents. If a Buyer has, or believes it has, received any such material, nonpublic information
regarding the Company or any of its Subsidiaries, it may provide the Company with written notice
thereof. The Company shall, within two (2) Business Days of receipt of such notice, make public
disclosure of such material, nonpublic information. In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure, in the form of a
press release, public advertisement or otherwise, of such material, nonpublic information without
the prior approval by the Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or
agents for any such disclosure. Subject to the foregoing, neither the Company, its Subsidiaries
nor any Buyer shall issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or other public
disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and regulations (provided
that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release). Without the prior written
consent of any applicable Buyer, neither the Company nor any of its Subsidiaries or affiliates
shall disclose the name of such Buyer in any filing, announcement, release or otherwise, unless
such disclosure is required by law, regulation or the Principal Market.
(j) Variable Securities; Dilutive Issuances. For so long as any Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights, warrants or options to
subscribe for or purchase Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Common Stock at a conversion, exchange or exercise price which varies or may
vary after issuance with the market price of the Common Stock, including by way of one or more
reset(s) to any fixed price unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Exercise Price (as defined in the Warrants) with respect to
the Common Stock into which any Warrant is exercisable.
(k) Corporate Existence. So long as any Buyer beneficially owns any Securities, the
Company shall maintain its corporate existence and shall not sell all or substantially all of the
Company’s assets and shall not be party to any Fundamental Transaction (as defined in the Warrants)
unless the Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Warrants.
- 19 -
(l) Reservation of Shares. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, no less than 100% of the maximum
number of shares of Common Stock issuable upon exercise of the Warrants (without taking into
account any limitations on the exercise of the Warrants set forth in the Warrants).
(m) Conduct of Business. The business of the Company and its Subsidiaries shall not
be conducted in violation of any law, ordinance or regulation of any governmental entity, except
where such violations would not result, either individually or in the aggregate, in a Material
Adverse Effect.
(n) Additional Issuances of Securities.
(i) For purposes of this Section 4(n), the following definitions shall apply.
(1) “Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for shares of Common Stock.
(2) “Options” means any rights, warrants or options to subscribe for or purchase shares
of Common Stock or Convertible Securities.
(3) “Common Stock Equivalents” means, collectively, Options and Convertible Securities.
(4) ”Excluded Securities” means any securities issued by the Company: (i) in connection
with any employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company’s securities may be issued to any employee, officer,
consultant, or director for services provided to the Company; (ii) pursuant to a bona fide
underwritten public offering at a price per share of Common Stock not less than the exercise
price in effect for the Warrants at the time of such offering with a nationally recognized
underwriter which generates gross proceeds to the Company of at least $20,000,000 (other
than an “at-the-market offering” as defined in Rule 415(a)(4) under the 1933 Act and “equity
lines”); (iii) issued upon exercise of Options or Convertible Securities which are
outstanding on the date immediately preceding the Closing Date, provided that such issuance
of Common Stock upon exercise of such Options or Convertible Securities is made pursuant to
the terms of such Options or Convertible Securities in effect on the date immediately
preceding the Closing Date and such Options or Convertible Securities are not amended after
the date immediately preceding the Closing Date; or (iv) issued in connection with any share
split, share dividend, recapitalization or similar transaction.
(ii) From the date hereof until the date that is thirty (30) Trading Days following the
Closing Date (the “Trigger Date”), the Company will not, directly or indirectly, offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option
to purchase or other disposition of) any of its or its Subsidiaries’ equity or equity equivalent
securities, including without limitation any debt, preferred stock or other instrument or security
that is, at any time during its life and under any circumstances, convertible
- 20 -
into or exchangeable or exercisable for shares of Common Stock or Common Stock Equivalents at
any time prior to the Trigger Date (any such offer, sale, grant, disposition or announcement being
referred to as a “Subsequent Placement”); provided, however, that the foregoing
shall not apply to, and the term Subsequent Placement shall not include any, Excluded Securities.
(o) Short Sales. For the period commencing on the date hereof and ending on the date
that is ninety (90) calendar days after the 8-K Filing, other than as provided at the end of this
sentence, each Buyer severally and not jointly with the other Buyers, covenants that neither it nor
any affiliate acting on its behalf or pursuant to any understanding with it will execute any “short
sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (“Short Sales”) on any
Trading Day to the extent that such Short Sales by any such individual Buyer account for more than
25% of the daily trading volume of the Common Stock on such Trading Day as reported by Bloomberg
Financial Markets (the “Daily Trading Volume”), provided the foregoing prohibition shall not apply
on any Trading Day on which the Daily Trading Volume exceeds the average of the Daily Trading
Volume reported by Bloomberg Financial Markets for the six (6) month period ending on the
immediately preceding Trading Day. Notwithstanding the foregoing, in the case of a Buyer that is a
multi-managed investment vehicle whereby separate portfolio managers manage separate portions of
such Buyer’s assets and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Buyer’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.
(p) Delivery of Common Shares. The Company shall cause its transfer agent to deliver
all applicable Common Shares to the Buyers no later than the third (3rd) Business Day after the
Closing.
(q) Additional Registration Statements. Until the date that the Registration
Statement is filed by the Company pursuant to the terms of the Registration Rights Agreement, the
Company shall not file a registration statement under the 1933 Act relating to securities that are
not the Securities.
5. REGISTER.
The Company shall maintain at its principal executive offices (or such other office or agency
of the Company as it may designate by notice to each holder of Securities), a register for the
Common Shares and the Warrants in which the Company shall record the name and address of the Person
in whose name the Common Shares and the Warrants have been issued (including the name and address
of each transferee), the number of Common Shares held by such Person and the number of Warrant
Shares issuable upon exercise of the Warrants held by such Person. The Company shall keep the
register open and available at all times during business hours for inspection of any Buyer or its
legal representatives.
6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Common Shares and the related
Warrants to each Buyer at the Closing is subject to the satisfaction, at or before
- 21 -
the Closing Date, of each of the following conditions, provided that these conditions are for
the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
(a) Such Buyer shall have executed each of the Transaction Documents to which it is a party
and delivered the same to the Company.
(b) Such Buyer and each other Buyer shall have delivered to the Company the Purchase Price
(less any amounts withheld pursuant to Section 4(g)) for the Common Shares and the related Warrants
being purchased by such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(c) The representations and warranties of such Buyer shall be true and correct in all respects
as of the date when made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which shall be true and correct as
of such specified date), and such Buyer shall have performed, satisfied and complied in all
respects with the covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Common Shares and the related Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company with prior written
notice thereof:
(a) The Company shall have duly executed and delivered to such Buyer (A) each of the
Transaction Documents and (B) given instructions to its transfer agent to issue the Common Shares
(in such numbers as is set forth across from such Buyer’s name in column (3) of the Schedule of
Buyers) and (C) the related Warrants (in such numbers as is set forth across from such Buyer’s name
in column (4) of the Schedule of Buyers) being purchased by such Buyer at the Closing pursuant to
this Agreement.
(b) Such Buyer shall have received the opinion of Xxxxxxx X. Xxxxxx, the Company’s counsel,
dated as of the Closing Date, in substantially the form of Exhibit C attached hereto.
(c) The Company shall have delivered to such Buyer a certificate, executed by the Secretary of
the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section
3(b) as adopted by the Company’s board of directors in a form reasonably acceptable to such Buyer,
(ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in
the form attached hereto as Exhibit D.
(d) The representations and warranties of the Company shall be true and correct in all
respects as of the date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date, which shall be true and
correct as of such specified date) and the Company shall have performed, satisfied and
- 22 -
complied in all respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit
E.
(e) The Company shall have delivered to such Buyer a letter from the Company’s transfer agent
certifying the number of shares of Common Stock outstanding as of a date within five days of the
Closing Date.
(f) The Common Stock (I) shall be designated for quotation or listed on the Principal Market
and (II) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have
been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal Market
or (B) by falling below the minimum maintenance requirements of the Principal Market.
(g) The Company shall have obtained all governmental, regulatory or third party consents and
approvals, if any, necessary for the sale of the Securities.
(h) The Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.
8. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State 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, 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 brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
- 23 -
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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;
provided that a facsimile signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an original, not a
facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the Company, their
Affiliates and Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the Common Shares issued and issuable hereunder,
and any amendment to this Agreement made in conformity with the provisions of this Section 9(e)
shall be binding on all Buyers and holders of Securities, as applicable. No provision hereof may
be waived other than by an instrument in writing signed by the party against whom enforcement is
sought. No such amendment shall be effective to the extent that it applies to less than all of the
holders of the Common Shares then outstanding. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to the Transaction
Documents, holders of Common Shares or holders of the Warrants, as the case may be. The Company
has not, directly or indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except as set forth in the
Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set
forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to
provide any financing to the Company or otherwise.
(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with an
- 24 -
overnight courier service, in each case properly addressed to the party to receive the same.
The addresses and facsimile numbers for such communications shall be:
If to the Company:
MDI, Inc.
00000 Xxx Xxxxx Xxxxxx,
Xxx Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
00000 Xxx Xxxxx Xxxxxx,
Xxx Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set forth on the Schedule of Buyers,
with a copy (for informational purposes only) to:
Xxxxxxx Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
or to such other address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party five (5) days prior
to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of the
Common Shares or the Warrants. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at least a majority of
the aggregate number of Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Warrants). A Buyer may assign some or all of
its rights hereunder in connection with transfer of any of its Securities without the consent of
the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to
such assigned rights.
- 25 -
(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
(i) Survival. The representations and warranties of the Company and the Buyers
contained in Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and 9
shall survive the Closing and the delivery and exercise of Securities, as applicable. Each Buyer
shall be responsible only for its own representations, warranties, agreements and covenants
hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or indirect investors
and any of the foregoing Persons’ agents or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this Agreement) (collectively,
the “Indemnitees”), as incurred, from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents, (b) any breach of any covenant, agreement or obligation of
the Company contained in the Transaction Documents or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party (including for these purposes a derivative
action brought on behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the
Securities, (iii) any disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents, but with respect to clauses (i) — (iv) above, only to
the extent such Indemnified Liabilities from any third party cause of action, suit or claim are
found by a court of competent jurisdiction to have been caused, directly or indirectly, by any
action or inaction by the Company, including without limitation, by the Company’s negligence, gross
negligence, fraud or willful misconduct. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the
- 26 -
mechanics and procedures with respect to the rights and obligations under this Section 8(k)
shall be the same as those set forth in Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
(m) Remedies. Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the event that it fails
to perform, observe, or discharge any or all of its obligations under the Transaction Documents,
any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond or other security.
(n) Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents, whenever
any Buyer 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 Buyer 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.
(o) Payment Set Aside. To the extent that the Company makes a payment or payments to
the Buyers hereunder or pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their rights hereunder or 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, foreign, 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.
(p) Independent Nature of Buyers’ Obligations and Rights. The obligations of each
Buyer under any Transaction Document are several and not joint with the obligations of any other
Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Buyers are in any way acting in concert or as a group
- 27 -
with respect to such obligations or the transactions contemplated by the Transaction Documents
and the Company acknowledges that the Buyers are not acting in concert or as a group, and the
Company will not assert any such claim, with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Buyer confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and enforce its
rights, including, without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an
additional party in any proceeding for such purpose.
[Signature Page Follows]
- 28 -
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| COMPANY: MDI, INC. |
||||
| By: | ||||
| Name: | X. Xxxxxxx Xxxxxx | |||
| Title: | CEO & President | |||
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| BUYERS: XXXXXX BAY FUND LP |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| BUYERS: XXXXXX BAY OVERSEAS FUND LTD |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| BUYERS: VERTICAL VENTURES INVESTMENTS, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
SCHEDULE OF BUYERS
| (1) | (2) | (3) | (4) | (5) | (6) | |||||||||||||||
| Aggregate | ||||||||||||||||||||
| Number | ||||||||||||||||||||
| of | Aggregate | Legal Representative’s | ||||||||||||||||||
| Common | Number of | Address and Facsimile | ||||||||||||||||||
| Buyer | Address and Facsimile Number | Shares | Warrants | Purchase Price | Number | |||||||||||||||
Xxxxxx Bay Fund, LP |
000 Xxxxxxxx, 00xx Xxxxx | Xxxxxxx Xxxx & Xxxxx XXX | ||||||||||||||||||
| Xxx Xxxx, Xxx Xxxx 00000 | 514,970 | 257,485 | $ | 860,000 | 000 Xxxxx Xxxxxx | |||||||||||||||
| Attention: Xxxx Xxxx | Xxx Xxxx, Xxx Xxxx 00000 | |||||||||||||||||||
| May Xxx | Attention: Xxxxxxx Xxxxx, Esq. | |||||||||||||||||||
| Facsimile: 000-000-0000 | Facsimile: (000) 000-0000 | |||||||||||||||||||
| Telephone: 000-000-00000 | Telephone: (000) 000-0000 | |||||||||||||||||||
| Residence: United States | ||||||||||||||||||||
| E-mail: xxxxx@xxxxxxxxxxxxxxxx.xxx |
||||||||||||||||||||
xxxx@xxxxxxxxxxxxxxxx.xxx |
||||||||||||||||||||
Xxxxxx Bay Overseas |
000 Xxxxxxxx, 00xx Xxxxx | 682,635 | 341,317 | $ | 1,140,000 | Xxxxxxx Xxxx & Xxxxx LLP | ||||||||||||||
Fund, Ltd. |
Xxx Xxxx, Xxx Xxxx 00000 | 000 Xxxxx Xxxxxx | ||||||||||||||||||
| Attention: Xxxx Xxxx | Xxx Xxxx, Xxx Xxxx 00000 | |||||||||||||||||||
| May Xxx | Attention: Xxxxxxx Xxxxx, Esq. | |||||||||||||||||||
| Facsimile: 000-000-0000 | Facsimile: (000) 000-0000 | |||||||||||||||||||
| Telephone: 000-000-00000 | Telephone: (000) 000-0000 | |||||||||||||||||||
| E-mail: xxxxx@xxxxxxxxxxxxxxxx.xxx |
||||||||||||||||||||
xxxx@xxxxxxxxxxxxxxxx.xxx |
||||||||||||||||||||
| 000 Xxxxxxxxx Xxxxxx, | Xxxxxxxx & Associates | |||||||||||||||||||
Vertical Ventures |
26th Floor | 1,197,605 | 598,802 | $ | 2,000,000 | 00 Xxxx Xxxxx, 0xx Xxxxx | ||||||||||||||
Investments, LLC |
Xxx Xxxx, XX 00000 | Xxx Xxxx, XX 00000 | ||||||||||||||||||
| Attn: Xxxx Xxxxxxxx, Esq. | ||||||||||||||||||||
| Facsimile: 212.504.0863 | ||||||||||||||||||||
| Telephone: 000.000.0000 | ||||||||||||||||||||
EXHIBITS
Exhibit A Form of Warrant
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Company Counsel Opinion
Exhibit D Form of Secretary’s Certificate
Exhibit E Form of Officer’s Certificate
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Company Counsel Opinion
Exhibit D Form of Secretary’s Certificate
Exhibit E Form of Officer’s Certificate
SCHEDULES
Schedule 1(d) — Form of Payment
Schedule 3(a) — List of Subsidiaries
Schedule 3(l) — Absence of Certain Changes
Schedule 3(q) — Transactions with Affiliates
Schedule 3(r) — Equity Capitalization
Schedule 3(s) — Indebtedness and Other Contracts
Schedule 3(a) — List of Subsidiaries
Schedule 3(l) — Absence of Certain Changes
Schedule 3(q) — Transactions with Affiliates
Schedule 3(r) — Equity Capitalization
Schedule 3(s) — Indebtedness and Other Contracts
Schedule 3 (a)
Subsidiaries
| Name of Company | Jurisdiction | Status | ||
United States |
||||
ABM Data Systems, Inc.
|
Texas | Active | ||
Monitor Dynamics, Inc.
|
California Active | |||
Global Systems Solutions, Inc.
|
Delaware | Active | ||
Foreign |
||||
MDI S.A.
|
Switzerland | Inactive | ||
MDI France, S.A.
|
France | Inactive |
Schedule 3 (r)
Equity capitalization
Common Stock $0.01 par value – NASDAQ — “MDII”
| 100,000,000 | Authorized (Increased from 50,000,000 to 100,000,000 by act of shareholders on June 22, 2006) |
| 10,000,000 | Reserved & Registered Under Stock Option Plans (5,000,000 additional shares were approved by shareholders on June 22, 2006 for issuance under the 2002 Stock Incentive Plan. These shares were registered pursuant to a Form S-8 filed with the SEC on July 8, 2006). |
Fully Diluted
| 29,698,592 | Total Outstanding |
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| 8,292,028 | Options Currently Issued + Purchased |
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| 1,450,000 | Warrants Granted – 8 Investors August 2005 @ $3.14/share |
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| 121,800 | Warrants Granted – Shemano Group August 2005 @ $3.14/share |
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| 400,000 | Warrants Granted – 4 remaining Investors May 23, 2006 @ $1.02/share |
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| 82,804 | Warrants Granted – Shemano Group May 23, 2006 @ $1.02/share |
Preferred Stock: $5.00 par value
| 2,000,000 | Authorized – Blank Check in distinctive serial designations other than “Series A” * Board may determine rights & preferences of future issues |
| 195,351 | “Series A” — Issued to Victoria & Eagle Strategic Fund, Ltd. |
| • | Originally issued as 12% Cumulative Convertible | ||
| • | Statement of Rights and Designations filed with the Secretary of State of the State of Colorado in February 1991 | ||
| • | Conversion rate is 2.083 (converts to 406,916 shares of Common Stock) | ||
| • | Conversion price of $2.40 (which is equivalent to conversion rate of 2.083) | ||
| • | Liquidation Value of $5.00 | ||
| • | Redemption by the company, part or all, at $5.00 on resolution of the Board | ||
| • | Super-Voting Rights of 16.667 votes per share of Preferred Stock held (3,255,915 votes) | ||
| • | Purchase Rights relative to Common Stock to prevent dilution in the event of conversion to Common Stock | ||
| • | By Letter Agreement V&ESF agreed to accept a reduced dividend equal to LIBOR plus 200 bp/year. |
Schedule 3 (s)
Indebtedness and Other Contracts
The Company sells receivables pursuant to the terms of an agreement dated December 28, 2006
with Crestmark Financial Corporation. Financing statements have been filed with respect to this
arrangement
The Company is obligated to register the sale of the following securities:
| Date Issued/Granted | Description | |
January 31, 2007 |
5,306,122 Common shares1 | |
March 15, 2007 |
128,205 Common shares | |
March 15, 2007 |
64,103 Warrant shares | |
March 21, 2007 |
128,205 Common shares | |
March 21, 2007 |
64,103 Warrant shares | |
March 22, 2007 |
197,293 Warrant shares | |
March 22, 2007 |
50,000 Warrant shares | |
April 12, 2007 |
40,000 Common shares | |
April 12, 2007 |
60,000 Common shares | |
April 12, 2007 |
200,000 Common shares | |
April 12, 2007 |
100,000 Common shares | |
April 12, 2007 |
80,000 Warrant shares | |
April 13, 2007 |
5,000 Warrant shares | |
April 13, 2007 |
25,000 Common shares | |
April 13, 2007 |
200,000 Common shares | |
April 13, 2007 |
40,000 Warrant shares | |
April 16, 2007 |
100,000 Common shares | |
April 16, 2007 |
20,000 Warrant shares |
| 1 | The Company is not required to register these shares before July 24, 2007. |
