Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
June 25, 2008 between CDEX Inc. a Nevada corporation (the "Company"), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Notes (as defined herein), and (b) the
following terms have the meanings set forth in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 405 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Board of Directors" means the board of directors of the
Company.
"Business Day" means any day except any Saturday, any Sunday,
any day which is a federal legal holiday in the United States or any
day on which banking institutions in the State of New York are
authorized or required by law or other governmental action to close.
"Closing" shall have the meaning ascribed to such term in
Section 2.1.
"Closing Date" shall have the meaning ascribed to such term in
Section 2.1.
"Closing Date" means the Trading Day when all of the
Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) the
Purchasers' obligations to pay the Subscription Amount and (ii) the
Company's obligations to deliver the Securities, have been satisfied or
waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.005 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"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 such other 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.
"Conversion Price" shall have the meaning ascribed to such
term in the Notes.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1.
"Evaluation Date" shall have the meaning ascribed to such term
in Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted for such purpose by a
majority of the non-employee members of the Board of Directors or a
majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since
the date of this Agreement to directly or indirectly effectively
increase the number of such securities or to decrease the exercise,
exchange or conversion price of such securities, and (c) shares of
Common Stock or options to any Consultant (as defined below) of the
Company, provided that any such issuances or sales to Consultants must
be reasonable consideration for the services rendered by such
Consultants and shall not exceed more than 300,000 shares of Common
Stock (as appropriately and equitably adjusted for any stock splits,
stock combinations and similar events) to all Consultants in the
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aggregate under any circumstances. "Consultant" shall mean any natural
person providing bona fide services to the Company which are not in
connection with the offer or sale of securities in a capital raising
transaction and which do not directly or indirectly promote or maintain
a market for the Company's securities.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Initial Closing" shall have the meaning ascribed to such term
in Section 2.1.
"Indebtedness" of any Person means (a) all indebtedness for
borrowed money, (b) all obligations issued, undertaken or assumed as
the deferred purchase price of property or services, except for trade
payables entered into in the ordinary course of business, (c) all
obligations in respect of letters of credit, surety bonds, bankers
acceptances or similar instruments (including without limitation all
reimbursement or payment obligations with respect thereto), (d) all
obligations evidenced by Note, bonds, debentures or similar
instruments, including without limitation 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 if 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 is
classified as a "capital lease" under GAAP, and (g) all Contingent
Obligations in respect of Indebtedness of others of the kinds referred
to in clauses (a) through (f) above.
"Intellectual Property Rights" shall have the meaning ascribed
to such term in Section 3.1(o).
"knowledge" means, when used in reference to the Company, the
knowledge of the directors, corporate officers (including without
limitation any individuals designated as chief financial officer, chief
operating officer and similar designations of the Company) and the
general counsel of the Company, assuming such persons shall have made
inquiry that is customary and reasonably appropriate under the
circumstances to which reference is made.
"Legend Removal Date" shall have the meaning ascribed to such
term in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Lock Up Agreement" means each agreement executed and
delivered by certain beneficial owners of Common Stock, dated the date
hereof and in the form of Exhibit C attached hereto, irrevocably
agreeing not to sell or otherwise dispose of any shares of Common Stock
except as set forth in such Lock Up Agreement.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
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"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
"MFN Transaction" shall have the meaning ascribed to such term
in Section 4.12(b).
"Net Short Sale" by any Purchaser shall mean a sale of Common
Stock by such Purchaser that is marked as a short sale and that is made
at a time when there is no equivalent offsetting long position in
Common Stock held by such Purchaser, where an "equivalent offsetting
long position" includes all shares of Common Stock held by such
Purchaser and all underlying shares of Common Stock which are issuable
upon conversion, exercise or exchange of convertible securities,
warrants, options or other rights to subscribe for or to purchase or
exchange for shares of Common Stock.
"Notes" means the 12% Senior Convertible Notes due, subject to
the terms therein, two (2) years from their date of issuance, issued by
the Company to the Purchasers hereunder, in the form of Exhibit A
attached hereto.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Principal Amount" shall mean, as to each Purchaser, the
amounts set forth below such Purchaser's signature block on the
signature pages hereto and next to the heading "Principal Amount," in
United States Dollars, which shall equal such Purchaser's Subscription
Amount multiplied by 1.08695652.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an informal investigation or
partial proceeding, such as a deposition), by a governmental authority
or agency or self-regulatory organization.
"Purchaser Party" shall have the meaning ascribed to such term
in Section 4.10.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Required Minimum" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and Notes (including Underlying Shares issuable as payment
of interest), ignoring any conversion or exercise limits set forth
therein, and assuming that the Conversion Price is at all times on and
after the date of determination 85% of the then Conversion Price on the
Trading Day immediately prior to the date of determination.
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"Regulation 13D-G" means Regulation 13D-G promulgated by the
Commission pursuant to the Exchange Act, as such Regulation and the
Rules thereunder may be amended from time to time, or any similar rule
or regulation hereafter adopted by the Commission having substantially
the same effect as such Regulation.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Notes, the Warrants and the Underlying
Shares.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shell Company" means an entity that has (a) no or nominal
operations, and (b) either (i) no or nominal assets, (ii) assets
consisting solely of cash and cash equivalents, or (iii) assets
consisting of any amount of cash and cash equivalents and nominal other
assets.
"Short Sales" means all "short sales" as defined in Rule 200
of Regulation SHO under the Exchange Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of Common
Stock).
"Subscription Amount" means, as to each Purchaser, the
aggregate amount to be paid for Notes and Warrants purchased hereunder
as specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount," in United
States dollars and in immediately available funds.
"Subsequent Closing" shall have the meaning ascribed to such
term in Section 2.1.
"Subsequent Financing" shall have the meaning ascribed to such
term in Section 4.12.
"Subsidiary" means any subsidiary of the Company as set forth
on Schedule 3.1 (a) and shall, where applicable, include any direct or
indirect subsidiary of the Company formed or acquired after the date
hereof.
"Trading Day" means a day on which the OTC Bulletin Board is
open for trading.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the American Stock Exchange, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange or the OTC Bulletin Board.
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"Transaction Documents" means this Agreement, the Notes, the
Warrants, the Lock Up Agreements and all exhibits and schedules thereto
and hereto and any other documents or agreements executed in connection
with the transactions contemplated hereunder.
"Transfer Agent" means The Nevada Agency and Trust Company,
the current transfer agent of the Company with a mailing address of 00
Xxxx Xxxxxxx Xxxxxx, Xxxxx 000, Xxxx, Xxxxxx 00000, Attn: Xxxx Xxxxxx,
and a facsimile number of (000) 000 0000 and a telephone number of
(000) 000-0000 and any successor transfer agent of the Company.
"Underlying Shares" means the shares of Common Stock issued
and issuable upon conversion, or redemption of, or in repayment of
principal of, the Notes and upon exercise of the Warrants and issued
and issuable in lieu of the cash payment of interest on the Notes in
accordance with the terms of the Notes.
"Variable Rate Transaction" shall have the meaning ascribed to
such term in Section 4.12(b).
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. New York City time to 4:02 p.m. New York City time); (b) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board and
if prices for the Common Stock are then reported in the "Pink Sheets"
published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other
cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Purchasers of
a majority-in-interest of the Securities then outstanding and
reasonably acceptable to the Company, the fees and expenses of which
shall be paid by the Company.
"Warrants" means the Common Stock purchase warrants delivered
to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof in the form of Exhibit B attached hereto.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
"Xxxxxxx" means Xxxxx X. Xxxxxxx, P.C. with offices located at
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000.
ARTICLE II.
PURCHASE AND SALE
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2.1 Closing. The purchase and sale of the Notes shall take place in one
or more closings. The first closing ("Initial Closing") shall take place on or
about the date hereof (the date of the Initial Closing and each Subsequent
Closing, a "Closing Date"), at the offices of Xxxxxxx or at such other location
or time or on such other date mutually agreed upon by the Company and all of the
Purchasers, subject to the conditions precedent for a Closing as set forth in
Section 2.3, and to each party's obligations hereunder having been satisfied or
waived. All subsequent closings (each a "Subsequent Closing") shall take place
within 30 days of the date of the Initial Closing, subject to the conditions
precedent for a Closing as set forth in Section 2.3 and to each party's
obligations hereunder having been satisfied or waived. The Initial Closing and
each Subsequent Closing shall constitute a "Closing" for purposes of this
Agreement. Upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase, in the aggregate, between $1,000,000 and
$2,500,000 in principal amount of the Notes. On each Closing Date, each
Purchaser participating in a Closing shall deliver to the Company, via wire
transfer or a certified check, immediately available funds equal to its
Subscription Amount and the Company shall deliver to each Purchaser its
respective Note and a Warrant, as determined pursuant to Section 2.2(a), and the
Company and each Purchaser shall deliver the other items set forth in Section
2.2 deliverable at a Closing.
2.2 Deliveries.
(a) On a Closing Date, the Company shall deliver or cause to
be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company counsel in form and
substance reasonably acceptable to the Purchasers;
(iii) a Note with a principal amount equal to such
Purchaser's Principal Amount, registered in the name of such
Purchaser, and a Conversion Price of $0.30 per share, subject
to adjustment therein;
(iv) a Warrant, registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock
equal to 75% of such Purchaser's Principal Amount divided by
the initial Conversion Price of the Notes, with an exercise
price equal to $0.375 per share, subject to adjustment
therein, for a term of five years; and
(v) irrevocable Lock Up Agreement(s) duly executed
and delivered by the chief executive officer, chief financial
officer and chief operating officer of the Company and each
director of the Company who has either stock in the Company,
or Convertible Securities that will vest within six (6) months
of the closing date.
(b) On the Closing Date, each Purchaser shall deliver or cause
to be delivered to the Company the following:
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(i) this Agreement duly executed by such Purchaser;
and
(ii) such Purchaser's Subscription Amount by wire
transfer to the account as specified in writing by the
Company.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection
with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the
Closing Date of the representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of
each Purchaser required to be performed at or prior to the
Closing Date shall have been performed; and
(iii) the delivery by each Purchaser of the items set
forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions
being met:
(i) the accuracy in all material respects when made
and on the Closing Date of the representations and warranties
of the Company contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the Closing
Date shall have been performed;
(iii) the delivery by the Company of the items set
forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect
with respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading
in the Common Stock shall not have been suspended by the
Commission or OTC Bulletin Board, and, at any time prior to
the Closing Date, trading in securities generally as reported
by Bloomberg L.P. shall not have been suspended or limited, or
minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading
Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity of
such magnitude in its effect on, or any material adverse
change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable
or inadvisable to purchase the Securities at the Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as disclosed
in the SEC Reports filed after January 1, 2008 but at least 5 Business Days
before the date hereof and except as set forth under the corresponding section
of the disclosure schedules delivered to the Purchasers concurrently herewith
("Disclosure Schedules") which Disclosure Schedules shall be deemed a part
hereof, the Company hereby makes the following representations and warranties to
each Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a) (whether or not
disclosed in SEC Reports). The Company owns, directly or indirectly,
all of the capital stock or other equity interests of each Subsidiary
free and clear of any Liens, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of them
in this Section 3.1 shall be disregarded.
(b) Organization and Qualification. The Company and each of
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company's ability to perform in
any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification. The Company has furnished to
the Purchasers true and correct copies of the Company's Certificate of
Incorporation and the Company's By-Laws, as each is currently in
effect.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
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hereby and thereby have been duly authorized by all necessary action on
the part of the Company and no further action is required by the
Company, the Board of Directors or the Company's stockholders in
connection therewith other than in connection with the Required
Approvals. Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid
and binding obligation of the Company enforceable against the Company
in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited
by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by
applicable law.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and thereby do
not and will not: (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound
or affected (other than Liens in favor of the Purchasers), or (iii)
subject to the Required Approvals, conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected; except in
the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) filings
required pursuant to Section 4.6, (ii) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the
Securities and the listing of the Underlying Shares for trading thereon
in the time and manner required thereby, and (iii) the filing of Form D
with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the "Required
Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed
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by the Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the
Transaction Documents. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Required
Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as
set forth on Schedule 3.1(g) (whether or not disclosed in SEC Reports),
which Schedule 3.1(g) shall also include the number of shares of Common
Stock owned beneficially, and of record, by Affiliates of the Company
as of the date hereof. The Company has not issued any capital stock
since its most recently filed periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plans and
pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report
under the Exchange Act. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents. Except as disclosed in the Transaction Documents and
Schedules, and as a result of the purchase and sale of the Securities,
there are no outstanding options, warrants, scrip rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary
is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will
not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale
of the Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company's
capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed
all reports, schedules, forms, statements and other documents required
to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15 (d) thereof, for the two
years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the "SEC
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Reports") on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable (to the Company's
knowledge with respect to applicable Commission interpretations), and
none of the SEC Reports, when filed, contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise
specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in a subsequent SEC Report filed prior to the
date hereof and for operating losses incurred in the ordinary course of
business consistent with past losses, (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has
not incurred any liabilities (contingent or otherwise) other than (A)
trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required
to be reflected in the Company's financial statements pursuant to GAAP
or disclosed in filings made with the Commission, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared
or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans or existing
agreements disclosed in the SEC Reports. The Company does not have
pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated by
this Agreement or as set forth on Schedule 3.1(i), no event, liability
or development has occurred or exists with respect to the Company or
its Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by the
Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly
disclosed at least two Trading Days prior to the date that this
representation is made.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
12
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor, to the knowledge of the
Company, any director or officer thereof, is or has been the subject of
any Action involving a claim of violation of or liability under federal
or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending
or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company.
The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or
any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect. None of the Company's or its
Subsidiaries' employees is a member of a union that relates to such
employee's relationship with the Company or such Subsidiary, and
neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant in favor of any third party, and
the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with
respect to any of the foregoing matters. To the Company's knowledge the
Company and its Subsidiaries are in compliance with all U.S. federal,
state, local and foreign laws and regulations relating to employment
and employment practices, terms and conditions of employment and wages
and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement (not including default in
payment of trade payables) or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default
or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) to the Company's
knowledge is or has been in violation of any statute, rule or
regulation of any governmental authority, including without limitation
all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as
could not have or reasonably be expected to result in a Material
Adverse Effect.
13
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as currently conducted
and contemplated to be conducted as described in the SEC Reports,
except where the failure to possess such permits could not reasonably
be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them and good and marketable title in all personal property owned by
them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment
of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases with which the Company
and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade
secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights necessary or material for use in
connection with their respective businesses as currently conducted and
contemplated to be conducted as described in the SEC Reports and which
the failure to so have could have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). Neither the Company
nor any Subsidiary has received a notice (written or otherwise) that
any of the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person, except
as set forth on Schedule 3.1(o). To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual
Property Rights. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of
all of their intellectual properties, except where failure to do so
could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Company has duly and properly filed
or caused to be filed with the United States Patent and Trademark
Office (the "PTO") and applicable foreign and international patent
authorities all patent applications owned by the Company (the "Company
Patent Applications"). To the knowledge of the Company, the Company has
complied with the PTO's duty of candor and disclosure for the Company
Patent Applications and has made no material misrepresentation in the
Company Patent Applications. The Company is not aware of any
information material to a determination of patentability regarding the
Company Patent Applications not called to the attention of the PTO or
similar foreign authority. The Company is not aware of any information
not called to the attention of the PTO or similar foreign authority
that would preclude the grant of a patent for the Company Patent
Applications. The Company has no knowledge of any information that
14
would preclude the Company from having clear title to the Company
Patent Applications.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged in the
reasonable judgment of management of the Company, including, but not
limited to, directors and officers insurance coverage at least equal to
the aggregate Subscription Amount. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(q) Transactions with Affiliates and Employees. Except as
provided in Schedule 3.1(q), none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $10,000 other
than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act
of 2002 which are applicable to it as a small business issuer as of the
Closing Date. The Company and the Subsidiaries maintain a system of
internal accounting controls designed to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with GAAP and to maintain asset accountability, (iii) access to assets
is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. A control
system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control
system will be met. The design and operation of a control system must
reflect the fact that there are resource limitations and the benefit of
the controls must be considered relative to their costs. The Company
has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports it
files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the
Commission's rules and forms. The Company's certifying officers have
15
evaluated the effectiveness of the Company's disclosure controls and
procedures as of the end of the period covered by the Company's most
recently filed periodic report under the Exchange Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no changes in the Company's
internal control over financial reporting (as such term is defined in
the Exchange Act) that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial
reporting.
(s) Certain Fees. The Purchasers shall have no obligation with
respect to any commission, broker's fee, finder's fee or similar fee to
any broker, financial advisor, consultant, finder, placement agent,
investment banker, bank or other Person in connection with or resulting
from the Securities Purchase Agreement or the Transactions by reason of
any agreement of or action taken by the Company.
(t) Private Placement. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the OTC Bulletin Board.
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not
become subject to the Investment Company Act of 1940, as amended.
(v) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(x) Application of Takeover Protections. As reflected in
Schedule 3.1 (x), the Company does not have in place and is not subject
to any anti-takeover provisions (including without limitation control
share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar agreement or
16
provision) under the Company's certificate of incorporation or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction
Documents, the Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that it believes constitutes or might
constitute material, nonpublic information which will not be either
publicly disclosed or no longer constitute material non-public
information on or prior to the date which is three (3) months following
the Initial Closing. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All disclosure furnished by
or on behalf of the Company to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, is true and correct and does
not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made and when made, not misleading. The Company acknowledges
and agrees that no Purchaser makes or has made any representations or
warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its Affiliates, nor any Person acting
on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of (i)
the Securities Act which would require the registration of any such
securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of the OTC Bulletin Board or any Trading Market on
which any of the securities of the Company are listed or designated.
(aa) Solvency. Based on the consolidated financial condition
of the Company as of the Closing Date after giving effect to the
receipt by the Company of the proceeds from the sale of the Securities
hereunder, the Company is solvent. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect
of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date.
Schedule 3.1(aa) sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary,
17
or for which the Company or any Subsidiary has commitments, in excess
of $25,000 (whether or not disclosed in SEC Reports).
(bb) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary
has filed all necessary federal, state and foreign income and franchise
tax returns and has paid or accrued all taxes shown as due thereon, and
the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
(cc) No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(ee) Accountants. The Company's accounting firm is X.X. Xxxxx
& Company, P.C. To the knowledge and belief of the Company, such
accounting firm (i) is a registered public accounting firm as required
by the Exchange Act and (ii) shall express its opinion with respect to
the financial statements to be included in the Company's Annual Report
for the year ending October 31, 2008.
(ff) Seniority. As of the Closing Date, no Indebtedness or
other claim against the Company is senior to the Notes in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as
to the property covered thereby).
(gg) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company,
and the Company is not aware of any circumstances with respect to its
accountants or lawyers which could affect the Company's ability to
perform any of its obligations under any of the Transaction Documents.
18
(hh) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length
purchaser with respect to the Transaction Documents and the
transactions contemplated thereby. The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice
given by any Purchaser or any of their respective representatives or
agents in connection with the Transaction Documents and the
transactions contemplated thereby is merely incidental to the
Purchasers' purchase of the Securities. The Company further represents
to each Purchaser that the Company's decision to enter into this
Agreement and the other Transaction Documents has been based solely on
the independent evaluation of the transactions contemplated hereby by
the Company and its representatives.
(ii) Acknowledgment Regarding Purchasers' Trading Activity.
Notwithstanding anything in this Agreement or elsewhere herein to the
contrary (except for Sections 3.2(f) and 4.14 hereof), it is understood
and acknowledged by the Company that (i) none of the Purchasers has
been asked to agree by the Company, nor has any Purchaser agreed, to
desist from purchasing or selling, long and/or short, securities of the
Company, or "derivative" securities based on securities issued by the
Company or to hold the Securities for any specified term, (ii) past or
future open market or other transactions by any Purchaser, specifically
including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities, (iii) any Purchaser, and
counter-parties in "derivative" transactions to which any such
Purchaser is a party, directly or indirectly, may presently have a
"short" position in the Common Stock, and (iv) each Purchaser shall not
be deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction. The Company further
understands and acknowledges that (a) one or more Purchasers may engage
in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the
periods that the value of the Underlying Shares deliverable with
respect to Securities are being determined and (b) such hedging
activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
(jj) Regulation M Compliance. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the securities of the Company during any
restricted period (as defined in Regulation M adopted by the
Commission), or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of
the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company's placement agents in connection with
the placement of Company securities.
19
(kk) No "Shell". To the Company's knowledge, the Company is
not and has not at any time previously been a Shell Company.
3.2 Representations and Warranties of the Purchasers. Each Purchaser,
for itself and for no other Purchaser, hereby represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution and
delivery of the Transaction Documents and performance by such Purchaser
of the transactions contemplated by the Transaction Documents have been
duly authorized by all necessary corporate or similar action on the
part of such Purchaser. Each Transaction Document to which it is a
party has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable
against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited
by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by
applicable law.
(b) Own Account. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and not with
a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such
Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the
distribution of such Securities (this representation and warranty not
limiting such Purchaser's right to sell the Securities pursuant to any
registration statement filed under the Securities Act or otherwise in
compliance with applicable federal and state securities laws) in
violation of the Securities Act or any applicable state securities law.
Such Purchaser is acquiring the Securities hereunder in the ordinary
course of its business.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Notes it will be
either: (i) an "accredited investor" as defined in Rule 501 (a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
20
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof.
Other than consummating the transactions contemplated hereunder, such
Purchaser has not directly or indirectly, nor has any Person acting on
behalf of or pursuant to any understanding with such Purchaser,
executed any purchases or sales, including Short Sales, of the
securities of the Company (i) during the period commencing from the
time that such Purchaser first received a term sheet (written or oral)
from the Company or any other Person representing the Company setting
forth the material terms of the transactions contemplated hereunder
until the date hereof ("Discussion Time"), and (ii) during the 2month
period immediately preceding the Discussion Time. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed
investment vehicle whereby separate portfolio managers manage separate
portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser's assets, the
representation set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to
it in connection with this transaction (including the existence and
terms of this transaction).
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement.
21
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1, of a legend on any of the Securities in
the following form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. THIS SECURITY [AND THE SECURITIES
ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and, if required
under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such
a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser's
expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the
Securities, including, if the Securities are subject to a registration
statement filed under the Securities Act, the preparation and filing of
any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement covering the resale of such
security is effective under the Securities Act, or (ii) if such
Underlying Shares are eligible for resale under Rule 144, or (iii) if
such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). If required by the Transfer
Agent to effect the removal of the legend hereunder, the Company shall
cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the date on which the applicable holder of Underlying
Shares may sell such securities pursuant to Rule 144. If all or any
portion of a Note or Warrant is converted or exercised (as applicable)
at a time when there is an effective registration statement to cover
22
the resale of the Underlying Shares, or if such Underlying Shares may
be sold under Rule 144 or if such legend is not otherwise required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission) then such Underlying Shares shall be issued free of all
legends. The Company agrees that at such time as such legend is no
longer required under this Section 4.1 (c), it will, no later than
three Trading Days following the delivery by a Purchaser to the Company
or the Transfer Agent of a certificate representing Underlying Shares,
as applicable, issued with a restrictive legend, together with any
reasonably required certifications to document compliance with Rule 144
and any required documentation in the event such certificate is to be
delivered in the name of a Person other than the record holder of such
Underlying Shares (such third Trading Day, the "Legend Removal Date"),
deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on
transfer set forth in this Section. Certificates for Underlying Shares
subject to legend removal hereunder shall be transmitted by the
Transfer Agent to the Purchaser by crediting the account of the
Purchaser's prime broker with the Depository Trust Company System as
directed by such Purchaser, or if the Company is not a participant in
DTC's DWAC program, then by other available means, provided that the
Company shall use its best efforts to participate in such DWAC program.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares
(based on the VWAP of the Common Stock on the date such Securities are
submitted to the Transfer Agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after the Legend Removal
Date until such certificate is delivered without a legend. Nothing
herein shall limit such Purchaser's right to pursue actual damages for
the Company's failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that such Purchaser will sell any Securities
pursuant to either Rule 144 or the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are
sold pursuant to a registration statement filed under the Securities
Act, they will be sold in compliance with the plan of distribution set
forth therein, and acknowledges that the removal of the restrictive
legend from certificates representing Securities as set forth in this
Section 4.1 is predicated upon the Company's reliance upon this
understanding.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
23
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. Until the earliest of the time that (i)
Purchaser no longer owns Securities or (ii) the Warrants have expired, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act even if the Company
is not then subject to the reporting requirements of the Exchange Act. As long
as Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchaser and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144. So
long as any Securities are outstanding, the Company shall cause itself to be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
and timely file all reports required to be filed thereunder.
4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities to the Purchasers in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Purchasers or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Notes set forth the totality of the procedures required of the Purchasers in
order to exercise the Warrants or convert the Notes. No additional legal opinion
or other information or instructions shall be required of the Purchasers to
exercise their Warrants or convert their Notes. The Company shall honor
exercises of the Warrants and conversions of the Notes and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, within
two (2) Trading Days following the date hereof, issue a Current Report on Form
8-K disclosing the material terms of the transactions contemplated hereby and
attaching the Transaction Documents as exhibits thereto. The Company and each
Purchaser shall consult with each other in issuing any other press releases with
respect to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
24
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection with
(A) any registration statement filed under the Securities Act covering the
resale of the Securities, and (B) the filing of final Transaction Documents
(including signature pages thereto) with the Commission and (ii) to the extent
such disclosure is required by law or Trading Market regulations, in which case
the Company shall provide the Purchasers with prior notice of such disclosure
permitted under this clause (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.8 Non-Public Information. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it nor any other Person acting on
its behalf will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material nonpublic
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and shall not use such proceeds for (a)
the satisfaction of any portion of the Company's debt (other than payment of
trade payables in the ordinary course of the Company's business and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents,
(c) the settlement of any outstanding litigation, or (d) making any investments
in securities or otherwise purchasing any equity or debt securities, including
without limitation purchasing any corporate, governmental, municipal or
auction-rate bonds or other debts instruments (whether at auction, in the open
market or otherwise), any commercial or chattel paper, or any certificates of
deposit, or investing in any money market or mutual funds, without the prior
written consent of a majority in-interest of the Purchasers. The Purchasers
hereby consent to depositing funds in interest type bearing accounts at the
Company's bank until the funds are used as provided above and in Schedule 4.9.
4.10 Indemnification of Purchasers. Subject to the provisions of this
Section 4.10, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
25
lack of such title or any other title) of such controlling person (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
Party in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not a Purchaser Party or an Affiliate of such
a Purchaser Party, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser's representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, such Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such counsel to the Company and such Purchaser, a
reasonable probability of a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents.
4.11 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors shall use
commercially reasonable efforts to amend the Company's certificate or
articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum at
such time, as soon as possible and in any event not later than the 75th
day after such date.
26
(c) The Company shall apply for, to the extent necessary, and
cause all Underlying Shares to be listed, quoted and traded on the OTC
Bulletin Board promptly following the Closing Date. The Company shall
(i) if applicable in the time and manner required by the OTC Bulletin
Board, prepare and file with such market an additional shares listing
application covering a number of shares of Common Stock at least equal
to the Required Minimum on the date of such application, (ii) take all
steps necessary to cause such shares of Common Stock to be approved for
listing on such market as soon as possible thereafter, (iii) provide to
the Purchaser evidence of such listing, and (iv) maintain the listing
or quoting of the Company's Common Stock on the OTC Bulletin Board or
another Trading Market so long as the Purchaser holds any Securities,
including without limitation the Underlying Shares on any date at least
equal to the Required Minimum on such date.
4.12 Subsequent Equity Sales.
(a) From the date hereof until the date which is six months
following the Closing Date, neither the Company nor any Subsidiary
shall issue shares of Common Stock or Common Stock Equivalents
("Subsequent Financing") without the prior written consent of
Purchasers holding 69% of the outstanding principal amount of Notes.
(b) From the date hereof until such time as no Purchaser holds
any of the Securities, the Company shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Financing
involving a Variable Rate Transaction or MFN Transaction. "Variable
Rate Transaction" means a transaction in which the Company issues or
sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for the shares of Common Stock at
any time after the initial issuance of such debt or equity securities,
or (B) with a conversion, exercise or exchange price that is subject to
being reset at some future date after the initial issuance of such debt
or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or
the market for the Common Stock or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price. "MFN
Transaction" means a transaction in which the Company issues or sells
any securities to an investor in one or a series of related capital
raising transactions which grants to such investor the right to receive
additional securities or better terms based in some manner upon future
sales or issuances of Common Stock or Common Stock Equivalents on terms
more favorable than those granted to such investor in such capital
raising transaction(s).
(c) From the date hereof until such time as no Purchaser holds
any of the Securities, in the event the Company issues or sells any
shares of Common Stock or Common Stock Equivalents or amends the
transaction documents relating to any sale or issuance of Common Stock
or Common Stock Equivalents, if a Purchaser reasonably believes that
the terms and conditions thereunder are more favorable to such
investors as the terms and conditions granted under the Transaction
Documents, upon notice to the Company by such Purchaser the Company
shall amend the terms of this transaction and the Transaction Documents
so as to give the Purchasers the benefit of such more favorable terms
or conditions.
27
(d) Notwithstanding the foregoing, this Section 4.12 shall not
apply in respect of an Exempt Issuance, except that other than
transactions listed on Schedule 3.1(q) no Variable Rate Transaction or
MFN Transaction shall be an Exempt Issuance.
4.13 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Notes in
amounts which are disproportionate to the respective principal amounts
outstanding on the Notes at any applicable time. For clarification purposes,
this provision constitutes a separate right granted to each Purchaser by the
Company and negotiated separately by each Purchaser, and is intended for the
Company to treat the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.14 Short Sales and Confidentiality After The Date Hereof. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will (a) execute any Short Sales during the period commencing at the
Discussion Time and ending three months after Closing Date or (b) execute any
Net Short Sales at any time the Notes are outstanding. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Disclosure Schedules. Notwithstanding the foregoing,
except as otherwise set forth herein no Purchaser makes any representation,
warranty or covenant hereby that it will not engage in Short Sales in the
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of or discussion regarding the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets relative
to the Company, the covenant set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.
4.15 Form D; Blue Sky Filings. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.16 Piggy-Back Registration. If the Company shall determine to prepare
and file with the Commission a registration statement, prior to the time when
the Underlying Shares could be sold pursuant to Rule 144, relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities (other than on Form S-4 or Form S-8 (each as
28
promulgated under the Securities Act) or its then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans), then the Company shall send to each Purchaser
written notice of such determination and, if within seven (7) Business Days
after receipt of such notice, any such Purchaser shall so request in writing
(which request shall specify the Underlying Shares intended to be disposed of by
the Purchaser), the Company will cause the registration under the Securities Act
of all Underlying Shares which the Company has been so requested to register by
the Purchaser, to the extent required to permit the disposition of such
Underlying Shares so to be registered. The Company shall include in such
registration statement all or any part of such Underlying Shares such Purchaser
requests to be registered; provided, however, that the Company shall not be
required to register any Underlying Shares pursuant to this Section that are
eligible for sale pursuant to Rule 144 of the Securities Act. In the case of an
underwritten public offering, if the managing underwriter(s) or underwriter(s)
should reasonably object to the inclusion of the Underlying Shares in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Underlying
Shares would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Underlying Shares of the
Purchasers, then (x) the number of Underlying Shares of the Purchasers included
in such registration statement shall be reduced pro-rata among such Purchasers
(based upon the number of Underlying Shares requested to be included in the
registration), if the Company after consultation with the underwriter(s)
recommends the inclusion of fewer Underlying Shares, or (y) none of the
Underlying Shares of the Purchasers shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Underlying Shares; provided, however, that if
securities are being offered for the account of other persons or entities as
well as the Company, such reduction shall not represent a greater fraction of
the number of Underlying Shares intended to be offered by the Purchasers than
the fraction of similar reductions imposed on such other persons or entities
(other than the Company). The Company shall keep such Registration Statement
continuously effective under the Securities Act until such date as is the
earlier of (x) the date when all Underlying Shares covered by such Registration
Statement have been sold or (y) the date on which all Underlying Shares may be
sold without any restriction pursuant to Rule 144 as determined by the counsel
to the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect. In connection with any registration of Underlying
Shares pursuant to this Section, the Company and the Purchaser participating in
such registration shall enter into a registration rights agreement containing
customary and reasonable provisions regarding the registration of securities.
4.17 Lock-Up Agreements. In its capability, the Company shall enforce
the provisions of the Lock-Up Agreements and shall place or cause to be placed
"stop orders" on its books to prevent transfer of shares of Common Stock or
other securities of the Company in violation of the Lock-Up Agreements. The
Company agrees not to take any action or allow any act to be taken which would
be inconsistent with the Lock-Up Agreements nor amend or terminate any Lock-Up
Agreement without the consent of the Purchasers.
4.18 Insurance. So long as any Securities remain outstanding, the
Company and its Subsidiaries shall maintain in full force and effect insurance
29
reasonably believed by the Company to be adequate coverage (a) on all assets and
activities, covering property loss or damage and loss of income by fire or other
hazards or casualty, and (b) against all liabilities, claims and risks for which
it is customary for companies similarly situated to the Company to insure,
including without limitation applicable product liability insurance, required
workmen's compensation insurance, and other insurance covering injury or damage
to persons or property, but excluding directors and officers insurance coverage.
The Company shall promptly furnish or cause to be furnished evidence of such
insurance to each Purchaser so requesting same, in form and substance reasonably
satisfactory to such Purchaser.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the Initial Closing has not been consummated on
or before June 30, 2008 and all Subsequent Closings have not been consummated on
or before July 30, 2008; provided, however, that such termination will not
affect the right of any party to xxx for any breach by the other party (or
parties).
5.2 Fees and Expenses. At the Initial Closing, the Company has agreed
to reimburse Gemini Strategies, LLC and/or Gemini Master Fund Ltd.
(collectively, "Gemini") the nonaccountable sum of $25,000 for its legal fees
and expenses, $5,000 of which has been paid prior to the Closing. Accordingly,
in lieu of the foregoing payments, the aggregate amount that Gemini is to pay
for the Securities at the Initial Closing shall be reduced by $20,000. Except as
expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities to the
Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto, or email to the email address
set forth in the signature pages attached hereto, prior to 5:30 p.m. (New York
City time) on a Trading Day, with electronic confirmation of such delivery, (b)
the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto, or email to the email address set forth in
the signature pages attached hereto, on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, with electronic
30
confirmation of such delivery, (c) the second Business Day following the date of
mailing, if sent by regular mail, or the date on which such notice or
communication is deposited with a nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required
to be given. The address, fax number and email address for such notices and
communications shall be as set forth on the signature pages attached hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and each of the Purchasers or, in the case
of a waiver, by the party against whom enforcement of any such waived provision
is sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers."
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.10.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
31
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys' fees and other
reasonable costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
5.10 Survival. The representations and warranties shall survive the
Closing and the delivery of the Securities for the applicable statute of
limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" or other
document image format data file, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or ".pdf" or other
document image format data file signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Note or exercise of a
Warrant, the Purchaser shall be required to return any shares of Common Stock
delivered in connection with any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution
32
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
33
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through Xxxxxxx.
Xxxxxxx does not represent all of the Purchasers but only Gemini. The Company
has elected to provide all Purchasers with the same terms and Transaction
Documents for the convenience of the Company and not because it was required or
requested to do so by the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.
5.21 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
5.22 Waiver of Jury Trial. In any action, suit or proceeding in any
jurisdiction brought by any party against any other party, the parties each
knowingly and intentionally, to the greatest extent permitted by applicable law,
hereby absolutely, unconditionally, irrevocably and expressly waives forever
trial by jury.
(Signature Pages Follow)
34
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
CDEX INC. Address for Notice:
-------------------
CDEX Inc.
Attn: Xxxxxxx X.Xxxxxxx. Jr.
0000 Xxxxx Xxxx Xxxxx Xxxx
Xxxxx 000
Xxxxxx. XX 00000
By: X X Xxxxxxx. Jr. Fax: 000-000-0000
--------------------------- Email: xxxxxxxx@xxxx-xxx.xxx
Name: X X Xxxxxxx. Jr.
Title: CEO
With a copy to (which shall not constitute notice): CDEX Inc.
Attn: Ramai Xxxxxxx
0000 Xxxxx Xxxx Xxxxx Xxxx
Xxxxx 000
Xxxxxx, XX 00000
Fax 000-000-0000
Email: xxxxxxxx@xxxx-xxx.xxx
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOWS]
35
[PURCHASER SIGNATURE PAGES TO CEXI SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: GEMINI MASTER FUND, LTD.
By: GEMINI STRATEGIES, LLC, as investment manager
Signature of Authorized Signatory of Purchaser: /s/ Xxxxxx Xxxxxxx
------------------
Name of Authorized Signatory: Xxxxxx Xxxxxxx
Title of Authorized Signatory: President
Email Address of Purchaser: xxxxx@xxxxxxxxxxxxxxxx.xxx
Facsimile Number of Purchaser: (000) 000-0000
Address for Notice of Purchaser:
c/o Gemini Strategies, LLC with copy to
000 Xxxxxxxxx Xxxxx, Xxxxx X Xxxxx X. Xxxxxxx, P.C.
Xxxxxxx, XX 00000 000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Attn: Xxxxxx Xxxxxxx Xxx Xxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
Email: xxxxx@xxxxxxxxxxxxxxxx.xxx Email: xxxxxxxx@xxxxxxxx.xxx
Address for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription Amount: $1,000,000
Principal Amount (Subscription Amount multiplied by 1.08695652): $1,086,956.52
Warrant Shares: 2,717,391
36
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: _____________________________________________________________
Signature of Authorized Signatory of Purchaser: ________________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Purchaser: ____________________________________________________
Facsimile Number of Purchaser: _________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription Amount: $_______________
Principal Amount (Subscription Amount multiplied by 1.08695652): $______________
Warrant Shares: __________________
37
