Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
LAURUS MASTER FUND, LTD.
AND
FORTUNE DIVERSIFIED INDUSTRIES, INC.
DATED: NOVEMBER 21, 2005
TABLE OF CONTENTS
PAGE
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1. Agreement to Sell and Purchase..................................... 1
2. Fees and Warrant................................................... 1
3. Closing, Delivery and Payment...................................... 2
3.1 Closing.................................................... 2
3.2 Delivery................................................... 2
4. Representations and Warranties of the Company...................... 2
4.1 Organization, Good Standing and Qualification.............. 2
4.2 Subsidiaries............................................... 3
4.3 Capitalization; Voting Rights.............................. 3
4.4 Authorization; Binding Obligations......................... 4
4.5 Liabilities................................................ 4
4.6 Agreements; Action......................................... 5
4.7 Obligations to Related Parties............................. 5
4.8 Changes.................................................... 6
4.9 Title to Properties and Assets; Liens, Etc................. 7
4.10 Intellectual Property...................................... 8
4.11 Compliance with Other Instruments.......................... 8
4.12 Litigation................................................. 9
4.13 Tax Returns and Payments................................... 9
4.14 Employees.................................................. 9
4.15 Registration Rights and Voting Rights...................... 10
4.16 Compliance with Laws; Permits.............................. 10
4.17 Environmental and Safety Laws.............................. 10
4.18 Valid Offering............................................. 11
4.19 Full Disclosure............................................ 11
4.20 Insurance.................................................. 11
4.21 SEC Reports................................................ 11
4.22 Listing.................................................... 12
4.23 No Integrated Offering..................................... 12
4.24 Stop Transfer.............................................. 12
4.25 Dilution................................................... 12
4.26 Patriot Act................................................ 12
4.27 ERISA...................................................... 13
5. Representations and Warranties of the Purchaser.................... 13
5.1 No Shorting................................................ 13
5.2 Requisite Power and Authority.............................. 13
5.3 Investment Representations................................. 14
5.4 The Purchaser Bears Economic Risk.......................... 14
5.5 Acquisition for Own Account................................ 14
5.6 The Purchaser Can Protect Its Interest..................... 14
5.7 Accredited Investor........................................ 15
5.8 Legends.................................................... 15
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PAGE(S)
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6. Covenants of the Company........................................ 16
6.1 Stop-Orders............................................. 16
6.2 Listing................................................. 16
6.3 Market Regulations...................................... 16
6.4 Reporting Requirements.................................. 16
6.5 Use of Funds............................................ 17
6.6 Access to Facilities.................................... 17
6.7 Taxes................................................... 18
6.8 Insurance............................................... 18
6.9 Intellectual Property................................... 18
6.10 Properties.............................................. 19
6.11 Confidentiality......................................... 19
6.12 Required Approvals...................................... 19
6.13 Reissuance of Securities................................ 20
6.14 Opinion................................................. 20
6.15 Margin Stock............................................ 20
6.16 Financing Right of First Refusal........................ 20
7. Covenants of the Purchaser...................................... 21
7.1 Confidentiality......................................... 21
7.2 Non-Public Information.................................. 21
7.3 Limitation on Acquisition of Common Stock of the
Company................................................. 21
8. Covenants of the Company and the Purchaser Regarding
Indemnification................................................. 21
8.1 Company Indemnification................................. 21
8.2 Purchaser's Indemnification............................. 22
9. Conversion of Convertible Note.................................. 22
9.1 Mechanics of Conversion................................. 22
10. Registration Rights............................................. 23
10.1 Registration Rights Granted............................. 23
10.2 Offering Restrictions................................... 23
11. Miscellaneous................................................... 23
11.1 Governing Law........................................... 23
11.2 Survival................................................ 24
11.3 Successors.............................................. 25
11.4 Entire Agreement; Maximum Interest...................... 25
11.5 Severability............................................ 25
11.6 Amendment and Waiver.................................... 26
11.7 Delays or Omissions..................................... 26
11.8 Notices................................................. 26
11.9 Attorneys' Fees......................................... 27
11.10 Titles and Subtitles.................................... 27
11.11 Facsimile Signatures; Counterparts...................... 27
11.12 Broker's Fees........................................... 27
11.13 Construction............................................ 28
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LIST OF EXHIBITS
Form of Convertible Term Note....................................... Exhibit A
Form of Warrant..................................................... Exhibit B
Form of Opinion..................................................... Exhibit C
Form of Escrow Agreement............................................ Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of November 21, 2005, by and between Fortune Diversified Industries,
Inc., an Indiana corporation (the "Company"), and LAURUS MASTER FUND, LTD., a
Cayman Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Seven Million Five
Hundred Thousand Dollars ($7,500,000) in the form of Exhibit A hereto (as
amended, modified and/or supplemented from time to time, the "Note"), which Note
is convertible into shares of the Company's common stock, $0.10 par value per
share (the "Common Stock") at an initial fixed conversion price of $5.50 per
share of Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue to the Purchaser a warrant in the form
of Exhibit B hereto (as amended, modified and/or supplemented from time to time,
the "Warrant") to purchase up to 272,727 shares of the Company's Common Stock
(subject to adjustment as set forth therein) in connection with the Purchaser's
purchase of the Note;
WHEREAS, the Purchaser desires to purchase the Note and the Warrant on the
terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to the
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company shall sell to the Purchaser, and the Purchaser shall purchase from the
Company, the Note. The sale of the Note on the Closing Date shall be known as
the "Offering." The Note will mature on the Maturity Date (as defined in the
Note). Collectively, the Note and Warrant and Common Stock issuable upon
conversion of the Note and upon exercise of the Warrant are referred to as the
"Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser the Warrant to
purchase up to 272,727 shares of Common Stock (subject to adjustment as set
forth therein) in connection with the Offering, pursuant to Section 1
hereof. All the representations, covenants, warranties, undertakings, and
indemnification, and other
rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted for the benefit of the holder of
the Warrant and shares of the Company's Common Stock issuable upon exercise
of the Warrant (the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall pay
to Laurus Capital Management, LLC, the manager of the Purchaser, a closing
payment in an amount equal to three and one half percent (3.50%) of the
aggregate principal amount of the Note. The foregoing fee is referred to
herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses) incurred in connection with
the preparation and negotiation of this Agreement and the Related
Agreements (as hereinafter defined), and expenses incurred in connection
with the Purchaser's due diligence review of the Company and its
Subsidiaries (as defined in Section 4.2) and all related matters. Amounts
required to be paid under this Section 2(c) will be paid on the Closing
Date and shall be no greater than $45,000 for such expenses referred to in
this Section 2(c).
(d) The Closing Payment and the expenses referred to in the preceding
clause (c) (net of deposits previously paid by the Company) shall be paid
at closing out of funds held pursuant to the Escrow Agreement (as defined
below) and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and the Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on the
Closing Date, the Company will deliver to the Purchaser, among other things, the
Note and the Warrant and the Purchaser will deliver to the Company, among other
things, the amounts set forth in the Disbursement Letter by certified funds or
wire transfer.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows
4.1 Organization, Good Standing and Qualification. Each of the Company
and each of its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of the Company
and each of its Subsidiaries has the corporate, limited liability company or
partnership, as the case may be, power and authority to own and operate its
properties and assets and, insofar as it is or shall be a party thereto, to (1)
execute and deliver (i) this Agreement, (ii) the Note and the Warrant to be
issued in connection with this Agreement, (iii) the Registration Rights
Agreement relating to the Securities dated as of the date hereof between the
Company and the Purchaser (as amended, modified and/or supplemented from time to
time, the "Registration Rights Agreement"), (iv) the Escrow Agreement dated as
of the date
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hereof among the Company, the Purchaser and the escrow agent referred to
therein, substantially in the form of Exhibit D hereto (as amended, modified
and/or supplemented from time to time, the "Escrow Agreement") and (v) all other
documents, instruments and agreements entered into in connection with the
transactions contemplated hereby and thereby (the preceding clauses (ii) through
(v), collectively, the "Related Agreements"); (2) issue and sell the Note and
the shares of Common Stock (subject to AMEX listing approval) issuable upon
conversion of the Note (the "Note Shares"); (3) issue and sell the Warrant and
the Warrant Shares; and (4) carry out the provisions of this Agreement and the
Related Agreements and to carry on its business as presently conducted. Each of
the Company and each of its Subsidiaries is duly qualified and is authorized to
do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so has not, or could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects of the Company and its Subsidiaries, taken individually and as a
whole (a "Material Adverse Effect").
4.2 Subsidiaries. Each direct and indirect Subsidiary of the Company,
the direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date hereof
consists of 101,000,000 shares, of which 100,000,000 are shares of Common
Stock, par value $0.10 per share, 10,559,843 shares of which are issued and
outstanding, and 1,000,000 are shares of preferred stock, par value $0.10
per share of which no shares of preferred stock are issued and outstanding.
The authorized, issued and outstanding capital stock of each Subsidiary of
the Company is set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the shares
reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except
as disclosed on Schedule 4.3, neither the offer, issuance or sale of any of
the Note or the Warrant, or the issuance of any of the Note Shares or
Warrant Shares, nor the consummation of any transaction contemplated hereby
will result in a change in the price or number of any securities of the
Company outstanding, under anti-dilution or other similar provisions
contained in or affecting any such securities.
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(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state
and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares
of the Common Stock are as stated in the Company's Articles of
Incorporation (the "Charter"). The Note Shares and Warrant Shares have been
duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Company's Charter, the Securities will
be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances; provided, however, that the Securities may be
subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws at the time
a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on the part of the Company
and each of its Subsidiaries (including their respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note and Warrant has been taken or will be
taken prior to the Closing. This Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of each of the Company and each of its Subsidiaries,
enforceable against each such person or entity in accordance with their terms,
except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries has
any liabilities required to be disclosed on the Company's financial statements
and required to be disclosed in the Company's filings prior to the date of this
Agreement, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any of the Company's filings under the
Securities Exchange Act of 1934 ("Exchange Act") made prior to the date of this
Agreement (collectively, the "Exchange Act Filings"), copies of which have been
provided to the Purchaser.
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4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings
(a) The Company maintains disclosure controls and procedures
("Disclosure Controls") designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, and reported, within the
time periods specified in the rules and forms of the Securities and
Exchange Commission ("SEC").
(b) The Company makes and keep books, records, and accounts, that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company's assets. The Company maintains internal
control over financial reporting ("Financial Reporting Controls") designed
by, or under the supervision of, the Company's principal executive and
principal financial officers, and effected by the Company's board of
directors, management, and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles ("GAAP"), including that:
(i) transactions are executed in accordance with management's
general or specific authorization;
(ii) unauthorized acquisition, use, or disposition of the
Company's assets that could have a material effect on the financial
statements are prevented or timely detected;
(iii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that
the Company's receipts and expenditures are being made only in
accordance with authorizations of the Company's management and board
of directors;
(iv) transactions are recorded as necessary to maintain
accountability for assets; and
(v) the recorded accountability for assets is compared with the
existing assets at reasonable intervals, and appropriate action is
taken with respect to any differences.
(c) There is no weakness in any of the Company's Disclosure Controls
that is required to be disclosed in any of the Exchange Act Filings, except
as so disclosed.
4.7 Obligations to Related Parties. Except as set forth on Schedule
4.7, there are no obligations of the Company or any of its Subsidiaries to
officers, directors, stockholders or employees of the Company or any of its
Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
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(b) reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company and
each Subsidiary of the Company, as applicable); and
(d) obligations listed in the Company's and each of its Subsidiary's
financial statements or disclosed in any of the Company's Exchange Act
Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any of its Subsidiaries or any members of their
immediate families, are indebted to the Company or any of its Subsidiaries,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any of its Subsidiaries is affiliated or with which the Company or any of its
Subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with the Company or any of its
Subsidiaries. Except as described above, no officer, director or stockholder of
the Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between the Company or any of its
Subsidiaries and any such person. Except as set forth on Schedule 4.7, neither
the Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person or entity.
4.8 Changes. Since the May 31, 2005, except as disclosed in any
Exchange Act Filing, in Schedule 4.8 or in any other Schedule to this Agreement
or to any of the Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the aggregate
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of business, in
the contingent obligations of the Company or any of its Subsidiaries by way
of guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
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(e) any waiver by the Company or any of its Subsidiaries of a valuable
right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of the
Company or any of its Subsidiaries, other than advances made in the
ordinary course of business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or any
of its Subsidiaries;
(h) any declaration or payment of any dividend or other distribution
of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any of
its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or guaranteed
by the Company or any of its Subsidiaries, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of
business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company
or any of its Subsidiaries;
(l) any change in any material agreement to which the Company or any
of its Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has
had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through (m)
above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract from
the value of the property subject thereto or materially impair the
operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
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All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Except as
set forth on Schedule 4.9, the Company and its Subsidiaries are in compliance
with all material terms of each lease to which it is a party or is otherwise
bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now
conducted and, to the Company's knowledge, as presently proposed to be
conducted (the "Intellectual Property"), without any known infringement of
the rights of others. Except as set forth on Schedule 4.10(a), there are no
outstanding options, licenses or agreements of any kind relating to the
foregoing proprietary rights, nor is the Company or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and
processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard
products.
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has
violated any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person
or entity, nor is the Company or any of its Subsidiaries aware of any basis
therefor.
(c) The Company does not believe it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company or any of its
Subsidiaries, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to the Company or any of its
Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Company nor any of
its Subsidiaries is in violation or default of (x) any term of its Articles or
Bylaws, or (y) any provision of any indebtedness, mortgage, indenture, contract,
agreement or instrument to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause (y), has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. The execution,
delivery and performance of and compliance with this Agreement and the Related
Agreements to which it is a party, and the issuance and sale of the Note by the
Company and the other Securities by the Company each pursuant hereto and
thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit,
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license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there is
no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been or are
being audited as of the date hereof; or
(b) of any adjustment, deficiency, assessment or court decision in
respect of its federal, state or other taxes.
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any of
its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in material violation of
any term of any employment contract, proprietary information agreement or any
other agreement relating to the right of any such individual to be employed by,
or to contract with, the Company or any of its Subsidiaries because of the
nature of the business to be conducted by the Company or any of its
Subsidiaries; and to the Company's knowledge the continued employment by the
Company and its Subsidiaries of their present employees, and the performance of
the Company's and its Subsidiaries' contracts with its
9
independent contractors, will not result in any such violation. Neither the
Company nor any of its Subsidiaries is aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency that would interfere with their duties to the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective employment agreement
with the Company or any of its Subsidiaries, no employee of the Company or any
of its Subsidiaries has been granted the right to continued employment by the
Company or any of its Subsidiaries or to any material compensation following
termination of employment with the Company or any of its Subsidiaries. Except as
set forth on Schedule 4.14, the Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company or any of its Subsidiaries, nor does the Company or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the
Company's knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any provision of the Xxxxxxxx-Xxxxx Act of 2002
or any SEC related regulation or rule or any rule of the Principal Market (as
hereafter defined) promulgated thereunder or any other applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as have been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. Each
of the Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws. To the Company's knowledge,
neither the Company nor any of its Subsidiaries is in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety which violation has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, and to its knowledge, no material expenditures are or will be required
in order to comply with any such existing statute, law or regulation. Except as
set forth on Schedule 4.17,
10
to the Company's knowledge, no Hazardous Materials (as defined below) are used
or have been used, stored, or disposed of by the Company or any of its
Subsidiaries or, to the Company's knowledge, by any other person or entity on
any property owned, leased or used by the Company or any of its Subsidiaries.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control
of hazardous wastes, or other activities involving hazardous substances,
including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of Indiana state
securities laws.
4.19 Full Disclosure. Each of the Company and each of its Subsidiaries
has provided the Purchaser with all information requested by the Purchaser in
connection with its decision to purchase the Note and Warrant. Neither this
Agreement, the Related Agreements, or the exhibits and schedules hereto and
thereto, contain any untrue statement of a material fact nor, to the Company's
knowledge, omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Any financial projections and other estimates
provided to the Purchaser by the Company or any of its Subsidiaries as set forth
on Schedule 4.19 hereto were based on the Company's and its Subsidiaries'
experience in the industry and on assumptions of fact and opinion as to future
events which the Company or any of its Subsidiaries, at the date of the issuance
of such projections or estimates, believed to be reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company
has filed all proxy statements, reports and other documents required to be filed
by it under the Securities Xxxxxxxx Xxx 0000, as amended (the "Exchange Act").
The Company has furnished the Purchaser copies of: (i) its Annual Reports on
Form 10-KSB for its fiscal years ended August 31, 2004 (including all amendments
thereto); and (ii) its Quarterly Reports on Form 10-QSB for its fiscal quarter
ended May 31, 2005, and the Form 8-K filings which it has made during the fiscal
year August 31, 2005 to date (collectively, the "SEC Reports"). Except as set
forth on Schedule 4.21, each SEC Report was, at the time of its filing, in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial
11
statements (and the notes thereto) included in the SEC Reports, as of their
respective filing dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
4.22 Listing. The Company's Common Stock is listed or quoted, as
applicable, on a Principal Market (as hereafter defined) and satisfies and at
all times hereafter will satisfy, all requirements for the continuation of such
listing or quotation, as applicable. The Company has not received any notice
that its Common Stock will be delisted from, or no longer quoted on, as
applicable, the Principal Market or that its Common Stock does not meet all
requirements for such listing or quotation, as applicable. For purposes hereof,
the term "Principal Market" means the NASD Over The Counter Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Markets System, American Stock Exchange
or New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock).
4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or 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 the offering of
the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. Neither the Company nor any of its Subsidiaries will
issue any stop transfer order or other order impeding the sale and delivery of
any of the Securities at such time as the Securities are registered for public
sale or an exemption from registration is available, except as required by state
and federal securities laws.
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company. The issuance of the Common Stock is subject to the
approval of the American Stock Exchange.
4.26 Patriot Act. The Company certifies that, to the best of Company's
knowledge, neither the Company nor any of its Subsidiaries has been designated,
nor is or shall be owned or controlled, by a "suspected terrorist" as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and covenants that: (i) none of the cash or property that the Company
or any of its Subsidiaries will pay or will contribute to the Purchaser has been
or shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (ii) no contribution or payment by the Company or
any of its Subsidiaries to the Purchaser, to the extent that they are within the
Company's and/or its Subsidiaries' control shall cause the
12
Purchaser to be in violation of the United States Bank Secrecy Act, the United
States International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchaser if any of these
representations, warranties or covenants ceases to be true and accurate
regarding the Company or any of its Subsidiaries. The Company shall provide the
Purchaser all additional information regarding the Company or any of its
Subsidiaries that the Purchaser reasonably deems necessary to ensure compliance
with all applicable laws concerning money laundering and similar activities. The
Company understands and agrees that if at any time it is discovered that any of
the foregoing representations, warranties or covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, the Purchaser may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of the Purchaser's investment in the Company. The
Company further understands that the Purchaser may release confidential
information about the Company and its Subsidiaries and, if applicable, any
underlying beneficial owners, to proper authorities if the Purchaser, in its
reasonable discretion, determines that it is in the best interests of the
Purchaser in light of relevant rules and regulations under the laws set forth in
subsection (ii) above.
4.27 ERISA. Based upon the Employee Retirement Income Security Act of
1974 ("ERISA"), and the regulations and published interpretations thereunder, to
the Company's knowledge: (i) neither the Company nor any of its Subsidiaries has
engaged in any Prohibited Transactions (as defined in Section 406 of ERISA and
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"));
(ii) each of the Company and each of its Subsidiaries has met all applicable
minimum funding requirements under Section 302 of ERISA in respect of its plans;
(iii) neither the Company nor any of its Subsidiaries has any knowledge of any
event or occurrence which would cause the Pension Benefit Guaranty Corporation
to institute proceedings under Title IV of ERISA to terminate any employee
benefit plan(s); (iv) neither the Company nor any of its Subsidiaries has any
fiduciary responsibility for investments with respect to any plan existing for
the benefit of persons other than the Company's or such Subsidiary's employees;
and (v) neither the Company nor any of its Subsidiaries has withdrawn,
completely or partially, from any multi-employer pension plan so as to incur
liability under the Multiemployer Pension Plan Amendments Act of 1980.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 No Shorting. The Purchaser or any of its affiliates and investment
partners has not, will not and will not cause any person or entity, to directly
or indirectly engage in "short sales" of the Company's Common Stock as long as
any part of the Note shall be outstanding, provided, however, for the purposes
of this Section 5.1 Purchasers practice of taking short positions against
"indexed" securities consisting of "baskets of publicly traded securities" shall
not be deemed to violate this Section 5.1.
5.2 Requisite Power and Authority. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on the
13
Purchaser's part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of the Purchaser,
enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations. The Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon the Purchaser's
representations contained in this Agreement, including, without limitation, that
the Purchaser is an "accredited investor" within the meaning of Regulation D
under the Securities Act of 1933, as amended (the "Securities Act"). The
Purchaser confirms that it has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Note and the Warrant to be purchased by it under
this Agreement and the Note Shares and the Warrant Shares acquired by it upon
the conversion of the Note and the exercise of the Warrant, respectively. The
Purchaser further confirms that it has had an opportunity to ask questions and
receive answers from the Company regarding the Company's and its Subsidiaries'
business, management and financial affairs and the terms and conditions of the
Offering, the Note, the Warrant and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
5.4 The Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.
5.5 Acquisition for Own Account. The Purchaser is acquiring the Note
and Warrant and the Note Shares and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.6 The Purchaser Can Protect Its Interest. The Purchaser represents
that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks of
its investment in the Note, the Warrant and the Securities and to protect its
own interests in connection with the transactions contemplated in this Agreement
and the Related Agreements. Further, the Purchaser is aware of no publication of
14
any advertisement in connection with the transactions contemplated in the
Agreement or the Related Agreements.
5.7 Accredited Investor. The Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK 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 OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO FORTUNE DIVERSIFIED INDUSTRIES, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY 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 AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO FORTUNE DIVERSIFIED
INDUSTRIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following 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 ANY 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 OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN
15
OPINION OF COUNSEL REASONABLY SATISFACTORY TO FORTUNE DIVERSIFIED
INDUSTRIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after
it receives notice of issuance by the SEC, any state securities commission or
any other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale in
any jurisdiction, or the initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing or
quotation, as applicable, of the shares of Common Stock issuable upon conversion
of the Note and upon the exercise of the Warrant on the Principal Market upon
which shares of Common Stock are listed or quoted for trading, as applicable
(subject to official notice of issuance) and shall maintain such listing or
quotation, as applicable, so long as any other shares of Common Stock shall be
so listed or quoted, as applicable. The Company will maintain the listing or
quotation, as applicable, of its Common Stock on the Principal Market, and will
comply in all material respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements. The Company will deliver, or cause to be
delivered, to the Purchaser each of the following, which shall be in form and
detail acceptable to the Purchaser:
(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Company, each of the Company's and
each of its Subsidiaries' audited financial statements with a report of
independent certified public accountants of recognized standing selected by
the Company (the "Accountants"), which annual financial statements shall be
without qualification and shall include each of the Company's and each of
its Subsidiaries' balance sheet as at the end of such fiscal year and the
related statements of each of the Company's and each of its Subsidiaries'
income, retained earnings and cash flows for the fiscal year then ended,
prepared on a consolidating and consolidated basis to include the Company,
each Subsidiary of the Company and each of their respective affiliates, all
in reasonable detail and prepared in accordance with GAAP, together with a
certificate of the Company's President, Chief Executive Officer or Chief
Financial Officer stating that such financial statements have been prepared
in accordance with GAAP and whether or not such officer has knowledge
16
of the occurrence of any Event of Default (as defined in the Note) and, if
so, stating in reasonable detail the facts with respect thereto;
(b) As soon as available and in any event within forty five (45) days
after the end of each fiscal quarter of the Company, an unaudited/internal
balance sheet and statements of income, retained earnings and cash flows of
the Company and each of its Subsidiaries as at the end of and for such
quarter and for the year to date period then ended, prepared on a
consolidating and consolidated basis to include all the Company, each
Subsidiary of the Company and each of their respective affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in
accordance with GAAP, subject to year-end adjustments and accompanied by a
certificate of the Company's President, Chief Executive Officer or Chief
Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments,
and (ii) whether or not such officer has knowledge of the occurrence of any
Event of Default (as defined in the Note) not theretofore reported and
remedied and, if so, stating in reasonable detail the facts with respect
thereto;
(c) The Company shall timely file with the SEC all reports required to
be filed pursuant to the Exchange Act and refrain from terminating its
status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would
permit such termination. Promptly after (i) the filing thereof, copies of
the Company's most recent registration statements and annual, quarterly,
monthly or other regular reports which the Company files with the
Securities and Exchange Commission (the "SEC"), and (ii) the issuance
thereof, copies of such financial statements, reports and proxy statements
as the Company shall send to its stockholders; and
(d) The Company shall deliver, or cause the applicable Subsidiary of
the Company to deliver, such other information as the Purchaser shall
reasonably request.
6.5 Use of Funds. The Company shall use the proceeds of the sale of
the Note and the Warrant for general working capital purposes only.
6.6 Access to Facilities. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable notice and during normal business
hours, at such person's expense and accompanied by a representative of the
Company or any Subsidiary to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or any
of its Subsidiaries (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom; and
17
(c) discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all taxes, assessments and governmental charges or levies imposed upon
the income, profits, property or business of the Company and its Subsidiaries;
provided, however, that any such tax, assessment, charge or levy need not be
paid currently if (i) the validity thereof shall currently and diligently be
contested in good faith by appropriate proceedings, (ii) such tax, assessment,
charge or levy shall have no effect on the lien priority of the Purchaser in any
property of the Company or any of its Subsidiaries and (iii) if the Company
and/or such Subsidiary shall have set aside on its books adequate reserves with
respect thereto in accordance with GAAP; and provided, further, that the Company
and its Subsidiaries will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor.
6.8 Insurance. Each of the Company and its Subsidiaries will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. Each of the Company and
each of its Subsidiaries shall (i) keep all its insurable properties and
properties in which it has an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to the Company's or the respective
Subsidiary's ; (ii) maintain a bond in such amounts as is customary in the case
of companies engaged in businesses similar to the Company's or the respective
Subsidiary's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Company or any of its Subsidiaries either directly or through governmental
authority to draw upon such funds or to direct generally the disposition of such
assets; (iii) maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv) maintain all
such worker's compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which the Company or the respective
Subsidiary is engaged in business;.
6.9 Intellectual Property. Each of the Company and each of its
Subsidiaries shall use it best efforts to maintain in full force and effect its
existence, rights and franchises and
18
all licenses and other rights to use Intellectual Property owned or possessed by
it and reasonably deemed to be necessary to the conduct of its business.
6.10 Properties. Each of the Company and each of its Subsidiaries will
(i) keep its properties in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto; and (ii) at
all times comply with each provision of all leases to which it is a party or
under which it occupies property, if the breach of such provisions could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.11 Confidentiality. Unless expressly agreed to by the Purchaser or
unless and until such disclosure is required by law (including, but not limited
to, applicable securities laws) or applicable regulation (and then only to the
extent of such requirement,) the Company will not, and will not permit any of
its Subsidiaries to, disclose, and will not include in any public announcement,
the name of the Purchaser. Notwithstanding the foregoing, the Company may
disclose the Purchaser's identity and the terms of this Agreement to its current
and prospective debt and equity financing sources.
6.12 Required Approvals. (I) For so long as fifty percent (50%) of the
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser which consent shall not be unreasonably
withheld, conditioned or delayed, shall not, and shall not permit any of its
Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends, other
than dividends paid to the Company or any of its wholly-owned Subsidiaries,
or on any preferred stock issued by the Company to Carter Fortune on or
after the date hereof, (ii) issue any preferred stock that is manditorily
redeemable prior to the one year anniversary of the Maturity Date (as
defined in the Note) or (iii) redeem any of its preferred stock or other
equity interests;
(b) liquidate, dissolve or effect a material reorganization (it being
understood that in no event shall the Company or any of its Subsidiaries
dissolve, liquidate or merge with any other person or entity (unless, in
the case of such a merger, the Company or, in the case of merger not
involving the Company, such Subsidiary, as applicable, is the surviving
entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or any of its
Subsidiaries, right to perform the provisions of this Agreement, any
Related Agreement or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole (except through the
acquisition of other companies completed in the ordinary course of the
Company's business); or
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of five
19
percent (5%) of the fair market value of the Company's and its
Subsidiaries' assets)) whether secured or unsecured other than (x) the
Company's obligations owed to the Purchaser, (y) indebtedness set forth on
Schedule 6.12(e) attached hereto and made a part hereof and any
refinancings or replacements thereof on terms (in the aggregate) no less
favorable to the Purchaser than the indebtedness being refinanced or
replaced, and (z) any indebtedness incurred in connection with the purchase
of stock or assets (other than equipment) in the ordinary course of
business (including, but not limited to, the acquisition of other
companies), or any refinancings or replacements thereof on terms (in the
aggregate) no less favorable to the Purchaser than the indebtedness being
refinanced or replaced; (ii) other than in the ordinary course of business,
cancel any indebtedness owing to it in excess of $50,000 in the aggregate
during any 12 month period; (iii) assume, guarantee, endorse or otherwise
become directly or contingently liable in connection with any obligations
of any other person or entity, except the endorsement of negotiable
instruments by the Company or any Subsidiary thereof for deposit or
collection or similar transactions in the ordinary course of business or
guarantees of indebtedness otherwise permitted to be outstanding pursuant
to this clause (e);
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the Purchaser and broker, if any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion reasonably acceptable to the Purchaser from the Company's
external legal counsel. The Company will provide, at the Company's expense, such
other legal opinions in the future as are deemed reasonably necessary by the
Purchaser (and reasonably acceptable to the Purchaser) in connection with the
conversion of the Note and exercise of the Warrant.
6.15 Margin Stock. The Company will not permit any of the proceeds of
the Note or the Warrant to be used directly or indirectly to "purchase" or
"carry" "margin stock" or to repay indebtedness incurred to "purchase" or
"carry" "margin stock" within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.
6.16 Intentionally Omitted.
20
6.17 Authorization and Reservation of Shares. The Company shall at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of the Note and exercise of the Warrants.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser will not disclose, and will not
include in any public announcement, the name of the Company, unless expressly
agreed to by the Company or unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement.
7.2 Non-Public Information. The Purchaser will not effect any sales in
the shares of the Company's Common Stock while in possession of material,
non-public information regarding the Company if such sales would violate
applicable securities law.
7.3 Limitation on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions between the Purchaser and the Company,
the Purchaser may not acquire stock in the Company (including, without
limitation, pursuant to a contract to purchase, by exercising an option or
warrant, by converting any other security or instrument, by acquiring or
exercising any other right to acquire, shares of stock or other security
convertible into shares of stock in the Company, or otherwise, and such
contracts, options, warrants, conversion or other rights shall not be
enforceable or exercisable) to the extent such stock acquisition would cause any
interest (including any original issue discount) payable by the Company to the
Purchaser not to qualify as "portfolio interest" within the meaning of Section
881(c)(2) of the Code, by reason of Section 881(c)(3) of the Code, taking into
account the constructive ownership rules under Section 871(h)(3)(C) of the Code
(the "Stock Acquisition Limitation"). The Stock Acquisition Limitation shall
automatically become null and void without any notice to the Company upon the
earlier to occur of either (a) the Company's delivery to the Purchaser of a
Notice of Redemption (as defined in the Note) or (b) the existence of an Event
of Default (as defined in the Note) at a time when the average closing price of
the Company's common stock as reported by Bloomberg, L.P. on the Principal
Market for the immediately preceding five trading days is greater than or equal
to [150%] of the Fixed Conversion Price (as defined in the Note).
8. Covenants of the Company and the Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against all claims, costs, expenses, liabilities, obligations, losses or damages
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which result, arise out of or are based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company
21
or any of its Subsidiaries hereunder, under any other Related Agreement or any
other agreement entered into by the Company and/or any of its Subsidiaries and
the Purchaser relating hereto or thereto.
8.2 Purchaser's Indemnification. The Purchaser agrees to indemnify,
hold harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which result, arise out of or are based
upon: (i) any misrepresentation by the Purchaser or breach of any warranty by
the Purchaser in this Agreement or in any exhibits or schedules attached hereto
or any Related Agreement; or (ii) any breach or default in performance by the
Purchaser of any covenant or undertaking to be performed by the Purchaser
hereunder, under any other Related Agreement or any other agreement entered into
by the Company and the Purchaser relating hereto or thereto.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the Purchaser's
intention to sell the Note Shares and the Note Shares are included in an
effective registration statement or are otherwise exempt from registration
when sold: (i) upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel reasonably acceptable to the
Purchaser following a request by the Purchaser) to assure that the
Company's transfer agent shall issue shares of the Company's Common Stock
in the name of the Purchaser (or its nominee) or such other persons as
designated by the Purchaser in accordance with Section 9.1(b) hereof and in
such denominations to be specified representing the number of Note Shares
issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given to
the transfer agent of the Company's Common Stock (unless otherwise required
by law) and that after the Effectiveness Date (as defined in the
Registration Rights Agreement) the Note Shares issued will be freely
transferable subject to the prospectus delivery requirements of the
Securities Act, any other applicable legal requirements and the provisions
of this Agreement, and will not contain a legend restricting the resale or
transferability of the Note Shares.
(b) The Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the "Notice of Conversion"). The Purchaser will
not be required to surrender the Note until the Purchaser receives a credit
to the account of the Purchaser's prime broker through the DWAC system (as
defined below), representing the Note Shares or until the Note has been
fully satisfied. Each date on which a Notice of Conversion is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." Pursuant to the terms of the Notice of
Conversion, the Company will issue instructions to the transfer agent
accompanied by an opinion of counsel within
22
three (3) business days of the date of the delivery to the Company of the
Notice of Conversion and shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder by crediting
the account of the Purchaser's prime broker with the Depository Trust
Company ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC")
system within three (3) business days after receipt by the Company of the
Notice of Conversion (the "Delivery Date").
(c) The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event
that the Company fails to direct its transfer agent to deliver the Note
Shares to the Purchaser via the DWAC system within the time frame set forth
in Section 9.1(b) above and the Note Shares are not delivered to the
Purchaser by the Delivery Date, as compensation to the Purchaser for such
loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the Note Shares in the form required pursuant to Section 9
hereof upon conversion of the Note in the amount equal to the greater of:
(i) $500 per business day after the Delivery Date; or (ii) the Purchaser's
actual damages from such delayed delivery. The Company shall pay any
payments incurred under this Section in immediately available funds upon
demand and, in the case of actual damages, accompanied by reasonable
documentation of the amount of such damages. Such documentation shall show
the number of shares of Common Stock the Purchaser is forced to purchase
(in an open market transaction) which the Purchaser anticipated receiving
upon such conversion, and shall be calculated as the amount by which (A)
the Purchaser's total purchase price (including customary brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds
(B) the aggregate principal and/or interest amount of the Note, for which
such Conversion Notice was not timely honored.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to the Registration Rights
Agreement.
10.2 Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries
will, prior to the full repayment or conversion of the Note (together with all
accrued and unpaid interest and fees related thereto), (x) enter into any equity
line of credit agreement or similar agreement or (y) issue, or enter into any
agreement to issue, any securities with a variable/floating conversion and/or
pricing feature which are or could be (by conversion or registration)
free-trading securities (i.e. common stock subject to a registration statement,
commonly known as "death spirals" or "floorless" convertible securities).
11. Miscellaneous.
11.1 Governing Law, Jurisdiction and Waiver of Jury Trial.
23
(a) THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
(b) THE COMPANY AND THE PURCHASER HEREBY CONSENT AND AGREE THAT THE
STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW
YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON THE
OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS
OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE
OTHER RELATED AGREEMENTS; PROVIDED, THAT THE PURCHASER AND THE COMPANY
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE
TO PRECLUDE THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION
IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE PURCHASER. THE COMPANY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES
ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY AND THE PURCHASER
HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL,
RETURN RECEIPT REQUESTED ADDRESSED TO THE COMPANY OR THE PURCHASER AT THE
ADDRESS SET FORTH IN SECTION 11.9 AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF THE COMPANY'S OR THE PURCHASER'S ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES
HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING
BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH
24
THIS AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED
HERETO OR THERETO.
11.2 Severability. Wherever possible each provision of this Agreement
and the Related Agreements shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or any Related Agreement shall be prohibited by or invalid or illegal under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity or illegality, without invalidating the remainder of
such provision or the remaining provisions thereof which shall not in any way be
affected or impaired thereby.
11.3 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument. All indemnities set forth herein shall survive
the execution, delivery and termination of this Agreement and the Note and the
making and repayment of the obligations arising hereunder, under the Note and
under the other Related Agreements.
11.4 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person or entity which shall
be a holder of the Securities from time to time, other than the holders of
Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an
effective registration statement. The Purchaser shall not be permitted to assign
its rights hereunder or under any Related Agreement to a competitor of the
Company unless an Event of Default (as defined in the Note) has occurred and is
continuing.
11.5 Entire Agreement; Maximum Interest. This Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Nothing contained in this Agreement, any Related
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Purchaser and thus refunded to the Company.
25
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the
Company.
11.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, 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 or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent as follows:
If to the Company, to: Fortune Diversified Industries, Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Chief Financial Officer
Facsimile: 000-000-0000
with a copy to:
26
Xxxxxx Xxxxxxx Vornehm, LLP
0000 Xxxxxxxx Xxxxxxxx, Xxxxx 0000
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile: 000-000-0000
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
X.X. Xxx 000 XX
Xxxxxx Xxxxx
Xxxxxx Xxxx
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 000-000-0000
with a copy to:
Xxxx X. Xxxxxx, Esq.
000 Xxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement or any Related Agreement,
the prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement and/or such Related
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
agreement.
11.12 Broker's Fees. Except as set forth on Schedule 11.12 hereof,
each party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such party
hereto is or will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
27
11.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement or any Related Agreement to favor any party
against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
28
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
FORTUNE DIVERSIFIED INDUSTRIES, INC. LAURUS MASTER FUND, LTD.
By: By:
--------------------------------- ------------------------------------
Name: Name:
------------------------------- ----------------------------------
Title: Title:
------------------------------ ---------------------------------
29
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
1. The Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its formation and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder (subject to the approval of
the issuance of the stock by AMEX); and (ii) the authorization, sale, issuance
and delivery of the Securities pursuant to the Agreement and the Related
Agreements. The Note Shares and the Warrant Shares, when issued pursuant to and
in accordance with the terms of the Agreement and the Related Agreements and
upon delivery shall be validly issued and outstanding, fully paid and non
assessable.
3. The execution, delivery and performance by each of the Company and each
of its Subsidiaries of the Agreement and the Related Agreements (to which it is
a party) and the consummation of the transactions on its part contemplated by
any thereof, will not, with or without the giving of notice or the passage of
time or both:
(a) Violate the provisions of their respective Charter or bylaws; or
(b) Violate any judgment, decree, order or award of any court binding
upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is qualified]
or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such entity is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries party thereto in accordance with
their respective terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, 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 and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any Related Agreement, or to consummate the
transactions contemplated thereby. To such counsel's knowledge, the Company is
not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
X-0
XXXXXXX X
XXXX XX XXXXXX XXXXXXXXX
X-0
