8% SERIES C UNSECURED CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE AGREEMENT
BETWEEN
AIRTRAX, INC.
and
THE INVESTORS IDENTIFIED ON THE SIGNATURE PAGES HERETO
THIS 8% SERIES C UNSECURED CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE
AGREEMENT, dated as of October 18, 2005 (the "Agreement"), is entered into by
and between the investors identified on the signature pages Hereto (the
"Investor") and Airtrax, Inc. (Nasdaq OTC Bulletin Board: AITX.OB), a
corporation organized and existing under the laws of the State of New Jersey
(the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
and the Investor shall purchase from the Company in the aggregate up to (i)
$5,000,000 principal amount of the Debenture (as defined below) and (ii)
Warrants (as defined below) to purchase shares of the Common Stock (as defined
below); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and/or Section 4(6) of the United States
Securities Act of 1933, as amended, and/or Regulation D ("Regulation D") and the
other rules and regulations promulgated thereunder (the "Securities Act"),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
in securities to be made hereunder.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties
hereto agree as follows.
ARTICLE I
CERTAIN DEFINITIONS
In addition to the definitions set forth in the text of this Agreement, the
following capitalized terms shall have the meanings ascribed to them below:
"Capital Shares" shall mean the Common Stock and any shares of any other
class of common stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.
"Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
"Closing" shall mean each closing of the purchase and sale of the Debenture
and Warrants pursuant to Section 2.1.
"Closing Date" shall mean the closing of the purchase and sale of the
Debenture and Warrants under Section 2.1 hereof.
"Common Stock" shall mean the Company's common stock, no par value per
share.
"Conversion Shares" shall mean the shares of Common Stock issuable upon
conversion of the Debenture and any shares of Common Stock issued as interest on
the Debenture.
"Conversion Price" shall mean the Conversion Price, as that term is defined
in the Debenture.
"Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
"Debenture" shall mean the 8% Series C Unsecured Convertible Debenture,
substantially in the form attached hereto as Exhibit A.
"Disclosure Schedule" shall mean the written disclosure schedule delivered
on or prior to the date hereof by the Company to the Investor that is arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Agreement.
"Effective Date" shall mean the date on which the SEC first declares
effective a Registration Statement registering the resale of the Registrable
Securities applicable to a particular Closing as set forth in the Registration
Rights Agreement.
"Escrow Agent" shall have the meaning set forth in the Escrow Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in substantially the
form of Exhibit D hereto executed and delivered contemporaneously with this
Agreement.
"Excepted Issuances" shall mean (i) the Company's issuance of warrants or
options to purchase Common Stock to officers, directors, employees or
consultants of the Company, whether pursuant to an employee stock option or
compensation plan or otherwise, (ii) as a result of the exercise of Warrants or
conversion of Debentures which are granted or issued pursuant to this Agreement,
(iii) as full and partial consideration in connection with a merger,
consolidation or purchase of substantially all of the securities or assets of
any corporation or other entity, including, without limitation, the proposed
acquisition by the Company of Filco GmbH, (iv) the issuance of securities in
situations involving strategic business partnerships, and acquisition
candidates, and (vii) the issuance of securities pursuant to securities or
arrangements that are outstanding or in place prior to the date of this
Agreement as have been described in the SEC Documents filed with the Commission
prior to the Closing Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" shall mean generally accepted accounting principles in the United
States as shall be in effect from time to time.
"Irrevocable Transfer Agent Instructions" shall mean the Irrevocable
Transfer Agent Instructions, in the form of Exhibit F attached hereto, from the
Company to the Company's transfer agent.
"Issue Date" shall mean the date on which Debenture and Warrants are issued
pursuant to Article II.
"Legend" shall mean the legend set forth in Section 9. 1.
"Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company, taken as a whole, and/or
any condition, circumstance, or situation that would prohibit or otherwise
interfere with the ability of the Company to enter into and perform any of its
obligations under the Transaction Documents in any material respect.
"Outstanding" when used with reference to Shares, shall mean, at any date
as of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
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"Person" shall mean an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Principal Market" shall mean the American Stock Exchange, the New York
Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock in the United States, based upon share volume, or if the Common Stock is
not then traded on an exchange or market, the Nasdaq OTC Bulletin Board.
"Purchase Price" shall mean the principal amount of the Debenture to be
purchased pursuant to Section 2.1.
"Registrable Securities" shall mean the Conversion Shares and the Warrant
Shares until (i) the Registration Statement has been declared effective by the
SEC, and all Conversion Shares and Warrant Shares have been disposed of pursuant
to the Registration Statement, (ii) all Conversion Shares and Warrant Shares
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Conversion Shares and Warrant Shares have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
(iv) such time as, in the opinion of counsel to the Company, all Conversion
Shares and Warrant Shares may be sold within a 90-day period pursuant to Rule
144 (or any similar provision then in effect) under the Securities Act, (v)
shares of Common Stock set forth on Schedule 1(d) to the Registration Rights
Agreement (as defined below), and (vi) securities issuable by the Company
pursuant to anti-dilution provisions of the Debentures and/or Warrants (vii)
shares of Common Stock issuable by the Company, at the sole option of the
Company, to make any payments of interest upon the Debentures; (v) shares of
Common Stock to be issued pursuant to the Second Closing; and (vi) shares of
Common Stock which may be issued by the Company between the date hereof and the
filing of the Registration Statement with the SEC in an amount not to exceed the
difference between the gross proceeds of securities sold in the Offering and
$5,000,000 of gross proceeds.
"Registration Rights Agreement" shall mean the agreement regarding the
filing of the Registration Statement by the Company for the resale of the
Registrable Securities, entered into between the Company and the Investors as of
the Closing Date substantially in the form annexed hereto as Exhibit C.
"Registration Statement" shall mean one or more registration statements on
Form SB-2 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investor of
the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
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"SEC" shall mean the Securities and Exchange Commission.
"Second Closing" shall mean the proposed offering, on the same terms and
conditions set forth in the Transaction Documents, of up to the remaining
$5,000,000 of unsecured convertible debentures and common stock purchase
warrants of the Company to certain existing accredited investors of the Company
who have elected to exercise their right of participation granted to such
investors pursuant to the Securities Purchase Agreement dated as of November 23
and 24, 2004 and the Subscription Agreement dated as of February 11, 2005. The
Second Closing shall take place on or prior to October 26, 2005.
"Securities" shall mean the Debenture, the Warrants, the Conversion Shares
and the Warrant Shares, collectively.
"Securities Act" shall have the meaning set forth in the recitals of this
Agreement.
"SEC Documents" shall mean each report, proxy statement or registration
statement filed by the Company with the SEC pursuant to the Exchange Act or the
Securities Act from the initial filing with the SEC through the date hereof.
"Shares" shall mean shares of Common Stock or Capital Shares.
"Trading Day" shall mean any day during which the Principal Market shall be
open for business.
"Transaction Documents" shall mean this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Debenture, the Warrants, the Irrevocable
Transfer Agent Instructions and each of the other agreements, documents and
instruments entered into and delivered by the parties hereto in connection with
the transactions contemplated by this Agreement.
"Warrants" shall mean the Warrants issued at Closing substantially in the
form of Exhibit B to be issued to the Investor hereunder.
"Warrant Shares" shall mean all shares of Common Stock or other securities
issued or issuable pursuant to exercise of the Warrants.
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ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURE AND WARRANTS
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, on
the Closing Date, the Company shall sell, and the Investor shall purchase, up to
$5,000,000 in principal amount of the Debenture at the applicable Purchase Price
and Warrants in an amount and with an exercise price as provided in Section
2.1(c).
(b) The Closing shall occur on the relative Closing Date at the Escrow
Agent's offices, at which time the Escrow Agent (x) shall release to the
Investor the Debenture and Warrants to be issued on such Closing Date and (y)
shall release to the Company the Purchase Price in immediately available funds
(after all fees have been paid as set forth in the Escrow Agreement to be paid
on the Closing Date), pursuant to the terms of the Escrow Agreement.
(c) The number of Warrants to be issued to the Investor at the Closing
shall be up to 2,500,000 (calculated as an amount equal to 100% of the quotient
of (i) the principal amount of the Debenture issued at the Closing divided by
(ii) the Conversion Price on the Closing Date). The exercise price of the
Warrants shall be $3.25 per share, subject to adjustment as provided in the
Warrant. The Warrants shall have a term of five years from the Issue Date.
(d) Company Closing Conditions. The obligation of the Company
hereunder to issue and sell the Debenture and Warrants to the Investor at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing the Investor with prior written notice thereof:
(i) The Investor shall have executed each of the Transaction Documents
to be executed by them and delivered the same to the Company.
(ii) The Escrow Agent shall have delivered to the Company the Purchase
Price for the Debenture and the Warrants being purchased by the Investor at
the Closing (less any amounts withheld pursuant to the Escrow Agreement) by
wire transfer of immediately available funds pursuant to the written wire
instructions provided by the Company.
(iii) The representations and warranties of the Investor shall be true
and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as
of a specific date), and the Investor shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at
or prior to the Closing Date.
(e) Investor Closing Conditions. The obligation of the Investor
hereunder to purchase the Debenture and Warrants at the Closing is subject to
the satisfaction, at or before the Closing Date thereof, of each of the
following conditions, provided that these conditions are for the Investor's sole
benefit and may be waived by the Investor at any time in its sole discretion by
providing the Company with prior written notice thereof:
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(i) The Company shall have executed each of the Transaction Documents
to be executed by it and delivered the same to the Investor.
(ii) The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been suspended
by the Principal Market or the SEC at any time beginning on the date hereof
and through and including the Closing Date, and the Company shall not have
been notified of any pending or threatened proceeding or other action to
delist or suspend trading in the Common Stock.
(iii) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as
of a specific date), and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.
(iv) The Investor shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Investor and in substantially the form of
Exhibit G attached hereto.
(v) The Company shall have executed and delivered (or shall have
caused the Escrow Agent to deliver) to the Investor the Debenture being
purchased by the Investor at the Closing.
(vi) The Company shall have executed and delivered (or shall have
caused the Escrow Agent to deliver) to the Investor the Warrants being
purchased by the Investor at the Closing.
(vii) As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of
effecting the issuance of the shares of Common Stock issuable in connection
with this Agreement, a number of shares of Common Stock equal to at least
200% of the number of (x) Conversion Shares issuable upon conversion of the
Debenture to be outstanding on the Closing Date (assuming all the Debenture
were fully convertible on such date regardless of any limitations on the
timing or amount of such conversions) and (y) Warrant Shares issuable upon
exercise of the Warrants to be outstanding on the Closing Date (assuming
all such Warrants were fully exercisable on such date regardless of any
limitation on the timing or amount of such exercises).
(viii) The Company shall have delivered the Irrevocable Transfer Agent
Instructions to its Transfer Agent, and such Transfer Agent shall have
acknowledged receipt thereof in writing.
(ix) The Company shall have delivered to the Investor a certificate
evidencing the good standing of the Company in New Jersey (and in any
states where the Company is required to be qualified to do business) issued
by the Secretary of State of such states.
(x) The Company shall have delivered to the Investor a certified copy
of its Certificate of Incorporation as certified by the Secretary of State
of the State of New Jersey.
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(xi) The Company shall have delivered to the Investor such other
documents relating to the transactions contemplated by this Agreement as
the Investor or its counsel may reasonably request.
Section 2.2. Liquidated Damages. The parties hereto acknowledge and agree
that the sums payable pursuant to the Registration Rights Agreement shall
constitute liquidated damages and not penalties. The parties further
acknowledge that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amounts specified in
the Registration Rights Agreement and the Debenture bear a reasonable proportion
and are not plainly or grossly disproportionate to the probable loss likely to
be incurred by the Investor in connection with the failure by the Company to
timely cause the registration of the Registrable Securities and (c) the parties
are sophisticated business parties and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account for investment purposes only and not with a view to or for sale in
connection with any distribution of the Securities. The Investor has no present
arrangement (whether or not legally binding) at any time to sell the Securities
to or through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold such securities for
any minimum or other specific term and reserves the right to dispose of the
Conversion Shares and Warrant Shares at any time in accordance with federal and
state securities laws applicable to such disposition.
Section 3.2. Organization and Standing of the Investor. If the Investor is an
entity, such Investor is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
Section 3.3. Authorization and Power. Each Investor has the requisite power and
authority to enter into and perform this Agreement and to purchase the Debenture
and Warrants being sold to it hereunder. The execution, delivery and performance
of this Agreement by such Investor and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Investor or its Board of Directors, stockholders,
partners, members, as the case may be, is required. This Agreement has been duly
authorized, executed and delivered by such Investor and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Investor enforceable against the Investor in accordance with the terms thereof.
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Section 3.4. No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by such Investor of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a violation of such
Investor's charter documents or bylaws or other organizational documents or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement, indenture
or instrument or obligation to which such Investor is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Investor or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
Material Adverse Effect on such Investor). Such Investor is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or to purchase
the Debentures or acquire the Warrants in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Investor is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
Section 3.5. Information on Company. The Investor has been furnished with or
has had access at the XXXXX Website of the Commission to the Company's Form
10-KSB for the year ended December 31, 2004 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, and filings made with
the Commission available at the XXXXX website (hereinafter referred to
collectively as the "Reports"). In addition, the Investor has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Investor has requested in writing
(such other information is collectively, the "Other Written Information"), and
considered all factors the Investor deems material in deciding on the
advisability of investing in the securities. The Investor has had full
opportunity to conduct, and has conducted, a complete and thorough due diligence
investigation of the Company, and such opportunity has been made available to
the Investor's professional representative(s) to ask questions of and receive
answers from representatives of the Company concerning the Company and its
financial condition and prospects, as well as request additional information
necessary to verify the accuracy of the Reports and Other Written Information
provided to Investor.
Section 3.6. Information on Investor. The Investor is, and will be at the
time of the purchase of the Debenture and Warrants, an "accredited investor", as
such term is defined in Regulation D promulgated by the Commission under the
1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Investor to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Investor has the authority and is duly
and legally qualified to purchase and own the Securities. The Investor is able
to bear the risk of such investment for an indefinite period and to afford a
complete loss thereof. The information set forth on the signature page hereto
regarding the Investor is accurate. The Investor is not required to be
registered as a broker-dealer under Section 15 of the Securities Exchange Act of
1934, as amended (the "1934 Act") and the Investor is not a broker-dealer.
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Section 3.7. Purchase of Debenture and Warrants. On the Closing Date, the
Investor will purchase the Debenture and Warrants as principal for its own
account for investment only and not with a view toward, or for resale in
connection with, the public sale or any distribution thereof.
Section 3.8. Compliance with Securities Act. The Investor understands and
agrees that the Securities have not been registered under the 1933 Act or any
applicable state securities laws, by reason of their issuance in a transaction
that does not require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of Investor contained herein),
and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. In any event, and subject to
compliance with applicable securities laws, the Investor may enter into lawful
hedging transactions with third parties, which may in turn engage in short sales
of the Securities in the course of hedging the position they assume and the
Investor may also enter into short positions or other derivative transactions
relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other
positions or otherwise settle short sales or other transactions, or loan or
pledge the Securities, or interests in the Securities, to third parties that in
turn may dispose of these Securities. Resales of the Securities by the Investor
will be made in compliance with all applicable securities laws including
Regulation M of the Securities Exchange Act and prospectus delivery
requirements.
Section 3.9. Communication of Offer. The offer to sell the Securities was
directly communicated to the Investor by the Company. At no time was the
Investor presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
Section 3.10 Confidentiality/Public Announcement. From the date of this
Agreement and until the Company makes a public announcement of the transactions
contemplated by this Agreement by filing a Form 8-K, Investor agrees it will not
disclose publicly or privately the nature of the transactions contemplated under
this Agreement unless expressly agreed to in writing by the Company, or only to
the extent required by law.
Section 3.11. Authority; Enforceability. This Agreement and other agreements
delivered together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Investor and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
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to general principles of equity; and Investor has full corporate power and
authority necessary to enter into this Agreement and such other agreements
and to perform its obligations hereunder and under all other agreements entered
into by the Investor relating hereto. Section 3.12. Restricted Securities.
Investor understands that the Securities have not been registered under the 1933
Act and such Investor will not sell, offer to sell, assign, pledge, hypothecate
or otherwise transfer any of the Securities unless pursuant to an effective
registration statement under the 1933 Act. Notwithstanding anything to the
contrary contained in this Agreement, such Investor may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an
"accredited investor" under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement. For the purposes of this
Agreement, an "Affiliate" of any person or entity means any other person or
entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. Affiliate includes each
subsidiary of the Company. For purposes of this definition, "control" means the
power to direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
Section 3.13. No Governmental Review. Each Investor understands that no
United States federal or state agency or any other governmental or state agency
has passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
Section 3.14. No Market Manipulation. No Investor has taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Securities or affect
the price at which the Securities may be issued or resold.
Section 3.15. Short Position and Short Sales. Each Investor covenants that
neither it nor any of their affiliates will engage in any illegal short sales of
or illegal hedging transactions with respect to the Common Stock during the
period from the Closing Date until the later of (i) prior to Effective Date of
the registration statement required to be filed pursuant to a certain
Registration Rights Agreement dated as of the date hereof, or (ii) 180 days
after the Closing Date.
Section 3.16. Correctness of Representations. Each Investor represents as to
such Investor that the foregoing representations and warranties are true and
correct as of the date hereof and, unless a Investor otherwise notifies the
Company prior to each Closing Date shall be true and correct as of each Closing
Date.
Section 3.17. Second Closing. The Company shall be permitted to engage in the
proposed offering, on the same terms and conditions set forth in the Transaction
Documents, of up to the remaining $5,000,000 of unsecured convertible debentures
and common stock purchase warrants of the Company to certain existing accredited
investors of the Company who have elected to exercise their right of
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participation granted to such investors pursuant to the Securities Purchase
Agreement dated as of November 23 and 24, 2004 and the Subscription Agreement
dated as of February 11, 2005. The Second Closing shall take place no later
than 15 business days from the Closing.
Section 3.18. Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that, except as set
forth on the Disclosure Schedule, if any, prepared by the Company and delivered
herewith:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of New
Jersey and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company has no subsidiaries.
The Company is duly qualified and is in good standing as a foreign corporation
to do business in every jurisdiction in which the nature of the business
conducted or property owned or leased by it makes such qualification necessary,
other than those in which the failure so to qualify would not have a Material
Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power
and corporate authority to enter into and perform its obligations under the
Transaction Documents and to issue the Debenture, the Conversion Shares, the
Warrants and the Warrant Shares pursuant to their respective terms, (ii) the
execution, issuance and delivery of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) the Transaction Documents have been duly executed and
delivered by the Company and shall constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. The Company has duly and validly authorized and reserved for
issuance shares of Common Stock sufficient in number for the conversion of the
Debenture and for the exercise of the Warrants. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the Conversion Shares. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Debenture and Warrant Shares
upon exercise of the Warrants in accordance with this Agreement is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, no par value per share, of which
21,906,174 shares were issued and outstanding as of October 13, 2005. Except
for outstanding options and warrants as set forth in the SEC Documents, there
are no outstanding Capital Shares Equivalents nor any agreements or
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understandings pursuant to which any Capital Shares Equivalents may become
outstanding. Except as set forth in the Disclosure Schedule, the Company is not
a party to any agreement granting preemptive, registration or anti-dilution
rights to any Person with respect to any of its equity or debt securities. All
of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and were
issued in compliance with all applicable federal and state securities laws.
Section 4.4. Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the Nasdaq OTC
Bulletin Board and the Company has not received any notice regarding, and to its
knowledge there is no threat of, the termination or discontinuance of the
eligibility of the Common Stock for such posting or listing.
Section 4.5. SEC Documents. The Reports contain all material information
relating to the Company and its operations and financial condition as of their
respective dates which information is required to be disclosed therein. Since
the date of the financial statements included in the Reports, there has been no
Material Adverse Event relating to the Company's business, financial condition
or affairs not disclosed in the Reports. The Reports do not contain any untrue
statement of a material fact.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investor's representations in Article III, the sale of the
Debenture, the Conversion Shares, the Warrants, the Warrant Shares and shares of
Common Stock issuable by the Company, at the sole option of the Company, to make
any payments of interest upon the Debentures will not require registration under
the Securities Act and/or any applicable state securities law (other than any
SEC, Principal Market or state securities filings that may be required to be
made by the Company subsequent to Closing and any registration statement that
may be filed pursuant hereto). When issued and paid for in accordance with the
Warrants and validly converted in accordance with the terms of the Debenture,
the Conversion Shares and the Warrant Shares will be duly and validly issued,
fully paid, and non-assessable. Neither the sales of the Debenture, the
Conversion Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, the Transaction Documents will
(i) result in the creation or imposition by the Company of any liens, charges,
claims or other encumbrances upon the Debenture, the Conversion Shares, the
Warrants or the Warrant Shares or, except as contemplated herein, any of the
assets of the Company, or (ii) entitle the holders of Outstanding Capital Shares
to preemptive or other rights to subscribe for or acquire the Capital Shares or
other securities of the Company. None of the Securities shall subject the
Investor to personal liability to the Company or its creditors by reason of the
possession thereof.
Section 4.7. No Directed Selling, General Solicitation or Advertising in
Regard to this Transaction. Neither the Company nor any of its affiliates nor,
to the knowledge of the Company, any person acting on its or their behalf (i)
has conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to the sale of
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the Debenture or the Warrants, or (ii) made any offers or sales of any security
or solicited any offers to buy any security under any circumstances that would
require registration of the sale of the Securities under the Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Company of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a violation of the
Company's charter documents or bylaws or other organizational documents or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement, indenture
or instrument or obligation to which the Company is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Investor or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company). The Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or to purchase the Debentures or
acquire the Warrants in accordance with the terms hereof, provided that for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investor herein.
Section 4.9. No Material Adverse Change. Since December 31, 2004 no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents filed prior to the date hereof and
available on XXXXX.
Section 4.10. Litigation and Other Proceedings. Except as disclosed in the
SEC Documents, there are no lawsuits or proceedings pending or, to the knowledge
of the Company, threatened, against the Company, nor has the Company received
any written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect. There is no action, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
Section 4.11. No Misleading or Untrue Communication. The Company and, to
the knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Debenture or the Warrants in connection
with the transaction contemplated by this Agreement, have not made, at any time,
any oral communication in connection with the offer or sale of the same which,
together with all such communications, including the SEC Documents, taken as a
whole, contained any untrue statement of a material fact.
Section 4.12. Insurance. The Company maintains types of insurance with
financially sound and reputable insurers that are adequate, consistent with
industry standards and the Company's historical claims experience. The Company
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has not received notice from, and has no knowledge of any threat by, any insurer
(that has issued any insurance policy to the Company) that such insurer intends
to deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
Section 4.13. Tax Matters.
------------
(a) The Company has filed all Tax Returns which it is required to file
under applicable laws; all such Tax Returns are true and accurate in all
material respects and have been prepared in compliance with all applicable laws;
the Company has paid all Taxes due and owing by it (whether or not such Taxes
are required to be shown on a Tax Return) and have withheld and paid over to the
appropriate taxing authorities all Taxes which it is required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
parties, except for the failure to pay such amounts as would not cause a
Material Adverse Effect; and since December 31, 2004, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
(b) For purposes of this Section 4.13:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or
use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 4.14. Property. Except as disclosed in the SEC Documents, the Company
has good and marketable title to all real and personal property owned by it,
free and clear of all liens, encumbrances and defects except such 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
to the Company's knowledge any real property and buildings held under lease by
the Company as tenant are held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and intended to be made of such property and buildings by the Company.
Section 4.15. Employees. The Company has no collective bargaining agreements
15
with any of its employees and there is no labor-union-organizing activity
pending or to the best of the Company's knowledge threatened with respect to the
Company.
Section 4.16 Registration Rights. Except as provided in the Registration
Rights Agreement or as disclosed in the Disclosure Schedule, the Company is not
under any obligation to register any of its presently outstanding securities (or
any of its securities that may be issued upon exercise or conversion of
presently outstanding securities).
Section 4.17 Broker's Commission.
(a) Except as set forth in this Section 4.17 and except as disclosed in the
Disclosure Schedule, the Company on the one hand, and each Investor (for
himself/herself only) on the other hand, agree to indemnify the other against
and hold the other harmless from any and all liabilities to any persons claiming
brokerage commissions or broker's commission other than First Montauk Securities
Corp. ("Broker") on account of services purported to have been rendered on
behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby and arising out of such party's actions.
Anything in this Agreement to the contrary notwithstanding, each Investor is
providing indemnification only for such Investor's own actions and not for any
action of any other Investor. Each Investor's liability hereunder is several
and not joint. The Company agrees that it will pay Broker a cash fee equal to
10% of the Purchase Price on the Closing Date directly out of the funds held
pursuant to the Escrow Agreement ("Broker's Commissions") as payment to broker
for acting as a finder in connection with the sale of the Securities hereunder.
The Broker will also receive on the Closing Date an amount equal to 3% of the
Purchase Price as a non-accountable expense allowance and up to $20,000 for
legal fees payable to Broker's counsel. The Company represents that there are
no other parties entitled to receive fees, commissions, or similar payments in
connection with the offering described in this Agreement except the Broker.
(b) Broker's Warrants. On the Closing Date, the Company will issue to
the Broker, or at the Broker's written instructions to officers or employees of
the Broker, Warrants similar to and carrying the same rights as the Warrants
issuable to the Investors ("Broker's Warrants"). The Broker will receive, in
the aggregate, one Broker's Warrant for each ten (10) Shares issuable on
Conversion of the Debenture on the Closing Date to the Investors. All the
representations, covenants, warranties, undertakings, remedies, liquidated
damages, indemnification, and other rights including but not limited to
reservation and registration rights made or granted to or for the benefit of the
Investors are hereby also made by the Company and granted to the holders of the
Broker's Warrants.
Section 4.18 Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
ARTICLE V
COVENANTS OF THE INVESTOR
The Investor covenants with the Company that:
Section 5.1. Compliance with Law. The Investor's trading activities with
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respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times shares of Common Stock for the purpose of enabling the
Company to issue the Conversion Shares and the Warrant Shares pursuant to any
conversion of the Debenture or exercise of the Warrants in an amount not less
than the number needed to provide for the issuance of Conversion Shares and
Warrant Shares, as may be adjusted from time to time. The Company further agrees
that if at any time the number of shares of Common Stock issuable upon
conversion of the Debenture and exercise of the Warrants would cause the Company
to be obligated to issue a number of shares of Common Stock in excess of its
authorized capital (after taking into account all other Capital Shares
Equivalents then existing), it shall promptly commence all necessary corporate
and stockholder action necessary to increase its authorized capital so as to
eliminate the aforesaid condition.
Section 6.2. Listing of Common Stock. The Company hereby agrees to maintain
the listing or quotation of the Common Stock on a Principal Market, and as soon
as required by the rules of the Principal Market to list the Conversion Shares
and the Warrant Shares on the Principal Market. The Company further agrees, if
the Company applies to have the Common Stock traded on any other Principal
Market, it will include in such application the Conversion Shares and the
Warrant Shares, and will take such other action as is necessary or desirable in
the opinion of the Investor to cause the Conversion Shares and Warrant Shares to
be listed on such other Principal Market as promptly as possible. The Company
will take all action necessary to continue the listing and trading of its Common
Stock on a Principal Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market.
Section 6.3. Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(b) or (g) of the Exchange
Act, will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act.
Section 6.4. Corporate Existence; Conflicting Agreements. The Company will
take all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
Transaction Documents.
Section 6.5. Issuance of Debenture and Warrant Shares. The sale of the
Debenture and the Warrants and the issuance of the Warrant Shares pursuant to
exercise of the Warrants and the Conversion Shares upon conversion of the
Debenture shall be made in accordance with the provisions and requirements
Section 4(2), 4(6) or Regulation D and any applicable state securities law. The
17
Company shall make any necessary SEC and "blue sky" filings required to be made
by the Company in connection with the sale of such securities to the Investor as
required by all applicable laws, and shall provide a copy thereof to First
Montauk Securities Corp. promptly after such filing, and in no event later than
20 days after the Closing Date.
Section 6.6. Right of First Refusal. Until twelve (12) months after the
Closing Date, the Investors shall be given not less than ten (10) business days
prior written notice of any proposed sale by the Company of its common stock or
other securities or debt obligations, except in connection with (i) the
Company's issuance of warrants or options to purchase Common Stock to employees,
directors, officers or consultants of the Company, whether pursuant to an
employee stock option or compensation plan or otherwise, (ii) as a result of the
exercise of options or warrants or conversion of convertible notes which are
granted or issued pursuant to this Agreement or pursuant to the Second Closing,
(iii) as full and partial consideration in connection with a merger,
consolidation or purchase of substantially all of the securities or assets of
any corporation or other entity, including, without limitation, the proposed
acquisition by the Company of Filco GmbH, (iv) the issuance of securities in
situations involving strategic business partnerships, and acquisition
candidates, (v) the issuance of securities pursuant to securities or
arrangements that are outstanding or in place prior to the date of this
Agreement as have been described in the Reports filed with the Commission or
elivered to the Investors prior to the Closing Date (vi) the conversion or
exercise of the Debentures or Warrants purchased hereunder; and (vii) the
Debentures and Warrants issued by the Company pursuant to the Second Closing
(collectively the foregoing are "Excepted Issuances"). The Investors who
exercise their rights pursuant to this Section 6.6 shall have the right during
the ten (10) business days following receipt of the notice to purchase such
offered common stock, debt or other securities in accordance with the terms and
conditions set forth in the notice of sale in the same proportion as their
portion of their investment hereunder bears to the total proceeds received by
the Company hereunder. In the event such terms and conditions are modified
during the notice period, the Investors shall be given prompt notice of such
modification and shall have the right during the ten (10) business days
following the notice of modification, whichever is longer, to exercise such
right.
Notwithstanding the foregoing, the Right of First Refusal rights granted to the
Investors shall be effective to the extent that the participation rights granted
to the investors in the Company's financing which closed on November 22 and 23,
2004, and February 11, 2005, have not been exercised. Accordingly, the Right of
First Refusal rights granted hereby shall only be honored by the Company, if,
and to the extent, that the investors in the November 22 and 23, 2004 and
February 11, 2005 financings do not exercise their respective right of first
refusal to purchase up to pro rata portion of an additional $2,500,000 of
Debentures and Warrants.
Section 6.7. Favored Nations Provision. The conversion price of the
Debentures and the exercise price of the Warrants shall be subject to adjustment
in accordance with this Section 6.7 and as otherwise provided in the Debentures
and Warrants. Other than the Excepted Issuances, if at any time until the
Debentures have been repaid (either in cash or Common Stock) or converted in
full, the Company shall offer, issue or agree to issue any common stock or
18
securities convertible into or exercisable for shares of common stock (or modify
any of the foregoing which may be outstanding) ("New Issue Securities") to any
person or entity at a price per share or conversion or exercise price per share
which shall be less than the Conversion Price in respect of the Conversion
Shares, or Exercise Price in respect of the Warrants, without the consent of
each Investor holding Debenture, then the Conversion Price of the outstanding
Debentures and the outstanding Warrants shall be adjusted, on a full ratchet
basis, to reflect the issue price or conversion or exercise price of the New
Issue Securities. The average Purchase Price of the Conversion Shares and
average exercise price in relation to the Warrant Shares shall be calculated
separately for the Conversion Shares and Warrant Shares. The foregoing
calculation and issuance shall be made separately for Conversion Shares received
upon conversion and separately for Warrant Shares. The Investor is granted the
registration rights described in Section 2(b) of the Registration Rights
Agreement in relation to such additional shares of Common Stock except that the
Scheduled Filing Date and Scheduled Effective Date vis- -vis such additional
common shares shall be, respectively, the sixtieth (60th) and one hundred and
twentieth (120th) date after the closing date giving rise to the requirement to
issue the additional shares of Common Stock. For purposes of the issuance and
adjustment described in this paragraph, the issuance of any security of the
Company carrying the right to convert such security into shares of Common Stock
or of any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the issuance of such
convertible security, warrant, right or option and again at any time upon any
subsequent issuances of shares of Common Stock upon exercise of such conversion
or purchase rights if such issuance is at a price lower than the Conversion
Price in effect upon such issuance. The rights of the Investor set forth in
this Section 6.7 are in addition to any other rights the Investor has pursuant
to this Agreement, the Debenture, the Warrant, any Transaction Document, and any
other agreement referred to or entered into in connection herewith.
6.8 Limitations on Registration of other Securities. The Company hereby
agrees that it shall not include in the Registration Statement any securities of
the Company other than (i) the Registrable Securities, including the securities
listed on Schedule 1(d) of the Registration Rights Agreement (ii) securities
which may be sold by the Company prior to the filing of the Registration
Statement with the SEC in an amount equal to the difference between $5,000,000
and the amount actually sold in this Offering and (iii) securities previously
issued by the Company prior to the Closing Date and which had previously been
registered for resale by the Company but are required (or for ease of combining
existing registration statements) to be included in the Registration Statement
in order to satisfy outstanding obligations to holders of outstanding
securities.
ARTICLE VII
INDEMNIFICATION
Section 7.1. Indemnity.
(a) The Company shall indemnify and hold harmless the Investor, its
respective Affiliates (as defined in SEC Rule 405) and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and shall reimburse the
19
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained in any of the
Transaction Documents, the annexes, schedules or exhibits thereto or any
instrument, agreement or certificate entered into or delivered by the Company
pursuant thereto; or
(ii) any failure by the Company to perform any of its covenants,
agreements, undertakings or obligations set forth in any of the Transaction
Documents, the annexes, schedules or exhibits thereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant
thereto.
(b) The Investor hereby agrees to indemnify and hold harmless the Company,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Damages,
in each case promptly as incurred by the Company Indemnitees and to the extent
arising out of or in connection with:
(i) any misrepresentation, omission of fact, or breach of any of the
Investor's representations or warranties contained in any of the Transaction
Documents, the annexes, schedules or exhibits thereto or any instrument,
agreement or certificate entered into or delivered by the Investor pursuant to
any of the Transaction Documents; or
(ii) any failure by the Investor to perform any of its covenants,
agreements, undertakings or obligations set forth in any of the Transaction
Documents or any instrument, certificate or agreement entered into or delivered
by the Investor pursuant thereto.
Section 7.3. Notice. Promptly after receipt by either party thereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.1 is being sought (the "Indemnifying Party") of the commencement thereof, but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of
any Claim by the Indemnifying Party, the Indemnified Party shall have the right
to employ separate legal counsel and to participate in the defense of such
Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket
costs and expenses of such separate legal counsel to the Indemnified Party if
(and only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
20
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent
of the Indemnified Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnified Party from all
liabilities with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand being asserted
by a third party, the Indemnified Party promptly shall deliver notice of such
claim to the Indemnifying Party. If the Indemnifying Party disputes the claim,
such dispute shall be resolved by mutual agreement of the Indemnified Party and
the Indemnifying Party or by binding arbitration conducted in accordance with
the procedures and rules of the American Arbitration Association. Judgment upon
any award rendered by any arbitrators may be entered in any court having
competent jurisdiction thereof.
ARTICLE VIII
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 8.1. Legends. The Conversion Shares and the Warrant Shares shall
bear the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO AIRTRAX INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(i) Warrants Legend. The Warrants shall bear the
following or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO AIRTRAX INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
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(ii) Debenture Legend. The Debenture shall bear the
following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE
AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO AIRTRAX INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
Section 8.2. Transfer Agent Instructions. Upon Closing, the Company will
issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon the Company's appointment
of any such substitute or replacement transfer agent) instructions substantially
in the form of Exhibit F hereto. Such instructions shall be irrevocable by the
Company from and after the date hereof or from and after the issuance thereof to
any such substitute or replacement transfer agent, as the case may be.
Section 8.3. No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Registrable Securities and no instructions
or "stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX. After the Effective Date
applicable to the Registrable Securities, upon request of the Investor the
Company will substitute certificates without restrictive legends for
certificates for any Conversion Shares or Warrant Shares issued prior to such
Effective Date which bear restrictive legends and remove any stop-transfer
restriction relating thereto promptly, but in no event later than five (5)
Trading Days after request for removal.
Section 8.4. Investor's Compliance. Nothing in this Article shall affect in
any way each Investor's obligations to comply with all applicable securities
laws upon resale of the Common Stock.
Section 8.5. Transfers without Registration. If the Investor provides the
Company with an opinion of counsel, in a form generally acceptable to the
Company, that registration of a resale by the Investor of any Conversion Shares
or Warrant Shares is not required under the Securities Act, the Company shall
permit the transfer and promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by the
Investor and, if such opinion provides that such legends can be removed, without
any restrictive legends.
Section 8.6. Injunctive Relief. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Article X will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Article
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X, that the Investor shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, with the necessity of showing economic loss and with any
bond or other security being required.
ARTICLE IX
CHOICE OF LAW; ARBITRATION
Section 9.1. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of New York without regard to the choice of law
principles thereof. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT
TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
ARTICLE X
ASSIGNMENT
Section 10.1. Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any permitted transferee
of any of the Debenture or Warrants purchased or acquired by the Investor
hereunder with respect to the Debenture or Warrants held by such person, and (b)
the Investor's interest in this Agreement may be assigned at any time, in whole
or in part, to any other person or entity (including any Affiliate of the
Investor) who agrees to make the representations and warranties contained in
Article III and who agrees to be bound by the terms of this Agreement.
ARTICLE XI
NOTICES
Section 11.1. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) hand delivered, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
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prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the first business day following the date of sending by reputable
courier service, fully prepaid, addressed to such address, or (c) upon actual
receipt of such mailing, if mailed. The addresses for such communications shall
be:
If to the Company: Airtrax, Inc.
000 Xxxxxxx Xxxxx, Xxxx Xxx
Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to
(shall not constitute notice): Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investor: As set forth on the signature page hereto
with a copy to: Xxxxxxxxx & XxXxxxx LLP
(shall not constitute notice) 00 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 11.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 11.1.
ARTICLE XII
MISCELLANEOUS
Section 12.1. Counterparts; Facsimile. This Agreement may be executed in
multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
24
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original.
Section 12.2. Entire Agreement. This Agreement and the other Transaction
Documents, which include, but are not limited to, the Debenture, the Warrants,
the Escrow Agreement and the Registration Rights Agreement, set forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as if fully set forth herein. Nothing in this Agreement, express
or implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
Section 12.3. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 12.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 12.5. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Debenture or any Conversion Shares
or Warrants or any Warrant Shares and (ii) in the case of any such loss, theft
or destruction of such certificate, upon delivery of an indemnity agreement or
security reasonably satisfactory in form to the Company (which shall not include
the posting of any bond unless required by the Company's transfer agent) or
(iii) in the case of any such mutilation, on surrender and cancellation of such
certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate of like tenor.
Section 12.6. Fees and Expenses. Up to a maximum of $20,000, at the
discretion of the Broker, the Company shall pay the fees, expenses and
disbursements of the Investor, including fees, expenses and disbursements of the
Investor's legal counsel, accountants and escrow agent, in connection with the
drafting, negotiation and closing of the transactions contemplated hereby. The
Company shall also reimburse the Investor for its reasonable expenses and legal
fees incurred in enforcing this Agreement or in any amendments, modifications or
waivers with respect thereto. The Company shall be responsible for all fees and
expenses of any of its financial advisors, counsel or selling agents. The
Company's obligations under this Section 13.6 shall arise and remain in force
whether or not any closing occurs hereunder, unless such failure to close is
solely the result of default by the Investor.
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Section 12.7 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to the Company or the Investor or any subsequent
holder of any Debenture or Warrants upon any breach, default or noncompliance of
the Investor, any subsequent holder of any Debenture or Warrants or the Company
under this Agreement, shall impair any such right, power or remedy, nor shall it
be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Investor of
any breach, default or noncompliance under this Agreement or any waiver on the
Company's or the Investor's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing and that all remedies, either under this
Agreement, by law, or otherwise afforded to the Company and the Investor, shall
be cumulative and not alternative.
Section 12.8. Amendments and Waivers. Except as otherwise expressly
provided herein, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) with the written consent of the Company and the
Investor or its transferees holding at least sixty percent (60%) of the
outstanding indebtedness and Conversion Shares; provided, however, that no such
amendment or waiver shall reduce the aforesaid percentage of Conversion Shares
required under this Section 12.8. Any amendment or waiver effected in
accordance with this Section 12.8 shall be binding upon the Investor and each
transferee of the securities issuable hereunder. Upon the effectuation of each
such amendment or waiver, the Company shall promptly give written notice thereof
to the Investor (or its transferees) who have not previously consented thereto
in writing.
Section 12.9. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given trading day for purposes of this Agreement and the
other Transaction Documents shall be Bloomberg, L.P. or any successor thereto.
* * * * * *
26
IN WITNESS WHEREOF, the parties hereto have caused this 8% Series C Unsecured
Convertible Debenture and Warrants Purchase Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
AIRTRAX, INC.
By: /s/ Xxxxx Xxxxx
-------------------
Name: Xxxxx Xxxxx
Title: President
Address: Investor:
By:
Fax:
Principal Amount of
Debenture Purchased: $ By:_________________________
Name:
