Exhibit 99.2
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of May 15, 2002 (the
"Agreement"), is entered into by and among TDT Development, Inc., a Nevada
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corporation (the "Company"), Stanford Venture Capital Holdings, Inc., a Delaware
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corporation (the "Purchaser"), Pietro Bortolatti, an individual resident of the
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State of Florida (the "Company Insider"), Stronghold Technologies, Inc., a New
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Jersey corporation ("Stronghold"), and Xxxxxxxxxxx X. Xxxxx, an individual
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resident of the State of New Jersey (the "Stronghold Insider").
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W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the Securities and Exchange
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Commission (the "Commission") under the Securities Act of 1933, as amended (the
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"Securities Act"), and/or Section 4(2) of the Securities Act; and
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WHEREAS, upon the terms and conditions of this Agreement, the Purchaser
wishes to purchase, and the Company wishes to issue and sell, for an aggregate
purchase price of $3,000,000, (i) shares of the Company's Series A $1.50
Convertible Preferred Stock, $0.0001 par value per share (the "Series A
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Preferred Stock"), the terms of which are as set forth in the Certificate of
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Designation of Series A $1.50 Convertible Preferred Stock attached hereto as
Exhibit A (the "Series A Certificate of Designation"), and (ii) warrants (the
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"Warrants") to purchase shares of the Company's common stock, $.0001 par value
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per share (the "Common Stock"), which Warrants will be in the form attached
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hereto as Exhibit B; and
WHEREAS,the Series A Preferred Stock shall be convertible into shares of
Common Stock pursuant to the terms set forth in the Series A Certificate of
Designation, and the Warrants may be exercised for the purchase of Common Stock,
pursuant to the terms set forth therein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
(a) PURCHASE OF PREFERRED STOCK AND THE WARRANTS. Subject to
the terms and conditions in this Agreement, the Purchaser hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
the Purchaser, (i) such number of shares of Series A Preferred Stock as shall
equal 20% of the Company's total issued and outstanding Common Stock on the
Final Closing Date (as defined below) assuming conversion of the Series A
Preferred Stock, but excluding the Excluded Shares (as defined below), and (ii)
such number of Warrants as shall equal the number of shares of Series A
Preferred Stock purchased pursuant to the terms hereof, for an aggregate
purchase price of $3,000,000 which shall be payable on the closing dates set
forth in the Table of Closing Dates (as shown below) in immediately available
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funds. For purposes of this Agreement, the term "Excluded Shares" shall mean
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(i)1,000,000 shares of Common Stock held in escrow pursuant to the Merger
Agreement (as defined below); (ii) shares issuable to the Stronghold Insider
upon conversion of a portion of the Insider Debt (as defined below); and (iii)
shares of Common Stock sold in private placements at a purchase price equal to
or greater than $1.50 per share, as adjusted to account for stock dividends,
stock splits, subdivisions, reclassifications or combinations.
(b) CLOSINGS. The Series A Preferred Stock and the Warrants to be
purchased by the Purchaser hereunder, in the number set forth opposite each of
the Closing Dates (as defined below) in the Table of Closing Dates shown below
and in definitive form, and in such denominations and such names (provided any
name other than the Purchaser shall be an affiliate of Purchaser or senior
management of an affiliate of Purchaser) as the Purchaser or its representative,
if any, may request the Company upon at least three business days' prior notice
of any closing, shall be delivered by or on behalf of the Company for the
account of the Purchaser, against payment by the Purchaser of the aggregate
purchase price by wire transfer to an account of the Company, by 5:00 PM, New
York time on each of the four Closing Dates as set forth below in the Table of
Closing Dates, the first of such Closing Dates being referred to herein as the
"First Closing Date" and any such closing date being referred to herein as a
"Closing Date."
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(c) TABLE OF CLOSING DATES.
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WARRANT TO PURCHASE THE
CLOSING DATE PURCHASE PRICE NUMBER OF SHARES OF SERIES THE NUMBER OF
A PREFERRED STOCK SHARES OF COMMON
TRANSFERRED STOCK TRANSFERRED
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Upon the First Closing Date Seven Hundred Fifty 500,000 500,000
Thousand United States
Dollars ($750,000)
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July 3, 2002 (the "Second Seven Hundred Fifty 500,000 500,000
Closing Date") Thousand United States
Dollars ($750,000)
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July 11, 2002 (the "Third Seven Hundred Fifty 500,000 500,000
Closing Date") Thousand United States
Dollars ($750,000)
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July 19, 2002 (the "Final Seven Hundred Fifty Such number of shares as Such number of Warrants as
Closing Date") Thousand United States shall in the aggregate with shall equal the number of
Dollars ($750,000) the shares received at the shares of Series A
previous closings equal 20% Preferred Stock purchased
of the Company's total on the Final Closing Date.
issued and outstanding
Common Stock on the Final
Closing Date assuming
conversion of the Series A
Preferred Stock but
excluding the Excluded
Shares.
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2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER;
ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION
The Purchaser represents and warrants to, and covenants and agrees with,
the Company as follows:
(a) QUALIFIED INVESTOR. The Purchaser is (i) experienced in
making investments of the kind described in this Agreement and the related
documents, (ii) able, by reason of the business and financial experience of its
management, to protect its own interests in connection with the transactions
described in this Agreement and the related documents, (iii) able to afford the
entire loss of its investment in the Series A Preferred Stock and the Warrants,
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and (iv) an "Accredited Investor" as defined in Rule 501(a) of Regulation D and
knows of no reason to anticipate any material change in its financial condition
for the foreseeable future.
(b) RESTRICTED SECURITIES. All subsequent offers and sales by the
Purchaser of the Series A Preferred Stock and the Warrants and the Common Stock
issuable upon conversion of the Series A Preferred Stock or exercise of the
Warrants shall be made pursuant to an effective registration statement under the
Securities Act or pursuant to an applicable exemption from such registration.
(c) RELIANCE ON REPRESENTATIONS. The Purchaser understands that
the Series A Preferred Stock and the Warrants are being offered and sold to it
in reliance upon exemptions from the registration requirements of the United
States federal securities laws, and that the Company is relying upon the
truthfulness and accuracy of the Purchaser's representations and warranties, and
the Purchaser's compliance with its covenants and agreements, each as set forth
herein, in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Series A Preferred Stock and the
Warrants.
(d) ACCESS TO INFORMATION. The Purchaser (i) has been provided
with sufficient information with respect to the business of the Company for the
Purchaser to determine the suitability of making an investment in the Company
and such documents relating to the Company as the Purchaser has requested and
the Purchaser has carefully reviewed the same, (ii) has been provided with such
additional information with respect to the Company and its business and
financial condition as the Purchaser, or the Purchaser's agent or attorney, has
requested, and (iii) has had access to management of the Company and the
opportunity to discuss the information provided by management of the Company and
any questions that the Purchaser had with respect thereto have been answered to
the full satisfaction of the Purchaser.
(e) LEGALITY. The Purchaser has the requisite corporate power and
authority to enter into this Agreement.
(f) AUTHORIZATION. This Agreement and any related agreements, and
the transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser, and such agreements, when executed and delivered by
each of the Purchaser and the Company will each be a valid and binding agreement
of the Purchaser, enforceable in accordance with their respective terms, except
to the extent that enforcement of each such agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors rights
generally and to general principles of equity.
(g) ADEQUATE RESOURCES. The Purchaser, or an affiliate of the
Purchaser, has sufficient liquid assets to deliver the aggregate purchase price
on each of the Closing Dates as specified in the Table of Closing Dates.
(h) INVESTMENT. The Purchaser is acquiring the Series A Preferred
Stock and the Warrants for investment for the Purchaser's own account, not as a
nominee or agent, and not with the view to, for resale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
such Series A Preferred Stock or Warrants. The Purchaser is
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aware of the limits on resale imposed by virtue of the transaction contemplated
by this Agreement and is aware that the Series A Preferred Stock and the
Warrants will bear restricted legends.
(i) LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Knowledge of the Purchaser (as defined herein),
currently threatened against the Purchaser that questions the validity of the
Primary Documents (as defined below) or the right of Purchaser to enter into any
such agreements or to consummate the transactions contemplated hereby and
thereby, nor does Purchaser have any Knowledge that there is any basis for the
foregoing. All references to the "Knowledge of Purchaser" means the actual
knowledge of Purchaser or the knowledge the Purchaser could reasonably be
expected to have each after reasonable investigation and due diligence.
(j) BROKER'S FEES AND COMMISSIONS. Neither the Purchaser nor any
of its officers, partners, employees or agents has employed any investment
banker, broker, or finder in connection with the transactions contemplated by
the Primary Documents.
3. REPRESENTATIONS OF THE COMPANY AND THE COMPANY
INSIDER
The Company and the Company Insider, jointly and severally, represent
and warrant to, and covenant and agree with, the Purchaser that:
(a) ORGANIZATION. The Company is a corporation duly organized and
validly existing and in good standing under the laws of the State of Nevada and
has all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted after the Merger (as defined below).
The Company has no other interest in any other entities, except for those
subsidiaries listed on Schedule 3(a) attached hereto. Each of the Company's
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state set forth following the name of such
subsidiary on Schedule 3(a). Each of the Company and its subsidiaries is duly
qualified as a foreign corporation and in good standing in all jurisdictions in
which either the ownership or use of the properties owned or used by it, or the
nature of the activities conducted by it, requires such qualification. The
minute books and stock record books and other similar records of the Company
have been provided or made available to the Purchaser or its counsel prior to
the execution of this Agreement, are complete and correct in all material
respects and have been maintained in accordance with sound business practices.
Such minute books contain true and complete records of all actions taken at all
meetings and by all written consents in lieu of meetings of the directors,
stockholders and committees of the board of directors of the Company from the
date of organization through the date hereof. The Company has, prior to the
execution of this Agreement, delivered to the Purchaser true and complete copies
of the Company's Certificate of Incorporation, and Bylaws, each as amended
through the date hereof. The Company is not in violation of any provisions of
its Certificate of Incorporation or Bylaws.
(b) CAPITALIZATION. On the date hereof, the authorized capital of
the Company consists of: (i) 50,000,000 shares of Common Stock, of which
3,000,000 shares are issued and outstanding, and (ii) 5,000,000 shares of
preferred stock, of which 2,017,200 shall be
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designated as the Series A Preferred Stock pursuant to this Agreement. Schedule
3(b) attached hereto sets forth a complete list of all holders of options,
warrants, notes, or any other rights or instruments which would entitle the
holder thereof to acquire shares of the Common Stock or other equity interests
in the Company upon conversion or exercise, setting forth for each such holder
the type of security, number of equity shares covered thereunder, the exercise
or conversion price thereof, the vesting schedule thereof (if any), and the
issuance date and expiration date thereof. Other than as disclosed in Schedule
3(b) attached hereto, there are no outstanding rights, agreements, arrangements
or understandings to which the Company is a party (written or oral) which would
obligate the Company to issue any equity interest, option, warrant, convertible
note, or other types of securities or to register any shares in a registration
statement filed with the Commission. Other than disclosed in Schedule 3(b)
attached hereto, to the Knowledge of the Company (as defined hereinafter), there
is no agreement, arrangement or understanding between or among any entities or
individuals which affects, restricts or relates to voting, giving of written
consents, dividend rights or transferability of shares with respect to any
voting shares of the Company, including without limitation any voting trust
agreement or proxy. All references to the "Knowledge of the Company" in this
Agreement shall mean the actual knowledge of any of the Company and the Company
Insider or the knowledge that the Company or Company Insider could reasonably be
expected to have, each after reasonable investigation and due diligence.
Schedule 3(b) attached hereto contains a complete and accurate schedule of all
the shares subject to "lock-up" or similar agreement or arrangement by which any
equity shares are subject to resale restrictions and the Company has provided
the Purchaser complete and accurate copies of all such agreements, which
agreements are in full force and effect. Except as set forth in Schedule 3(b)
attached hereto, there are no outstanding obligations of the Company or any of
its subsidiaries to repurchase, redeem or otherwise acquire for value any
outstanding shares of capital stock or other ownership interests of the Company
or any of its subsidiaries or to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in any of the Company's
subsidiaries or any other entity. There are no anti-dilution or price adjustment
provisions regarding any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Securities (as defined below).
(c) CONCERNING THE COMMON STOCK AND THE WARRANTS. The Series A
Preferred Stock, the Warrants and the Common Stock issuable upon conversion of
the Series A Preferred Stock and upon exercise of the Warrants when issued,
shall be duly and validly issued, fully paid and non-assessable, and will not
subject the holder thereof to personal liability by reason of being such a
holder.
(d) AUTHORIZED SHARES. The Company shall have available a
sufficient number of authorized and unissued shares of Common Stock as may be
necessary to effect conversion of the Series A Preferred Stock and the exercise
of the Warrants. Each of the Company and the Company Insider understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of shares of Common Stock upon the conversion of the Series A Preferred Stock
and the exercise of the Warrants. The Company further acknowledges that its
obligation to issue shares of Common Stock upon conversion of the Series A
Preferred Stock and upon exercise of the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
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(e) LEGALITY. The Company has the requisite corporate power and
authority to enter into this Agreement, and to issue and deliver the Series A
Preferred Stock, the Warrants and the Common Stock issuable upon conversion of
the Series A Preferred Stock and the exercise of the Warrants.
(f) TRANSACTION AGREEMENTS. This Agreement, the Series A
Certificate of Designation, the Warrants, the Registration Rights Agreement (as
defined below), the Lock-Up Agreements (as defined below), and the Stockholders'
Agreement (as defined below) (collectively, the "Primary Documents"), and the
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transactions contemplated hereby and thereby, have been duly and validly
authorized by the Company; this Agreement has been duly executed and delivered
by the Company and this Agreement is, and the other Primary Documents, when
executed and delivered by the Company, will each be, a valid and binding
agreement of the Company, enforceable in accordance with their respective terms,
except to the extent that enforcement of each of the Primary Documents may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity.
(g) FINANCIAL STATEMENTS. The financial statements and related
notes thereto contained in the Company's filings with the Commission (the
"Company Financials") are correct and complete in all material respects, comply
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in all material respects with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations of the Commission
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promulgated thereunder and have been prepared in accordance with United States
generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other. The Company
Financials present fairly and accurately the financial condition and operating
results of the Company and its subsidiaries in all material respects as of the
dates and during the periods indicated therein and are consistent with the books
and records of the Company and its subsidiaries. Except as set forth in the
Company Financials, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to March 31, 2002 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
United States generally accepted accounting principles to be reflected in the
Company Financials, which in both cases, individually and in the aggregate, are
not material to the Company's financial condition or operating results. Except
as disclosed in Schedule 3(g) attached hereto, since inception, there has been
no change in any accounting policies, principles, methods or practices,
including any change with respect to reserves (whether for bad debts, contingent
liabilities or otherwise), of the Company or any of its subsidiaries.
(h) COMMISSION FILINGS. The Company has made all filings with the
Commission that it has been required to make under the Securities Act and the
Exchange Act and has furnished or made available to the Purchaser true and
complete copies of all the documents it has filed with the Commission since its
inception, all in the forms so filed. As of their respective filing dates, such
filings already filed by the Company or to be filed by the Company after the
date hereof but before the First Closing Date complied or, if filed after the
date hereof, will comply in all material respects with the requirements of the
Securities Act and the Exchange Act, and the rules and regulations of the
Commission promulgated thereunder, as the case may be, and none of the filings
with the Commission contained or will contain any untrue statement of a material
fact or omitted or will omit any material fact required to be stated therein or
necessary
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to make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent such filings have been all prior
to the date of this Agreement corrected, updated or superseded by a document
subsequently filed with Commission.
(i) NON-CONTRAVENTION. The execution and delivery of this
Agreement and each of the other Primary Documents, and the consummation by the
Company of the transactions contemplated by this Agreement and each of the other
Primary Documents, do not and will not conflict with, or result in a breach by
the Company of, or give any third party any right of termination, cancellation,
acceleration or modification in or with respect to, any of the terms or
provisions of, or constitute a default under, (A) its Certificate of
Incorporation or Bylaws, as amended through the date hereof, (B) any material
indenture, mortgage, deed of trust, lease or other agreement or instrument to
which the Company or its subsidiaries are a party or by which they or any of
their properties or assets are bound, or (C) any existing applicable law, rule,
or regulation or any applicable decree, judgment or order of any court or
federal, state, securities industry or foreign regulatory body, administrative
agency, or any other governmental body having jurisdiction over the Company, its
subsidiaries, or any of their properties or assets (collectively, "Legal
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Requirements"), other than those which have been waived or satisfied on or prior
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to the First Closing Date.
(j) APPROVALS AND FILINGS. Other than the completion of the filing
of the Series A Certificate of Designation, no authorization, approval or
consent of any court, governmental body, regulatory agency, self-regulatory
organization, stock exchange or market or the stockholders of the Company is
required to be obtained by the Company for the entry into or the performance of
this Agreement and the other Primary Documents.
(k) COMPLIANCE WITH LEGAL REQUIREMENTS. Except as disclosed in
Schedule 3(k) attached hereto, neither the Company nor any of its subsidiaries
has violated in any material respect, and is not currently in material default
under, any Legal Requirement applicable to the Company or such subsidiary, or
any of the assets or properties of the Company or such subsidiary, where such
violation could reasonably be expected to have material adverse effect on the
business or financial condition of the Company or such subsidiary.
(l) ABSENCE OF CERTAIN CHANGES. Since December 31, 2001 and
except as previously disclosed to the Purchaser and listed on Schedule 3(l),
there has been no material adverse change nor any material adverse development
in the business, properties, operations, financial condition, prospects,
outstanding securities or results of operations of the Company, and no event has
occurred or circumstance exists that may result in such a material adverse
change.
(m) INDEBTEDNESS TO OFFICERS, DIRECTORS AND STOCKHOLDERS. Except
as set forth on Schedule 3(m) attached hereto, neither the Company nor any of
its subsidiaries is indebted to any of such entity's stockholders, officers or
directors (or to members of their immediate families) in any amount whatsoever
(including, without limitation, any deferred compensation or salaries payable).
(n) RELATIONSHIPS WITH RELATED PERSONS. To the Knowledge of the
Company, except as set forth in Schedule 3(n) attached hereto, no officer,
director, or principal
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stockholder of the Company or any of its subsidiaries nor any Related Person (as
defined below) of any of the foregoing has, or since December 31, 1998 has had,
any interest in any property (whether real, personal, or mixed and whether
tangible or intangible) used in or pertaining to the business of the Company or
any of its subsidiaries. Except as set forth in Schedule 3(n) attached hereto,
no officer, director, or principal stockholder of the Company or any of its
subsidiaries nor any Related Person of the any of the foregoing is, or since
December 31, 1998 has owned an equity interest or any other financial or profit
interest in, a Person (as defined below) that has (i) had business dealings or a
material financial interest in any transaction with the Company or any of its
subsidiaries, or (ii) engaged in competition with the Company or any of its
subsidiaries with respect to any line of the merchandise or services of such
company (a "Competing Business") in any market presently served by such company
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except for ownership of less than one percent of the outstanding capital stock
of any Competing Business that is publicly traded on any recognized exchange or
in the over-the-counter market. Except as set forth in Schedule 3(n) attached
hereto, no director, officer, or principal stockholder of the Company or any of
its subsidiaries nor any Related Person of any of the foregoing is a party to
any Contract with, or has claim or right against, the Company or any of its
subsidiaries. As used in this Agreement, "Person" means any individual,
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corporation (including any non-profit corporation), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, or other entity or any governmental
body; "Related Person" means, (X) with respect to a particular individual, (a)
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each other member of such individual's Family (as defined below); (b) any Person
that is directly or indirectly controlled by such individual or one or more
members of such individual's Family; (c) any Person in which such individual or
members of such individual's Family hold (individually or in the aggregate) a
Material Interest (as defined below); and (d) any Person with respect to which
such individual or one or more members of such individual's Family serves as a
director, officer, partner, executor, or trustee (or in a similar capacity); (Y)
with respect to a specified Person other than an individual, (a) any Person that
directly or indirectly controls, is directly or indirectly controlled by, or is
directly or indirectly under common control with such specified Person; (b) any
Person that holds a Material Interest in such specified Person; (c) each Person
that serves as a director, officer, partner, executor, or trustee of such
specified Person (or in a similar capacity); (d) any Person in which such
specified Person holds a Material Interest; (e) any Person with respect to which
such specified Person serves as a general partner or a trustee (or in a similar
capacity); and (f) any Related Person of any individual described in clause (b)
or (c). For purposes of the foregoing definition, (a) the "Family" of an
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individual includes (i) the individual, (ii) the individual's spouse and former
spouses, (iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
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indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act)
of voting securities or other voting interests representing at least 1% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 1% of the outstanding equity securities or
equity securities in a Person.
(o) TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Each of the
Company and its subsidiaries has good and marketable title to all of its
material properties and assets, both real and personal, and has good title to
all its leasehold interests. Except as disclosed in Schedule 3(o) attached
hereto, all material properties and assets reflected in the Company Financials
are free and clear of all Encumbrances (as defined below) except liens for
current
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Taxes not yet due. As used in this Agreement, "Encumbrance" means any charge,
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claim, community property interest, condition, equitable interest, lien, pledge,
security interest, right of first refusal, or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
(p) PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has
sufficient title and ownership of all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to be
conducted, and to the Knowledge of the Company, such business does not and would
not conflict with or constitute an infringement on the rights of others.
(q) PERMITS. Each of the Company and its subsidiaries has all
permits, licenses and any similar authority necessary for the conduct of its
business as now conducted, the lack of which would materially and adversely
affect the business or financial condition of such company. Neither the Company
nor any of its subsidiaries is in default in any respect under any of such
permits, licenses or similar authority.
(r) ABSENCE OF LITIGATION. Except as disclosed on Schedule 3(r)
attached hereto, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body, or arbitration tribunal pending
or, to the Knowledge of the Company or its subsidiaries, threatened, against or
affecting the Company or its subsidiaries, in which an unfavorable decision,
ruling or finding would have a material adverse effect on the properties,
business, condition (financial or other) or results of operations of the Company
and its subsidiaries, taken as a whole, or the transactions contemplated by the
Primary Documents, or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, the Primary Documents.
(s) NO DEFAULT. Except as disclosed on Schedule 3(s) attached
hereto, none of the Company and its subsidiaries is in default in the
performance or observance of any obligation, covenant or condition contained in
any indenture, mortgage, deed of trust or other instrument or agreement to which
it is a party or by which it or its property may be bound.
(t) TAXES. Except as disclosed on Schedule 3(t) attached hereto,
(i) All Tax Returns (as defined below) required to have been
filed by or with respect to the Company or any of its subsidiaries (including
any extensions) have been filed. All such Tax Returns are true, complete and
correct in all material respects. All Taxes (as defined below) due and payable
by the Company, or any of its subsidiaries, whether or not shown on any Tax
Return, or claimed to be due by any Taxing Authority (as defined below), have
been paid or accrued on the balance sheet included in the Company's latest
filing with the Commission.
(ii) Neither the Company nor any of its subsidiaries has any
material liability for Taxes outstanding other than as reflected in the balance
sheet included in the Company's latest filing with the Commission or incurred
subsequent to the date of such filing in the ordinary course of business. The
unpaid Taxes of the Company and its subsidiaries (i) did
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not, as of the most recent fiscal month end, exceed by any material amount the
reserve for liability for income tax (other than the reserve for deferred taxes
established to reflect timing differences between book and tax income) set forth
on the face of the balance sheet included in the Company's latest filing with
the Commission, and (ii) will not exceed by any material amount that reserve as
adjusted for operation and transactions through the First Closing Date.
(iii) Neither the Company nor any of its subsidiaries is a
party to any agreement extending the time within which to file any Tax Return.
No claim has ever been made by a Taxing Authority of any jurisdiction in which
the Company or any of its subsidiaries does not file Tax Returns that the
Company or such subsidiary is or may be subject to taxation by that
jurisdiction.
(iv) The Company and each of subsidiaries have withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor or independent contractor.
(v) There has been no action by any Taxing Authority
in connection with assessing additional Taxes against or in respect of the
Company or any of its subsidiaries for any past period. There is no dispute or
claim concerning any Tax liability of the Company or any of its subsidiaries
either (i) claimed, raised or, to the Knowledge of the Company, threatened by
any Taxing Authority or (ii) which the Company is otherwise aware. There are no
liens for Taxes upon the assets and properties of the Company or any of its
subsidiaries other than liens for Taxes not yet due. Schedule 3(t) attached
hereto indicates those Tax Returns, if any, of the Company, and each of its
subsidiaries that have been audited or examined by Taxing Authorities, and
indicates those Tax returns of the Company and of its subsidiaries that
currently are the subject of audit or examination. The Company has made
available to the Purchaser complete and correct copies of all federal, state,
local and foreign income Tax Returns filed by, and all Tax examination reports
and statements of deficiencies assessed against or agreed to by, the Company and
any of its subsidiaries since the fiscal year ended December 31, 2001.
(vi) There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, the Company or with
respect to any Tax assessment or deficiency affecting the Company or any of its
subsidiaries.
(vii) The Company has not received any written ruling related
to Taxes or entered into any agreement with a Taxing Authority relating to
Taxes.
(viii) The Company does not have any liability for the Taxes
of any person or entity other than the Company (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign Legal
Requirements), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
(ix) The Company (i) has not agreed to make nor is required to
make any adjustment under Section 481 of the Internal Revenue Code by reason of
a change in accounting method and (ii) is not a "consenting corporation" within
the meaning of Section 341(f)(1) of the Internal Revenue Code.
11
(x) The Company is not a party to or bound by any obligations
under any tax sharing, tax allocation, tax indemnity or similar agreement or
arrangement.
(xi) The Company is not involved in, subject to, or a party to
any joint venture, partnership, contract or other arrangement that is treated as
a partnership for federal, state, local or foreign Tax purposes.
(xii) The Company was not included nor is includible, in the
Tax Return of any other entity.
As used in this Agreement, a "Tax Return" means any return, report, information
----------
return, schedule, certificate, statement or other document (including any
related or supporting information) filed or required to be filed with, or, where
none is required to be filed with a Taxing Authority, the statement or other
document issued by, a Taxing Authority in connection with any Tax; "Tax" means
---
any and all taxes, charges, fees, levies or other assessments, including,
without limitation, income, gross, receipts, excise, real or personal property,
sales, withholding, social security, retirement, unemployment, occupation, use,
service, service use, license, net wroth, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by Taxing Authority, whether computed
on a separate, consolidated, unitary, combined or any other basis; and such term
includes any interest whether paid or received, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments; and "Taxing Authority" means any
-----------------
governmental agency, board, bureau, body, department or authority of any United
States federal, state or local jurisdiction or any foreign jurisdiction, having
or purporting to exercise jurisdiction with respect to any Tax.
(u) CERTAIN PROHIBITED ACTIVITIES. Neither the Company nor any of
its directors, officers or other employees has (i) used any Company funds for
any unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity, (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person.
(v) CONTRACTS; NO DEFAULTS. Schedule 3(v) attached hereto contains
a complete and accurate list, and the Company has made available to the
Purchaser true and complete copies, of:
(i) each Applicable Contract (as defined below) that involves
performance of services or delivery of goods or materials of an amount or value
in excess of $25,000;
(ii) each Applicable Contract that was not entered into in the
ordinary course of business or is not cancelable by the Company or a subsidiary
of the Company with no penalty upon advance notice of 30 days or less and that
involves expenditures or receipts of the Company or its subsidiaries in excess
of $5,000;
12
(iii) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Applicable Contract
affecting the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal property
leases and installment and conditional sales agreements having a value per item
or aggregate payments of less than $5,000 and with terms of less than one year);
(iv) each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of profits, losses, costs, or
liabilities by the Company or any of its subsidiaries with any other person or
entity;
(v) each Applicable Contract containing covenants that in
any way purport to restrict the business activity of any of the Company and its
subsidiaries or any affiliate of the foregoing or limit the freedom of any of
the Company and its subsidiaries or any affiliate of the foregoing to engage in
any line of business or to compete with any person or entity;
(vi) each employment or consulting agreement of the Company
and its subsidiaries;
(vii) each Applicable Contract providing for payments to or by
any person or entity based on sales, purchases, or profits, other than direct
payments for goods;
(viii) each power of attorney executed by any of the Company
and its subsidiaries that is currently effective and outstanding;
(ix) each Applicable Contract entered into other than in the
ordinary course of business that contains or provides for an express undertaking
by any of the Company and its subsidiaries to be responsible for consequential
damages;
(x) each Applicable Contract for capital expenditures in
excess of $25,000;
(xi) each written warranty, guaranty, and other similar
undertaking with respect to contractual performance extended by any of the
Company and its subsidiaries other than in the ordinary course of business; and
(xii) each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing.
As used in this Agreement, "Contract" means any agreement, contract, obligation,
--------
promise, or undertaking (whether written or oral and whether express or implied)
that is legally binding; "Applicable Contract" means any Contract (a) under
--------------------
which any of the Company or its subsidiaries has or may acquire any rights, (b)
under which any of the Company or its subsidiaries has or may become subject to
any obligation or liability, or (c) by which any of the Company or its
subsidiaries or any of the assets owned or used by it is or may become bound.
Except as set forth in Schedule 3(v) attached hereto, (i) each of the Company
and its subsidiaries is, and has been, in material compliance with all
applicable terms and requirements of each Contract under which such company has
or had any obligation or liability or by which such
13
company or any of the assets owned or used by such company is or was bound; (ii)
each other person or entity that has or had any obligation or liability under
any Contract under which any of the Company and its subsidiaries has or had any
rights is, and has been, in material compliance with all applicable terms and
requirements of such Contract; (iii) no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene, conflict
with, or result in a material violation or breach of, or give any of the Company
and its subsidiaries or other person or entity the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; and (iv) none of the
Company and its subsidiaries has given to or received from any other person or
entity any notice or other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach of, or default
under, any Contract
Each Applicable Contract is valid, in full force, and binding on and enforceable
against the other party or parties to such contract in accordance with its terms
and provisions.
Except as disclosed on Schedule 3(v) attached hereto, there are no renegotiation
of, attempts to renegotiate, or outstanding rights to renegotiate any material
amounts paid or payable to any of the Company and its subsidiaries under current
or completed Contracts with any person or entity and, to the Knowledge of the
Company, no such person or entity has made written demand for such
renegotiation.
The Contracts relating to the sale, design, or provision of products or services
by the Company or any of its subsidiaries have been entered into in the ordinary
course of business and have been entered into without the commission of any act
alone or in concert with any other person or entity, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
(w) AGENT FEES. Except for a 2.5% placement fee paid to the
Purchaser, the Company has not incurred any liability for any finder's or
brokerage fees or agent's commissions in connection with the transactions
contemplated by this Agreement.
(x) INSURANCE. Schedule 3(x) attached hereto sets forth a true and
correct list of all the insurance policies covering the business, properties and
assets of the Company and its subsidiaries presently in force (including as to
each (i) risk insured against, (ii) name of carrier, (iii) policy number, (iv)
amount of coverage, (v) amount of premium, (vi) expiration date and (vii) the
property, if any, insured). All of the insurance policies set forth on Schedule
3(x) attached hereto are in full force and effect and all premiums, retention
amounts and other related expenses due have been paid, and neither the Company
nor any of its subsidiaries has received any written notice of cancellation with
respect to any of the policies. Such policies, taken together, provide adequate
insurance coverage for the assets and the operations of the Company and its
subsidiaries for all risks normally insured against by companies carrying on the
same business or businesses as the Company and its subsidiaries.
(y) EMPLOYEES. Schedule 3(y) attached hereto is a true and correct
list of all employees of the Company and its subsidiaries and includes their
accrued vacation and sick pay, the nature of their duties and the amounts of
their compensations (including deferred compensation).
14
(z) EMPLOYEE BENEFITS.
(i) Except as disclosed on Schedule 3(z) and except Plans (as
defined below), administered by third parties, that provide group health
coverage (medical and dental), (i) neither the Company nor any of its ERISA
Affiliates (as defined below) maintains or sponsors (or ever maintained or
sponsored), or makes or is required to make contributions to, any Plans;
(ii) With respect to each Plan which provides health care
coverage, the Company and each of its ERISA Affiliates have complied in all
material respects with (i) the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"), and the applicable COBRA regulations and (ii) the applicable
-----
requirements of the Health Insurance Portability and Accountability Act of 1996
and the regulations thereunder, and neither the Company nor any ERISA Affiliate
has incurred any liability under Section 4980B of the Internal Revenue Code;
(iii) Other than routine claims for benefits under the Plans,
there are no pending, or, to the Knowledge of the Company, threatened, actions
or proceedings involving the Plans, or the fiduciaries, administrators, or
trustees of any of the Plans or the Company or any of its ERISA Affiliates as
the employer or sponsor under any Plan, with any governmental agency, any
participant in or beneficiary of any Plan or any other person whatsoever. The
Company knows of no reasonable basis for any such claim, lawsuit, dispute, or
controversy.
As used in this Agreement, "Plan" means (i) each of the "employee benefit plans"
----
(as such term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA")), of which any of the Company or any member of
-----
the same controlled group of businesses as the Company within the meaning of
Section 4001(a)(14) of ERISA (an "ERISA Affiliate") is or ever was a sponsor or
---------------
participating employer or as to which the Company or any of its ERISA Affiliates
makes contributions or is required to make contributions, and (ii) any similar
employment, severance or other arrangement or policy of any of the Company or
any of its ERISA Affiliates (whether written or oral) providing for health,
life, vision or dental insurance coverage (including self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, fringe benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits.
(aa) PRIVATE OFFERING. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, (i) the offer,
sale and issuance of the Series A Preferred Stock and the Warrants, (ii) the
issuance of Common Stock pursuant to the conversion and/or exercise of such
securities into shares of Common Stock, each as contemplated by the Primary
Documents, are exempt from the registration requirements of the Securities Act.
The Company agrees that neither the Company nor anyone acting on its behalf will
offer any of the Series A Preferred Stock, the Warrants or any similar
securities for issuance or sale, or solicit any offer to acquire any of the same
from anyone so as to render the issuance and sale of such securities subject to
the registration requirements of the Securities Act. The Company has not offered
or sold the Series A Preferred Stock or the Warrants by any form of general
solicitation or general advertising, as such terms are used in Rule 502(c) under
the Securities Act.
15
(bb) MERGERS, ACQUISITIONS AND DIVESTITURES. Except as set forth
on Schedule 3(bb) attached hereto, none of the Company and its subsidiaries has
ever acquired any equity interest in or any major assets of any other Person, or
sold the equity interest in any of its subsidiaries or any major asset owned by
it or any of its subsidiaries, in a deal the terms of which were not based on
arms' length negotiations. Except as set forth on Schedule 3(bb) attached
hereto, to the Knowledge of the Company, none of the Company Insider and the
officers and directors of the Company or its subsidiaries has received any
benefit in connection with any of the foregoing transactions or is under any
agreement or understanding with any Person (including agreements or
understandings among themselves) with respect to the receipt of or entitlement
to any such benefit.
(cc) FULL DISCLOSURE. To the Knowledge of the Company, there is no
fact known to the Company (other than general economic conditions known to the
public generally) that has not been disclosed to the Purchaser that could (i)
reasonably be expected to have a material adverse effect upon the condition
(financial or otherwise) or the earnings, business affairs, properties or assets
of the Company or any of its subsidiaries or (ii) reasonably be expected to
materially and adversely affect the ability of the Company to perform the
obligations set forth in the Primary Documents. The representations and
warranties of the Company set forth in this Agreement do not contain any untrue
statement of a material fact or omit any material fact necessary to make the
statements contained herein, in light of the circumstances under which they were
made, not misleading.
4. REPRESENTATIONS OF STRONGHOLD AND THE STRONGHOLD INSIDER
Stronghold and Stronghold Insider (with respect to Sections 4(b), 4(e) and
4(p)), jointly and severally, represent and warrant to, and covenant and agree
with, the Purchaser that:
(a) ORGANIZATION. Stronghold is a corporation duly organized and
validly existing and in good standing under the laws of the State of New Jersey
and has requisite corporate power and authority to carry on its business as now
conducted. Stronghold has no other interest in any other entities. Except as set
forth in Schedule 4(a), Stronghold is duly qualified as a foreign corporation
and in good standing in all jurisdictions in which either the ownership or use
of the properties owned or used by it, or the nature of the activities conducted
by it, make such qualification advisable. The minute books and stock record
books and other similar records of Stronghold have been provided or made
available to the Purchaser or its counsel prior to the execution of this
Agreement, are complete and correct in all material respects. Such minute books
contain true and complete records of all actions taken at all meetings and by
all written consents in lieu of meetings of the directors, stockholders and
committees of the board of directors of Stronghold from the date of organization
through the date hereof. Stronghold has, prior to the execution of this
Agreement, delivered to the Purchaser true and complete copies of Stronghold's
Certificate of Incorporation, and Bylaws, each as amended through the date
hereof. Stronghold is not in violation of any provisions of its Certificate of
Incorporation or Bylaws.
(b) CAPITALIZATION. On the date hereof, the authorized capital of
Stronghold consists of 10,000,000 shares of Common Stock, no par value (the
"Stronghold Common
-----------------
16
Stock"), of which 2,700,000 shares are issued and outstanding. Schedule 4(b)
-----
attached hereto sets forth a complete list of all holders of options, warrants,
notes, or any other rights or instruments which would entitle the holder thereof
to acquire shares of the Stronghold Common Stock or other equity interests in
Stronghold upon conversion or exercise, setting forth for each such holder the
type of security, number of equity shares covered thereunder, the exercise or
conversion price thereof, the vesting schedule thereof (if any), and the
issuance date and expiration date thereof. Other than as disclosed in Schedule
4(b) attached hereto, there are no outstanding rights, agreements, arrangements
or understandings to which Stronghold is a party (written or oral) which would
obligate Stronghold to issue any equity interest, option, warrant, convertible
note, or other types of securities or to register any shares in a registration
statement filed with the Commission. Other than disclosed in Schedule 4(b)
attached hereto, to the Knowledge of Stronghold, there is no agreement,
arrangement or understanding between or among any entities or individuals which
affects, restricts or relates to voting, giving of written consents, dividend
rights or transferability of shares with respect to any voting shares of
Stronghold, including without limitation any voting trust agreement or proxy.
All references to the "Knowledge of Stronghold" in this Agreement shall mean the
actual knowledge of any of Stronghold and the Stronghold Insider or the
knowledge that Stronghold or Stronghold Insider could reasonably be expected to
have, each after reasonable investigation and due diligence. Schedule 4(b)
attached hereto contains a complete and accurate schedule of all the shares
subject to "lock-up" or similar agreement or arrangement by which any equity
shares are subject to resale restrictions and Stronghold has provided the
Purchaser complete and accurate copies of all such agreements, which agreements
are in full force and effect. Except as set forth in Schedule 4(b) attached
hereto, there are no outstanding obligations of Stronghold to repurchase, redeem
or otherwise acquire for value any outstanding shares of capital stock or other
ownership interests of Stronghold to provide funds to or make any investment (in
the form of a loan, capital contribution or otherwise) in any other entity.
There are no anti-dilution or price adjustment provisions regarding any security
issued by Stronghold (or in any agreement providing rights to security holders)
that will be triggered by the Merger.
(c) LEGALITY. Stronghold has the requisite corporate power and
authority to enter into this Agreement.
(d) TRANSACTION AGREEMENTS. This Agreement and the Stockholders'
Agreement, and the transactions contemplated hereby and thereby, have been duly
and validly authorized by Stronghold; this Agreement has been duly executed and
delivered by Stronghold and this Agreement is, and the Stockholders' Agreement,
when executed and delivered by the Stronghold Insider, will each be, a valid and
binding agreement of Stronghold and the Stronghold Insider, as the case may be,
enforceable in accordance with their respective terms, except to the extent that
enforcement of each of this Agreement and the Stockholders' Agreement may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity.
(e) FINANCIAL STATEMENTS. Stronghold has delivered to the
Purchaser its audited financial statements at December 31, 2001 and for the
fiscal years then ended and its unaudited financial statements at March 31, 2002
and for the quarter then ended (the audited and unaudited financial statements
are hereinafter referred to as the "Stronghold Financials"). The
----------------------
17
Stronghold Financials are correct and complete in all material respects and have
been prepared in accordance with United States generally accepted accounting
principles applied on a basis consistent throughout the periods indicated and
consistent with each other, subject, in the case of the unaudited financial
statements, to normal recurring year-end adjustments (the effect of which will
not, individually or collectively or in the aggregate, be materially adverse)
and the absence of notes (that, if presented, would not differ materially from
those included in the audited financial statements). The Stronghold Financials
present fairly and accurately the financial condition and operating results of
Stronghold in all material respects as of the dates and during the periods
indicated therein and are consistent with the books and records of Stronghold.
Except as set forth in the Stronghold Financials, Stronghold has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to March 31, 2002 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under United States generally accepted accounting principles to be
reflected in the Stronghold Financials, which in both cases, individually and in
the aggregate, are not material to Stronghold's financial condition or operating
results. Except as disclosed in Schedule 4(e) attached hereto, since its
inception, there has been no change in any accounting policies, principles,
methods or practices, including any change with respect to reserves (whether for
bad debts, contingent liabilities or otherwise), of Stronghold.
(f) NON-CONTRAVENTION. The execution and delivery of this Agreement
and the Stockholders' Agreement, and the consummation by Stronghold and the
Stronghold Insider, as the case may be, of the transactions contemplated by this
Agreement and the Stockholders' Agreement, do not and will not conflict with, or
result in a breach by Stronghold or the Stronghold Insider, as the case may be,
of, or give any third party any right of termination, cancellation, acceleration
or modification in or with respect to, any of the terms or provisions of, or
constitute a default under, (A) its Certificate of Incorporation or Bylaws, as
amended through the date hereof, (B) any material indenture, mortgage, deed of
trust, lease or other agreement or instrument to which Stronghold or the
Stronghold Insider are a party or by which they or any of their properties or
assets are bound, or (C) any material Legal Requirements, other than those which
have been waived or satisfied on or prior to the First Closing Date.
(g) APPROVALS AND FILINGS. No authorization, approval or consent
of any court, governmental body, regulatory agency, self-regulatory
organization, stock exchange or market or the stockholders of Stronghold is
required to be obtained by Stronghold for the entry into or the performance of
this Agreement except such as have been obtained.
(h) COMPLIANCE WITH LEGAL REQUIREMENTS. Except as disclosed in
Schedule 4(h) attached hereto, Stronghold has not violated in any material
respect, and is not currently in material default under, any Legal Requirement
applicable to Stronghold, or any of the assets or properties of Stronghold,
where such violation could reasonably be expected to have material adverse
effect on the business or financial condition of Stronghold.
(i) BUSINESS PLAN. The Business Plan dated February, 2002,
previously delivered to the Purchaser has been prepared in good faith by
Stronghold and does not contain any untrue statement of a material fact nor does
it omit to state a material fact necessary to make the statements made therein
not misleading, except that with respect to projections contained in
18
the Business Plan, Stronghold represents only that such projections were
prepared in good faith and that Stronghold reasonably believes there is a
reasonable basis for such projections.
(j) ABSENCE OF CERTAIN CHANGES. Since December 31, 2001 and except
as previously disclosed to the Purchaser and listed on Schedule 4(j), there has
been no material adverse change in the business, properties, operations,
financial condition, prospects, outstanding securities or results of operations
of Stronghold, and no event has occurred or circumstance exists that could
reasonably be expected to result in such a material adverse change.
(k) INDEBTEDNESS TO OFFICERS, DIRECTORS AND STOCKHOLDERS. Except
as set forth on Schedule 4(k) attached hereto, Stronghold is not indebted to any
stockholders, officers or directors (or to members of their immediate families)
in any amount whatsoever (including, without limitation, any deferred
compensation or salaries payable).
(l) RELATIONSHIPS WITH RELATED PERSONS. To the Knowledge of
Stronghold, except as set forth in Schedule 4(l) attached hereto, no officer,
director, or principal stockholder of Stronghold nor any Related Person of any
of the foregoing has, or since Stronghold's inception has had, any interest in
any property (whether real, personal, or mixed and whether tangible or
intangible) used in or pertaining to the business of Stronghold. Except as set
forth in Schedule 4(l) attached hereto, no officer, director, or principal
stockholder of Stronghold nor any Related Person of the any of the foregoing is,
or since Stronghold's inception has owned an equity interest or any other
financial or profit interest in, a Person that has (i) had business dealings or
a material financial interest in any transaction with Stronghold, or (ii)
engaged in competition with Stronghold with respect to any line of the
merchandise or services of such company in any market presently served by such
company except for ownership of less than one percent of the outstanding capital
stock of any such business that is publicly traded on any recognized exchange or
in the over-the-counter market. Except as set forth in Schedule 4(l) attached
hereto, no director, officer, or principal stockholder of Stronghold nor any
Related Person of any of the foregoing is a party to any Contract with, or has
claim or right against, Stronghold.
(m) TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Stronghold has
good and marketable title to all of its material properties and assets, both
real and personal, and is in valid possession of all its leasehold interests.
Except as disclosed in Schedule 4(m) attached hereto, all material properties
and assets reflected in the Stronghold Financials are free and clear of all
Encumbrances except liens for current Taxes not yet due.
(n) PATENTS AND OTHER PROPRIETARY RIGHTS. Stronghold has
sufficient title and ownership of or right to use all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for the conduct of its business (collectively,
the "Stronghold Intellectual Property Assets") as now conducted and as proposed
to be conducted free and clear of all liens, security interests, charges,
encumbrances and other adverse claims. To the Knowledge of Stronghold, such
business does not and would not conflict with or constitute an infringement on
the rights of others, or to the Knowledge of Stronghold, is being infringed by
others. Schedule 4(n) sets forth the Stronghold Intellectual Property Assets.
19
(o) PERMITS. Stronghold has all permits, licenses and any similar
authority necessary for the conduct of its business as now conducted, the lack
of which would materially and adversely affect the business or financial
condition of such company. Stronghold is not in default in any respect under any
of such permits, licenses or similar authority.
(p) ABSENCE OF LITIGATION. Except as disclosed on Schedule 4(p)
attached hereto, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body, or arbitration tribunal pending
or, to the Knowledge of Stronghold, threatened, against or affecting Stronghold,
in which an unfavorable decision, ruling or finding would have a material
adverse effect on the properties, business, condition (financial or other) or
results of operations of Stronghold or the transactions contemplated by this
Agreement, or which would adversely affect the validity or enforceability of, or
the authority or ability of Stronghold to perform its obligations hereunder.
(q) NO DEFAULT. Except as disclosed on Schedule 4(q) attached
hereto, Stronghold is not in default in the performance or observance of any
obligation, covenant or condition contained in any material indenture, mortgage,
deed of trust or other instrument or agreement to which it is a party or by
which it or its property may be bound.
(r) TAXES. Except as disclosed on Schedule 4(r) attached hereto,
(i) All Tax Returns required to have been filed by or with
respect to Stronghold (including any extensions) have been filed. All such Tax
Returns are true, complete and correct in all material respects. All Taxes (as
defined below) due and payable by Stronghold whether or not shown on any Tax
Return, or claimed to be due by any Taxing Authority, have been paid or accrued
on the Stronghold Financials, with the exception of Taxes or claims for Taxes
which are set forth in Section 4(r) and the subject of a good faith dispute.
(ii) Stronghold does not have any material liability for Taxes
outstanding other than as reflected in the Stronghold Financials or incurred
subsequent to the date of such filing in the ordinary course of business. The
unpaid Taxes of Stronghold (i) did not, as of the most recent fiscal month end,
exceed by any material amount the reserve for liability for income tax (other
than the reserve for deferred taxes established to reflect timing differences
between book and tax income) set forth on the face of the Stronghold Financials,
and (ii) will not exceed by any material amount that reserve as adjusted for
operation and transactions through the First Closing Date.
(iii) Stronghold is not a party to any agreement extending the
time within which to file any Tax Return. No claim has ever been made by a
Taxing Authority of any jurisdiction in which Stronghold does not file Tax
Returns that Stronghold is or may be subject to taxation by that jurisdiction.
(iv) Stronghold has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor or independent contractor.
(v) There has been no action by any Taxing Authority in
connection with assessing additional Taxes against or in respect of Stronghold
for any past period. There is
20
no dispute or claim concerning any Tax liability of Stronghold either (i)
claimed, raised or, to the Knowledge of Stronghold, threatened by any Taxing
Authority or (ii) which Stronghold is otherwise aware. To the Knowledge of
Stronghold, there are no liens for Taxes upon the assets and properties of
Stronghold other than liens for Taxes not yet due. Schedule 4(r) attached hereto
indicates those Tax Returns, if any, of Stronghold that have been audited or
examined by Taxing Authorities, and indicates those Tax returns of Stronghold
that currently are the subject of audit or examination. Stronghold has made
available to the Purchaser complete and correct copies of all federal, state,
local and foreign income Tax Returns filed by, and all Tax examination reports
and statements of deficiencies assessed against or agreed to by, Stronghold
since the fiscal year ended December 31, 2001.
(vi) There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, Stronghold or with
respect to any Tax assessment or deficiency affecting Stronghold.
(vii) Stronghold has not received any written ruling related
to Taxes or entered into any agreement with a Taxing Authority relating to
Taxes.
(viii) Stronghold does not have any liability for the Taxes of
any person or entity other than Stronghold (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign Legal
Requirements), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
(ix) Stronghold (i) has not agreed to make nor is required to
make any adjustment under Section 481 of the Internal Revenue Code by reason of
a change in accounting method and (ii) is not a "consenting corporation" within
the meaning of Section 341(f)(1) of the Internal Revenue Code.
(x) Stronghold is not a party to or bound by any obligations
under any tax sharing, tax allocation, tax indemnity or similar agreement or
arrangement.
(xi) Stronghold is not involved in, subject to, or a party to
any joint venture, partnership, contract or other arrangement that is treated as
a partnership for federal, state, local or foreign Tax purposes.
(xii) Stronghold was not included nor is includible, in the
Tax Return of any other entity.
(s) CERTAIN PROHIBITED ACTIVITIES. Neither Stronghold nor any of
its directors, officers or other employees has (i) used any Stronghold funds for
any unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity, (ii) made any direct or indirect
unlawful payment of Stronghold funds to any foreign or domestic government
official or employee, (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person.
21
(t) CONTRACTS; NO DEFAULTS. Schedule 4(t) attached hereto contains
a complete and accurate list, and Stronghold has made available to the Purchaser
true and complete copies, of:
(i) each Applicable Contract that involves performance of
services or delivery of goods or materials of an amount or value in excess of
$25,000;
(ii) each Applicable Contract that was not entered into in the
ordinary course of business or is not cancelable by Stronghold or a subsidiary
of Stronghold with no penalty upon advance notice of 30 days or less and that
involves expenditures or receipts of Stronghold in excess of $25,000;
(iii) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Applicable Contract
affecting the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal property
leases and installment and conditional sales agreements having a value per item
or aggregate payments of less than $25,000 and with terms of less than one
year);
(iv) each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of profits, losses, costs, or
liabilities by Stronghold with any other person or entity;
(v) each Applicable Contract containing covenants that in any
way purport to restrict the business activity of Stronghold or any affiliate of
the foregoing or limit the freedom of Stronghold or any affiliate of the
foregoing to engage in any line of business or to compete with any person or
entity;
(vi) each employment or consulting agreement of Stronghold;
(vii) each Applicable Contract providing for payments to or by
any person or entity based on sales, purchases, or profits, other than direct
payments for goods;
(viii) each power of attorney executed by Stronghold that is
currently effective and outstanding;
(ix) each Applicable Contract entered into other than in the
ordinary course of business that contains or provides for an express undertaking
by Stronghold to be responsible for consequential damages;
(x) each Applicable Contract for capital expenditures in
excess of $25,000;
(xi) each written warranty, guaranty, and other similar
undertaking with respect to contractual performance extended by Stronghold other
than in the ordinary course of business; and
(xii) each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing.
22
Except as set forth in Schedule 4(t) attached hereto, (i) Stronghold is, and has
been, in material compliance with all applicable terms and requirements of each
Contract under which such company has or had any obligation or liability or by
which such company or any of the assets owned or used by such company is or was
bound; (ii) each other person or entity that has or had any obligation or
liability under any Contract under which Stronghold has or had any rights is,
and has been, in material compliance with all applicable terms and requirements
of such Contract; (iii) to the Knowledge of Stronghold, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a material violation or breach of, or
give Stronghold or other person or entity the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; and (iv) Stronghold
has not been given or received from any other person or entity any notice or
other communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any Contract.
Each Applicable Contract is valid, in full force, and binding on and enforceable
against the other party or parties to such contract in accordance with its terms
and provisions.
Except as disclosed on Schedule 4(t) attached hereto, there are no renegotiation
of, attempts to renegotiate, or outstanding rights to renegotiate any material
amounts paid or payable to any of Stronghold under current or completed
Contracts with any person or entity and, to the Knowledge of Stronghold, no such
person or entity has made written demand for such renegotiation.
The Contracts relating to the sale, design, or provision of products or services
by Stronghold have been entered into in the ordinary course of business and have
been entered into without the commission of any act alone or in concert with any
other person or entity, or any consideration having been paid or promised, that
is or would be in violation of any Legal Requirement.
(u) AGENT FEES. Except for fees payable to Purchaser and Xxxxxx
Xxxx & Associates, Inc., Stronghold has not incurred any liability for any
finder's or brokerage fees or agent's commissions in connection with the
transactions contemplated by this Agreement.
(v) INSURANCE. Schedule 4(v) attached hereto sets forth a true and
correct list of all the insurance policies covering the business, properties and
assets of Stronghold presently in force (including as to each (i) risk insured
against, (ii) name of carrier, (iii) policy number, (iv) amount of coverage, (v)
amount of premium, (vi) expiration date and (vii) the property, if any,
insured). All of the insurance policies set forth on Schedule 4(v) attached
hereto are in full force and effect and all premiums, retention amounts and
other related expenses due have been paid, and Stronghold has not received any
written notice of cancellation with respect to any of the policies. Such
policies, taken together, provide commercially reasonable insurance coverage for
the assets and the operations of Stronghold for all risks normally insured
against by companies carrying on the same business or businesses as Stronghold.
(w) EMPLOYEES. Schedule 4(w) attached hereto is a true and correct
list of all employees of Stronghold and includes their accrued vacation and sick
pay, the nature of their duties and the amounts of their compensations
(including deferred compensation).
23
(x) EMPLOYEE BENEFITS.
(i) Except as disclosed on Schedule 3(x) and except Plans (as
defined below), administered by third parties, that provide group health
coverage (medical and dental), (i) neither Stronghold nor any of its ERISA
Affiliates maintains or sponsors (or ever maintained or sponsored), or makes or
is required to make contributions to, any Plans;
(ii) With respect to each Plan which provides health care
coverage, Stronghold and each of its ERISA Affiliates have complied in all
material respects with (i) the applicable health care continuation and notice
provisions of COBRA, and the applicable COBRA regulations and (ii) the
applicable requirements of the Health Insurance Portability and Accountability
Act of 1996 and the regulations thereunder, and neither Stronghold nor any ERISA
Affiliate has incurred any liability under Section 4980B of the Internal Revenue
Code;
(iii) Other than routine claims for benefits under the Plans,
there are no pending, or, to the Knowledge of Stronghold, threatened, actions or
proceedings involving the Plans, or the fiduciaries, administrators, or trustees
of any of the Plans or Stronghold or any of its ERISA Affiliates as the employer
or sponsor under any Plan, with any governmental agency, any participant in or
beneficiary of any Plan or any other person whatsoever. Stronghold knows of no
reasonable basis for any such claim, lawsuit, dispute, or controversy.
(y) MERGERS, ACQUISITIONS AND DIVESTITURES. Except as set forth on
Schedule 4(y) attached hereto, Stronghold has never acquired any equity interest
in or any major assets of any other Person, or sold the equity interest in any
subsidiaries or any major asset owned by it, in a deal the terms of which were
not based on arms' length negotiations. Except as set forth on Schedule 4(y)
attached hereto, to the Knowledge of Stronghold, none of Stronghold Insider and
the officers and directors of Stronghold has received any benefit in connection
with any of the foregoing transactions or is under any agreement or
understanding with any Person (including agreements or understandings among
themselves) with respect to the receipt of or entitlement to any such benefit.
(z) FULL DISCLOSURE. To the Knowledge of Stronghold, there is no
fact known to Stronghold (other than general economic conditions known to the
public generally) that has not been disclosed to the Purchaser that could (i)
reasonably be expected to have a material adverse effect upon the condition
(financial or otherwise) or the earnings, business affairs, properties or assets
of Stronghold or (ii) reasonably be expected to materially and adversely affect
the ability of Stronghold to perform the obligations set forth herein. The
representations and warranties of Stronghold set forth in this Agreement do not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained herein, in light of the circumstances
under which they were made, not misleading.
5. CERTAIN COVENANTS, ACKNOWLEDGMENTS AND RESTRICTIONS
(a) TRANSFER RESTRICTIONS. The Purchaser acknowledges that (i)
neither the Series A Preferred Stock, the Warrants nor the Common Stock issuable
upon conversion of the Series A Preferred Stock or upon exercise of the Warrants
have been registered under the Securities Act, and such securities may not be
transferred unless (A) subsequently registered
24
thereunder or (B) they are transferred pursuant to an exemption from such
registration, and (ii) any sale of the Series A Preferred Stock, the Warrants or
the Common Stock issuable upon conversion, exercise or exchange thereof
(collectively, the "Securities") made in reliance upon Rule 144 under the
----------
Securities Act ("Rule 144") may be made only in accordance with the terms of
---------
said Rule 144. The provisions of Section 5(a) and 5(b) hereof, together with the
rights of the Purchaser under this Agreement and the other Primary Documents,
shall be binding upon any subsequent transferee of the Series A Preferred Stock
and the Warrants.
(b) RESTRICTIVE LEGEND. The Purchaser acknowledges and agrees that
until such time as the Securities shall have been registered under the
Securities Act or the Purchaser demonstrates to the reasonable satisfaction of
the Company and its counsel that such registration shall no longer be required,
such Securities may be subject to a stop-transfer order placed against the
transfer of such Securities, and such Securities shall bear a restrictive legend
in substantially the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO LONGER BE
REQUIRED.
(c) FILINGS. The Company undertakes and agrees that it will make
all required filings in connection with the sale of the Securities to the
Purchaser as required by federal and state laws and regulations, or by any
domestic securities exchange or trading market, and if applicable, the filing of
a notice on Form D (at such time and in such manner as required by the rules and
regulations of the Commission), and to provide copies thereof to the Purchaser
promptly after such filing or filings. With a view to making available to the
holders of the Securities the benefits of Rule 144 and any other rule or
regulation of the Commission that may at any time permit such holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3 or Form SB-2, the Company shall (a) at all times make
and keep public information available, as those terms are understood and defined
in Rule 144, (b) file on a timely basis with the Commission all information that
the Commission may require under either of Section 13 or Section 15(d) of the
Exchange Act and, so long as it is required to file such information, take all
actions that may be required as a condition to the availability of Rule 144 (or
any successor exemptive rule hereafter in effect) with respect to the Common
Stock; and (d) furnish to any holder of the Securities forthwith upon request
(i) a written statement by the Company as to its compliance with the reporting
requirements of Rule 144, (ii) a copy of the most recent annual or quarterly
report of the Company as filed with the Commission, and (iii) any other reports
and documents that a holder of the Securities may reasonably request in order to
avail itself of any rule or regulation of the Commission allowing such holder to
sell any such Securities without registration.
(d) RESERVATION OF COMMON STOCK. The Company will at all times
have authorized and reserved for the purpose of issuance a sufficient number of
shares of Common
25
Stock to provide for the conversion of the Series A Preferred Stock and the
exercise of the Warrants.
(e) REGISTRATION REQUIREMENT. At the time of the First Closing
Date, holders of the Securities and the Company shall execute a registration
rights agreement in the form attached hereto as Exhibit C (the "Registration
------------
Rights Agreement").
-----------------
(f) LOCK-UPS. At the time of the First Closing Date, the Purchaser
and Stronghold Insider shall execute a Stockholders' Agreement (as defined
below) substantially in the form as attached hereto as Exhibit D. In addition,
the Company shall have obtained the lock-up agreement (the "Lock-Up Agreement"),
------------------
substantially in the form of Exhibit E attached hereto, with a sufficient number
of stockholders representing a minimum of 6,343,750 shares of Common Stock. The
Company shall not waive any restriction under any of the Lock-Up Agreements or
otherwise consent to any such waiver without the express written approval in
advance by the Purchaser, which approval can be withheld by the Purchaser in its
sole and absolute discretion.
(g) INSIDER DEBT. All of the debt held by the Stronghold Insider
for which Stronghold is the debtor (the "Insider Debt") shall be restructured as
------------
follows and Stronghold shall be released from all obligations relating to the
Insider Debt: (i) $1,000,000 shall be converted into 666,667 shares of Common
Stock; and (ii) $1,200,000 shall be repaid in accordance with the terms of a
promissory note in the form attached hereto as Exhibit F.
(h) RETURN OF CERTIFICATES ON CONVERSION AND WARRANTS ON EXERCISE.
(i) Upon any conversion by the Purchaser of less than all of
the Series A Preferred Stock pursuant to the terms of the Series A Certificate
of Designation, the Company shall issue and deliver to the Purchaser, within
seven business days of the date of conversion, a new certificate or certificates
for, as applicable, the total number of shares of the Series A Preferred Stock,
which the Purchaser has not yet elected to convert (with the number of and
denomination of such new certificate(s) designated by the Purchaser).
(ii) Upon any partial exercise by the Purchaser of the
Warrants, the Company shall issue and deliver to the Purchaser, within seven
business days of the date on which the Warrants is exercised, new Warrants
representing the number of adjusted shares of Common Stock covered thereby, in
accordance with the terms thereof.
(i) REPLACEMENT CERTIFICATES AND WARRANTS.
(i) The certificate(s) representing the shares of the Series A
Preferred Stock held by the Purchaser shall be exchangeable, at the option of
the Purchaser at any time and from time to time at the office of Company, for
certificates with different denominations representing, as applicable, an equal
aggregate number of shares of the Series A Preferred Stock as requested by the
Purchaser upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
(ii) The Warrants will be exchangeable, at the option of the
Purchaser, at any time and from time to time at the office of the Company, for
other Warrants of different
26
denominations entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock as are purchasable under such Warrants. No
service charge will be made for such transfer or exchange.
(j) AMENDMENT TO BYLAWS. As soon as practicable but in no event
later than 45 days from the date of this Agreement, the Company shall amend its
Bylaws to decrease the number of directors to 5.
(k) APPROVAL RIGHTS. From the date hereof and until the Final
Closing Date as described in Section 1(c), neither the Company, its subsidiaries
nor Stronghold shall take any of the following actions without the prior written
consent of the Purchaser, which consent will not be unreasonably withheld or
delayed:
(i) sell a material portion of the assets of the Company, any
subsidiaries or Stronghold or merge the Company, any of its subsidiaries or
Stronghold into or with another unaffiliated company, except as contemplated
hereby;
(ii) change the certificate of incorporation, bylaws or other
charter documents of the Company, any of its subsidiaries or Stronghold, except
as contemplated hereby;
(iii) change substantially or materially the nature of the
business of the Company, any of its subsidiaries or Stronghold;
(iv) issue any equity securities or securities convertible
into equity securities of the Company, any of its subsidiaries or Stronghold,
other than the Series A Preferred Stock and the Warrants pursuant to this
Agreement;
(v) make any acquisition or any capital expenditure or agree
to a schedule of spending or payments for assets which, in the aggregate,
exceeds or would exceed $200,000 over a consecutive 12-month period, except for
the acquisition of inventory or other related assets in the ordinary course of
business;
(vi) enter into any credit facility or incur any material
amount of debt, other than incurring obligations for purchases of inventory or
other related assets in the ordinary course of business;
(vii) offer or sell any securities of the Company, its
subsidiaries or Stronghold;
(viii) expand the number of members of the board of directors
of the Company;
(ix) declare or pay dividends or make any other distribution
or redeem securities; or
(x) enter into or modify a related-party transaction.
27
(l) RESIGNATION AND REPLACEMENT OF BOARD MEMBERS. On or before the
First Closing Date, the Company's Board of Directors shall cause the resignation
of one of its members. The remaining members of the Board of Directors (the
"Remaining Board Members") shall fill the newly created Board vacancies with one
-----------------------
new member to be selected by the Purchaser (the "New Board Member"). The members
----------------
of Board of Directors as set forth pursuant to this Section 5(l) shall serve
until the next annual meeting of the Company's stockholders.
(m) RIGHT TO MAINTAIN PARTICIPATION.
(i) For so long as any shares of the Series A Preferred Stock
shall remain outstanding and are held by Purchaser, the Company agrees that
prior to any sale and/or issuance by the Company of any shares of Common Stock
or any security exercisable for or, convertible into such Common Stock or any
security with voting rights (the "Common Equivalents") (other than a sale or
-------------------
issuance excluded from the provisions of this Section 5(m)(i) by the provisions
of Section 5(m)(iii)), the Company shall give the Purchaser written notice (the
"Notice of Issuance") of the Company's intention to sell and/or issue such
-------------------
Common Stock or Common Equivalents, setting forth the proposed price, quantity
and other material terms and conditions under which the Company proposes to make
such sale and/or issuance. If and when the Company consummates the sale or
issuance of Common Stock or Common Equivalents described in the Notice of
Issuance, the Purchaser shall have the right to purchase or otherwise acquire
(the "Right to Maintain Participation") a number of shares of Common Stock or
Common Equivalents on terms which, subject to this Section 5(m), are at least as
favorable to the Purchaser as the terms on which the Company sold or otherwise
issued such Common Stock or Common Equivalents to the persons who purchased or
otherwise acquired the Common Stock or Common Equivalents referred to in the
Notice of Issuance, such that, immediately after the purchase or other
acquisition by the Purchaser, Purchaser's ownership of the total number of
outstanding shares of Common Stock (assuming the exercise for or conversion of
all Common Equivalents into Common Stock) equals the same percentage of the
total shares of Common Stock (assuming the exercise for or conversion of all
Common Equivalents into Common Stock) as the Purchaser held immediately prior to
the sale or issuance described in the Notice of Issuance. The Purchaser shall
have 20 days from the giving of the Notice of Issuance (the "Election Date") to
--------------
notify the Company in writing that Purchaser elects to exercise its Right to
Maintain Participation (the date such notice is received by the Company is
hereinafter referred to as the "Notice Date").
-----------
(ii) If the Purchaser elects to exercise its Right to Maintain
Participation, the Purchaser and the Company shall use their reasonable best
efforts to consummate the purchase or acquisition and sale or issuance of such
Common Stock or Common Equivalents within 30 days after the Election Date and,
subject to this Section 5(m), the terms of such purchase or acquisition and sale
or issuance shall be at least as favorable to the Purchaser as those set forth
in the Notice of Issuance. The closing of such transaction shall take place as
promptly as practicable after all regulatory approvals required for the
consummation of such purchase have been obtained, at such time, on such date,
and at such location as the parties shall mutually agree. Payment for such
Common Stock or Common Equivalents shall be by wire transfer of immediately
available funds to an account designated by the Company by written notice
delivered to the Purchaser not less than two business days prior to the
scheduled closing of such purchase against delivery of the Common Stock or
Common Equivalents at the executive
28
offices of the Company at the time of the scheduled closing therefor. The
Company shall take all such action as may reasonably be required by any
regulatory authority in connection with the exercise by the Purchaser of the
right to purchase Common Stock or Common Equivalents as set forth in this
Section 5(m).
(iii) The right contained in this Section 5(m) shall not apply
to the following sales and/or issuances by the Company on or after the date
hereof of Common Stock or Common Equivalents:
a. Common Stock or Common Equivalents issued to
employees, officers, directors and consultants pursuant to any stock option
plan, stock incentive or purchase plan or agreement approved by the Company's
Board of Directors or Common Stock issued upon exercise of Common Equivalents so
issued;
b. Common Stock or Common Equivalents issued in
connection with or upon exercise or conversion of securities issued in
connection with a merger, consolidation, share exchange, or other reorganization
or business combination, involving the Company, in which the Company is the
acquiring corporation or stockholders of the Company immediately prior to such
merger, consolidation or other reorganization or business combination and own
securities with a majority of the voting power of the resulting entity;
c. Common Stock or Common Equivalents issued pursuant
to rights distributed to all holders of Common Stock generally or Common Stock
issued upon exercise of such Common Equivalents;
d. Common Stock or Common Equivalents issued in
connection with any stock split, stock dividend or recapitalization of the
Company;
e. Common Stock issued pursuant to the exercise of any
currently outstanding stock options, warrants or any other securities
exchangeable for or convertible into or any other right to acquire shares of
Common Stock; and
f. Common Stock or Common Equivalents issued in
connection with a firmly underwritten public offering, which generates aggregate
net proceeds to the Company (after deduction for underwriters' discounts and
expenses relating to the issuance, including without limitation fees to the
Company's counsel) equal to or exceeding $15,000,000.
(iv) In the event a Purchaser exercises its right to maintain
participation and a dispute arises as to the value of the Common Stock or Common
Equivalents that the Purchaser is acquiring to maintain such participation, an
independent third party ("Arbitrator") acceptable to both parties shall be
----------
selected. The Arbitrator shall determine the consideration the Purchaser will
pay for the Common Stock or Common Equivalent and such determination shall be
binding, conclusive and final. The Purchaser shall pay all the fees and expenses
of the Arbitrator.
(n) STRONGHOLD DEBT. The Company and Stronghold shall, within 60
days of the date hereof, refinance Stronghold's line of credit with United Trust
Bank in accordance with the terms set forth in the letter from United Trust Bank
to Stronghold dated May 9, 2002.
29
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE
SHARES AND THE WARRANT
The Purchaser understands that the Company's obligation to issue the Series
A Preferred Stock and the Warrants on each Closing Date to the Purchaser
pursuant to this Agreement is conditioned upon the following, unless waived in
writing by the Company:
(a) The accuracy on each Closing Date of the representations and
warranties of the Purchaser contained in this Agreement as if made on each
Closing Date and the performance by the Purchaser on or before each Closing Date
of all covenants and agreements of the Purchaser required to be performed on or
before each Closing Date.
(b) The absence or inapplicability on each Closing Date of any and
all laws, rules or regulations prohibiting or restricting the transactions
contemplated hereby, or requiring any consent or approval, except for any
stockholder or Board of Director approval or consent contemplated herein, which
shall not have been obtained.
(c) All regulatory approvals or filings, if any, on each Closing
Date necessary to consummate the transactions contemplated by this Agreement
shall have been made as of each Closing Date.
(d) The receipt of good funds as of each Closing Date as scheduled
in the Table of Closings in Section 1(c).
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE
THE SHARES AND THE WARRANT
The Company understands that the Purchaser's obligation to purchase the
Series A Preferred Stock and the Warrants on each Closing Date is conditioned
upon each of the following, unless waived in writing by the Purchaser:
(a) The Purchaser shall have completed to its satisfaction its due
diligence review of the Company and Stronghold, the Company's and Stronghold's
business, assets and liabilities, and the Company and Stronghold shall have
furnished to the Purchaser and its representatives, such information as may be
reasonably requested by them.
(b) The accuracy on each Closing Date of the representations and
warranties of the Company and Stronghold contained in this Agreement as if made
on such Closing Date, and the performance by the Company and Stronghold on or
before the First Closing Date of all covenants and agreements of the Company and
Stronghold required to be performed on or before the First Closing Date or such
other Closing Date.
(c) The Company shall have executed and delivered to the Purchaser
(i) the Series A Preferred Stock and (ii) the Warrants as scheduled in the Table
of Closings in Section 1(c) with respect to each Closing Date.
(d) On each Closing Date, the Purchaser shall have received from
the Company such other certificates and documents as it or its representatives,
if applicable, shall
30
reasonably request, and all proceedings taken by the Company or the Board of
Directors of the Company, as applicable, in connection with the Primary
Documents contemplated by this Agreement and the other Primary Documents and all
documents and papers relating to such Primary Documents shall be satisfactory to
the Purchaser.
(e) All regulatory approvals or filings, if any, necessary to
consummate the transactions contemplated by this Agreement shall have been made
as of each Closing Date.
(f) All the parties to the Lock-Up Agreements shall have executed
and delivered such agreements.
(g) The Stronghold Insider shall have executed and delivered a
stockholders' agreement with the Purchaser substantially in the form attached as
Exhibit D (the "Stockholders' Agreement").
-----------------------
(h) The Purchaser shall have received by the First Closing Date a
legal opinion from Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP and Xxxx and Xxxx
substantially in the forms attached hereto as Exhibit G.
(i) The Company shall have received a Closing Certificate
substantially in the form attached hereto as Exhibit H.
(j) Prior to or concurrent with the First Closing Date, the
Company and Stronghold shall have executed a merger agreement with Stronghold
acceptable to the Purchaser (the "Merger Agreement") and consummated a merger
-----------------
(the "Merger") pursuant to which Stronghold shall merge with a wholly owned
------
subsidiary of the Company.
(k) With respect to the Second Closing Date only, the Company
shall have reimbursed the Purchaser the expenses incurred in connection with the
negotiation or performance of this Agreement pursuant to Section 8 hereof.
(l) With respect to the First Closing Date only, the Company shall
have entered into an employment agreement with Xxxxxxxxxxx X. Xxxxx in the form
and substance approved by the Purchaser.
8. FEES AND EXPENSES
The Company, the Company Insider, Stronghold and the Stronghold Insider
shall bear their own costs, including attorney's fees, incurred in the
negotiation of this Agreement and consummating of the transactions contemplated
herein. The Company shall pay Purchaser a placement fee equal to 2.5% of the
aggregate purchase price hereunder which placement fee shall be payable in three
equal installments on each of the second, third and forth Closing Date. At the
First Closing Date, the Company shall reimburse the Purchaser for all of the
Purchaser's reasonable out-of-pocket expenses incurred in connection with the
negotiation or performance of this Agreement, including without limitation
reasonable fees and disbursements of counsel to the Purchaser not to exceed
$35,000.
31
9. SURVIVAL
The agreements, covenants, representations and warranties of the Company,
the Company Insider, the Purchaser, Stronghold and the Stronghold Insider shall
survive the execution and delivery of this Agreement and the delivery of the
Securities hereunder for a period of two years from the date of the Final
Closing Date, except that:
(a) the Company's and Stronghold's representations and warranties
regarding Taxes contained in Section 3(t) of this Agreement shall survive as
long as the Company remains statutorily liable for any obligation referenced in
Section 3(t), and
(b) the Company's representations and warranties contained in
Section 3(b) shall survive until the Purchaser and any of its affiliates are no
longer holders of any of the Securities purchased hereunder.
10. INDEMNIFICATION
(a) Each of the Company, the Company Insider, Stronghold and the
Stronghold Insider (with respect to Section 4(b), 4(e) and 4(p)), jointly and
severally, on the one side, and the Purchaser (each in such capacity under this
section, the "Indemnifying Party") agrees to indemnify the other party and each
-------------------
officer, director, employee, agent, partner, stockholder, member and affiliate
of such other party (collectively, the "Indemnified Parties") for, and hold each
-------------------
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims, diminution in value and other liabilities of any and every kind,
including, without limitation, judgments and costs of settlement, and (ii) any
and all reasonable out-of-pocket costs and expenses of any and every kind,
including, without limitation, reasonable fees and disbursements of counsel for
such Indemnified Parties (all of which expenses periodically shall be reimbursed
as incurred), in each case, arising out of or suffered or incurred in connection
with any of the following, whether or not involving a third party claim: (a) any
misrepresentation or any breach of any warranty made by the Indemnifying Party
herein or in any of the other Primary Documents, (b) any breach or
non-fulfillment of any covenant or agreement made by the Indemnifying Party
herein or in any of the other Primary Documents, or (c) any claim relating to or
arising out of a violation of applicable federal or state securities laws by the
Indemnifying Party in connection with the sale or issuance of the Series A
Preferred Stock or Warrants by the Indemnifying Party to the Indemnified Party
(collectively, the "Indemnified Liabilities"). To the extent that the foregoing
-----------------------
undertaking by the Indemnifying Party may be unenforceable for any reason, the
Indemnifying Party shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
(b) No indemnification shall be payable in respect of any
Indemnified Liability (i) where the claiming Indemnified Party had actual
knowledge of or notice of the facts giving rise to (actual knowledge or notice
in this Section 10(b) shall mean knowledge or notice arising from the Disclosure
Schedules), such Indemnified Liability prior to the First Closing Date or (ii)
where such Indemnified Party entered into a settlement of an Indemnified
Liability without the prior written consent of the applicable Indemnifying
Party.
32
11. NOTICES
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free transmission
and mailing a copy of such confirmation, postage prepaid by certified mail,
return receipt requested) or two business days following deposit of such notice
with an internationally recognized courier service, with postage prepaid and
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by five days
advance written notice to each of the other parties hereto.
COMPANY PRIOR TO THE
FIRST CLOSING DATE: TDT Development, Inc.
000 Xx Xxxxx X.
Xxxxxxxx, Xxxxxx, Xxxxxx X0X 0X0
Attention: Pietro Bortolatti
Telephone: (000) 000-0000
Facsimile:
------------------------
WITH A COPY TO: Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
PURCHASER: Stanford Venture Capital Holdings, Inc
0000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
WITH A COPY TO: Stanford Financial Group
0000 Xxxxxxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
STRONGHOLD AND THE Stronghold Technologies, Inc.
COMPANY SUBSEQUENT 000 Xxxxxxx Xxxxxx
TO THE FIRST CLOSING DATE: Xxxxxxxxx Xxxxxxx, XX 00000
Attention: Xxxxxxxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
33
WITH A COPY TO: Xxxx and Xxxx, LLP
000 Xxxxxxx Xxxx Xxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
12. GOVERNING LAW; JURISDICTION
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Florida, without regard to its principles of conflict of
laws. Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any party in the
federal courts of Florida or the state courts of the State of Florida, and each
of the parties consents to the jurisdiction of such courts and hereby waives, to
the maximum extent permitted by law, any objection, including any objections
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
13. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof. This Agreement, together with the other Primary
Documents, including any certificate, schedule, exhibit or other document
delivered pursuant to their terms, constitutes the entire agreement among the
parties hereto with respect to the subject matters hereof and thereof, and
supersedes all prior agreements and understandings, whether written or oral,
among the parties with respect to such subject matters.
(b) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by the party to be charged with enforcement.
(c) WAIVER. No waiver of any provision of this Agreement shall be
deemed a waiver of any other provisions or shall a waiver of the performance of
a provision in one or more instances be deemed a waiver of future performance
thereof.
(d) CONSTRUCTION. This Agreement and each of the Primary Documents
have been entered into freely by each of the parties, following consultation
with their respective counsel, and shall be interpreted fairly in accordance
with its respective terms, without any construction in favor of or against
either party.
(e) BINDING EFFECT OF AGREEMENT. This Agreement shall inure to
the benefit of, and be binding upon the successors and assigns of each of the
parties hereto, including any transferees of the Series A Preferred Stock and
the Warrants.
(f) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or unenforceability of this
Agreement in any other jurisdiction.
34
(g) ATTORNEYS' FEES. If any action should arise between the
parties hereto to enforce or interpret the provisions of this Agreement, the
prevailing party in such action shall be reimbursed for all reasonable expenses
incurred in connection with such action, including reasonable attorneys' fees.
(h) HEADINGS. The headings of this Agreement are for convenience
of reference only and shall not form part of, or affect the interpretation of
this Agreement.
(i) COUNTERPARTS. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by each of the
undersigned.
[SIGNATURES ON FOLLOWING PAGE]
35
TDT DEVELOPMENT, INC.
By: /s/ Pietro Bortolatti
-----------------------------------------
Name: Pietro Bortolatti
Title: President
/s/ Pietro Bortolatti
--------------------------------------------
Pietro Bortolatti, an Individual
STANFORD VENTURE CAPITAL HOLDINGS, INC.
By: /s/ Xxxxx X. Xxxxx
----------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and CFO
STRONGHOLD TECHNOLOGIES, INC.
By: /s/ Xxxxxxxxxxx X. Xxxxx
-----------------------------------------
Name: Xxxxxxxxxxx X. Xxxxx
Title: President and CEO
/s/ Xxxxxxxxxxx X. Xxxxx
--------------------------------------------
Xxxxxxxxxxx X. Xxxxx, an Individual
36
EXHIBIT INDEX
EXHIBIT A CERTIFICATE OF DESIGNATION OF SERIES A $1.50 CONVERTIBLE
PREFERRED STOCK
EXHIBIT B FORM OF WARRANT
EXHIBIT C REGISTRATION RIGHTS AGREEMENT
EXHIBIT D FORM OF STOCKHOLDERS' AGREEMENT BETWEEN PURCHASER AND
STRONGHOLD INSIDER
EXHIBIT E FORM OF LOCK-UP AGREEMENT FOR CERTAIN STOCKHOLDERS
EXHIBIT F FORM OF PROMISSORY NOTE
EXHIBIT G FORM OF LEGAL OPINIONS
EXHIBIT H CLOSING CERTIFICATE
37
SCHEDULE INDEX
SCHEDULE DESCRIPTION PAGE
-------- ----------- ----
NUMBER
------
3(a) Organization
3(b) Capitalization
3(g) Financial Statements
3(k) Compliance With Legal Requirements
3(l) Absence of Certain Changes
3(m) Indebtedness to Officers, Directors and Stockholders
3(n) Relationships With Related Persons
3(o) Title to Properties; Liens and Encumbrances
3(r) Absence of Litigation
3(s) No Default
3(t) Taxes
3(v) Contracts; No Defaults
3(x) Insurance
3(y) Employees
3(z) Employee Benefits
3(bb) Mergers, Acquisitions and Divestitures
4(a) Organization
4(b) Capitalization
4(e) Financial Statements
4(h) Compliance With Legal Requirements
4(j) Absence of Certain Changes
4(k) Indebtedness to Officers, Directors and Stockholders
4(l) Relationships With Related Persons
4(m) Title to Properties; Liens and Encumbrances
4(p) Absence of Litigation
4(q) No Default
4(r) Taxes
4(t) Contracts; No Defaults
4(v) Insurance
4(w) Employees
4(x) Employee Benefits
4(y) Mergers, Acquisitions and Divestitures
38
