SECURITIES PURCHASE AGREEMENT
EXHIBIT
10.1
This
Securities Purchase Agreement (this “Agreement”) is dated as of October
17, 2007 between Zealous Trading Group, Inc., a Nevada corporation (the
“Company”), and each purchaser identified on the signature pages hereto
(each, including its successors and assigns, a “Purchaser” and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 promulgated thereunder, the Company desires to issue and
sell to each Purchaser, and each Purchaser, severally and not jointly, desires
to purchase from the Company, securities of the Company as more fully described
in this Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of
which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1 Definitions. In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such terms
in
the Debentures (as defined herein), and (b) the following terms have the
meanings set forth in this Section 1.1:
“Action”
shall have the meaning ascribed to such term in Section 3.1(j).
“Action
by Written Consent of the Stockholders” means written consent of the
stockholders of the Company approving the Authorized Share Approval in a manner
that complies with §78.207 and other applicable sections of the Nevada Revised
Statutes, in the form of Exhibit G attached hereto.
“Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such
Purchaser.
“ASNI”
means ASNI II, Inc., a Delaware corporation.
“Authorized
Share Approval” means (i) the vote by the stockholders of the Company to
approve an amendment to the Company’s articles or certificate of incorporation
that increases the number of authorized shares of Common Stock from 44,831,444
to 1,500,000,000 (the “Amendment”) and (ii) the filing by the Company of
the Amendment with the Secretary of State of the State of Nevada and the
acceptance of the Amendment by the Secretary of State of the State of
Nevada.
“Board
of Directors” means the board of directors of the
Company.
“Business
Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or
other
governmental action to close.
“Closing”
means the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing
Date” means the Trading Day when all of the Transaction Documents have been
executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and
(ii) the Company’s obligations to deliver the Securities have been satisfied or
waived.
“Commission”
means the Securities and Exchange Commission.
“Common
Stock” means the common stock of the Company, par value $0.001 per share,
and any other class of securities into which such securities may hereafter
be
reclassified or changed into.
“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Company
Counsel” means Xxxxxxxxx Xxxxx, P.C., with offices located at 000 Xxxxx 0xx
Xxxxxx, Xxxxx 0000, Xxx Xxxxx, XX 00000 Attn: Xxxxx X.
XxXxxxx.
“Conversion
Price” shall have the meaning ascribed to such term in the
Debentures.
“Debentures”
means the 5% Senior Secured Convertible Debentures due, subject to the terms
therein, one year from their date of issuance, issued by the Company to the
Purchasers hereunder, in the form of Exhibit A attached
hereto.
“Disclosure
Schedules” shall have the meaning ascribed to such term in Section
3.1.
“Effective
Date” means the date that the initial Registration Statement filed by the
Company pursuant to the Registration Rights Agreement is first declared
effective by the Commission.
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“Evaluation
Date” shall have the meaning ascribed to such term in Section
3.1(r).
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted for such purpose by a majority of the non-employee members
of
the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares
of
Common Stock issued and outstanding on the date of this Agreement, provided
that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange
or
conversion price of such securities, (c) securities issued pursuant
to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds as
reasonably determined by the Board of Directors which shall include a purchase
of TOLD, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or (d) any securities
issued in connection with the Merger.
“FWS”
means Xxxxxxx Xxxxxxxxx & Xxxxx LLP with offices located at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).
“Guarantee”
means the Guarantee, dated the date hereof, by the Target in favor of the
Purchasers, in the form of Exhibit F attached hereto.
“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(aa).
“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section
3.1(o).
“Legend
Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).
“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.
“Material
Adverse Effect” shall have the meaning assigned to such term in Section
3.1(b).
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“Material
Permits” shall have the meaning ascribed to such term in Section
3.1(m).
“Maximum
Rate” shall have the meaning ascribed to such term in Section
5.17.
“Merger”
means the merger between the Company and the Target pursuant to the Merger
Agreement and the timely submission of all applicable filings with state and
regulatory authorities in connection with such purchase.
“Merger
Agreement” means the Agreement among the Company, ASNI, and the Target for
the merger of the Target with and into the Company, dated on or about July
16,
2007, and documents referred to therein and related thereto.
“Participation
Maximum” shall have the meaning ascribed to such term in Section
4.12.
“Person”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
“Pledge
and Security Agreement” means the Pledge and Security Agreement, dated the
date hereof, among the Company, the Purchasers and the pledgors signatory
thereto, in the form of Exhibit H attached hereto.
“Pre-Notice”
shall have the meaning ascribed to such term in Section 4.12.
“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
“Purchaser
Party” shall have the meaning ascribed to such term in Section
4.10.
“Registration
Rights Agreement” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit B
attached hereto.
“Registration
Statement” means a registration statement meeting the requirements set forth
in the Registration Rights Agreement and covering the resale of the Underlying
Shares by each Purchaser as provided for in the Registration Rights
Agreement.
“Required
Approvals” shall have the meaning ascribed to such term in Section
3.1(e).
“Required
Minimum” means, as of any date, the maximum aggregate number of shares of
Common Stock then issued or upon the operation of a penalty or price adjustment
provision in the Transaction Documents due in the future, including any
Underlying Shares issuable upon exercise or conversion in full of all Warrants
and Debentures, ignoring any conversion or exercise limits set forth therein,
and assuming that the Conversion Price is at all times on and after the date
of
determination 75% of the then Conversion Price on the Trading Day immediately
prior to the date of determination.
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“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.
“SEC
Reports” shall have the meaning ascribed to such term in Section
3.1(h).
“Securities”
means the Debentures, the Warrants, the Warrant Shares and the Underlying
Shares.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
“Security
Agreement” means the Security Agreement, dated the date hereof, among the
Company, the Target, ASNI and the Purchasers, in the form of Exhibit E
attached hereto.
“Security
Documents” shall mean the Security Agreement, the Guarantee, the Pledge and
Security Agreement, and any other documents and filing required thereunder
in
order to grant the Purchasers a first priority security interest in the assets
of the Company and the Subsidiaries as provided in the Security Agreement,
including all UCC-1 filing receipts.
“Short
Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).
“Special
Securities Counsel” means Guzov Ofsink, LLC with offices located at 000
Xxxxxxx Xxxxxx, 00xx Xxxxx,
Xxx Xxxx,
Xxx Xxxx 00000 Attn: Xxxxxx Xxxxxx.
“Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for
Debentures and Warrants purchased hereunder as specified below such Purchaser’s
name on the signature page of this Agreement and next to the heading
“Subscription Amount,” in United States dollars and in immediately available
funds.
“Subsequent
Financing” shall have the meaning ascribed to such term in Section
4.12.
“Subsequent
Financing Notice” shall have the meaning ascribed to such term in Section
4.12.
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“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a) and
shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
“Target”
means Zealous Holdings, Inc., a Delaware corporation.
“Trading
Day” means a day on which the New York Stock Exchange is open for
trading.
“Trading
Market” means the following markets or exchanges on which the Common Stock
is listed or quoted for trading on the date in question: the American Stock
Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange or the OTC Bulletin
Board.
“Transaction
Documents” means this Agreement, the Debentures, the Warrants, the
Registration Rights Agreement, the Pledge and Security Agreement, the Security
Agreement, the Guarantee, all exhibits and schedules thereto and hereto and
any
other documents or agreements executed in connection with the transactions
contemplated hereunder.
“Transfer
Agent” means OTC Stock Transfer, Inc. the current transfer agent of the
Company with a mailing address of 000 X. 0000, Xxxx Xxxx Xxxx, Xxxx 00000 and
a
facsimile number of (000) 000-0000, and any successor transfer agent of the
Company.
“TOLD”
means Transfer Online Development, LLC, a
[ ]
limited liability company.
“Underlying
Shares” means the shares of Common Stock issued and issuable upon conversion
or redemption of the Debentures and upon exercise of the Warrants.
“Variable
Rate Transaction” shall have the meaning ascribed to such term in Section
4.13.
“VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time);
(b) if the OTC Bulletin Board is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers of a majority in interest
of
the Securities then outstanding and reasonably acceptable to the Company, the
fees and expenses of which shall be paid by the Company.
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“Warrants”
means, collectively, the Series B Common Stock purchase warrants delivered
to
the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which
Warrants shall be exercisable immediately upon the earlier of (i) Authorized
Share Approval or (ii) the 18th month anniversary
of the Issue Date and
have a term of exercise equal to five years, in the form of
Exhibit C attached hereto.
“Warrant
Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing. On
the Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement
by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase, up to an aggregate of $4,500,000 in
principal amount of the Debentures. Each Purchaser shall deliver to
the Company, via wire transfer or a certified check, immediately available
funds
equal to its Subscription Amount and the Company shall deliver to each Purchaser
its respective Debenture and a Warrant, as determined pursuant to Section
2.2(a), and the Company and each Purchaser shall deliver the other items set
forth in Section 2.2 deliverable at the Closing. Upon satisfaction of
the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at
the
offices of FWS or such other location as the parties shall mutually
agree.
2.2 Deliveries.
(a) On
the
Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:
(i) this
Agreement duly executed by the Company;
(ii) legal
opinions of Company Counsel and Special Securities Counsel, in substantially
the
forms of Exhibit D-1 and Exhibit D-2 attached hereto;
(iii) a
Debenture with a principal amount equal to such Purchaser’s Subscription Amount,
registered in the name of such Purchaser;
(iv) a
Warrant
registered in the name of such Purchaser to purchase up to a number of shares
of
Common Stock equal to 50% of such Purchaser’s Subscription Amount divided by the
Conversion Price, with an exercise price equal to $0.03,
subject to adjustment therein;
(v) the
Security Agreement, duly executed by the Company, the Target, ASNI and each
Subsidiary, along with all of the Security Documents, including the Guarantee,
duly executed by the parties thereto;
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(vi) Action
by
Written Consent of the Stockholders, duly executed by stockholders of the
Company, which shall represents an aggregate of at least 50.1% of the shares
of
Common Stock that are issued and outstanding on the date hereof;
(vii) a
shareholder list of the Company which includes, without limitation, the shares
beneficially owned by directors, officers, Affiliates of the Company, 10% or
greater shareholders of the Company and any purchaser of privately placed
securities of the Company, satisfactory to each Purchaser in its sole
discretion;
(viii) the
Pledge and Security Agreement, duly executed by the Company and Xxxxxx X. Xxxx,
III along with all pledged stock certificates and other documents required
to be
delivered thereunder, duly executed by the parties thereto; and
(ix) the
Registration Rights Agreement duly executed by the Company.
(b) On
the
Closing Date, each Purchaser shall deliver or cause to be delivered to the
Company the following:
(i) this
Agreement duly executed by such Purchaser;
(ii) such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company;
(iii) the
Security Agreement duly executed by such Purchaser;
(iv) the
Pledge and Security Agreement duly executed by such Purchaser; and
(v) the
Registration Rights Agreement duly executed by such Purchaser.
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the Closing Date shall have been performed; and
8
(iii) the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required to be performed
at
or prior to the Closing Date shall have been performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company since
the
date hereof; and
(v) from
the
date hereof to the Closing Date, trading in the Common Stock shall not have
been
suspended by the Commission or the Company’s principal Trading Market
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, at
any
time prior to the Closing Date, trading in securities generally as reported
by
Bloomberg L.P. shall not have been suspended or limited, or minimum prices
shall
not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable
to
purchase the Securities at the Closing.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company. Except
as
set forth in the disclosure schedules attached hereto (the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof and
shall qualify any representation or otherwise made herein to the extent of
the
disclosure contained in the corresponding section of the Disclosure Schedules
or
as applicable to such other section of this Agreement, the Company hereby makes
the following representations and warranties to each Purchaser:
9
(a) Subsidiaries. All
of the direct and indirect subsidiaries of the Company are set forth on
Schedule 3.1(a). The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and
clear
of any Liens, and all of the issued and outstanding shares of capital stock
of
each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase
securities. If the Company has no subsidiaries, all other references
to the Subsidiaries or any of them in the Transaction Documents shall be
disregarded.
(b) Organization
and Qualification. The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles
of
incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect on
the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business, or
condition (financial or otherwise) of the Company and the Subsidiaries, taken
as
a whole, or (iii) a material adverse effect on the Company’s ability to perform
in any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c) Authorization;
Enforcement. Subject to Authorized Share Approval, the Company
has the requisite corporate power and authority to enter into and to consummate
the transactions contemplated by each of the Transaction Documents and otherwise
to carry out its obligations hereunder and thereunder. The execution
and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have
been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection therewith other than in connection with the
Required Approvals and the Authorized Share Approval. Each
Transaction Document has been (or upon delivery will have been) duly executed
by
the Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to Authorized Share
Approval, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
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(d) No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the
other transactions contemplated hereby and thereby do not and will not: (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, subject to Authorized Share Approval, or (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any
of
the properties or assets of the Company or any Subsidiary except as created
by
the Transaction Documents, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding
to
which the Company or any Subsidiary is a party or by which any property or
asset
of the Company or any Subsidiary is bound or affected, or (iii) subject to
the
Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which
any
property or asset of the Company or a Subsidiary is bound or affected; except
in
the case of each of clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than
(i) filings required pursuant to Section 4.6, (ii) the filing with the
Commission of the Registration Statement, (iii) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the Securities
and the listing of the Underlying Shares for trading thereon in the time and
manner required thereby, (iv) the filing of Form D with the Commission and
such
filings as are required to be made under applicable state securities laws and
(e) the Authorized Share Approval (collectively, the “Required
Approvals”).
(f) Issuance
of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear
of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Underlying Shares, when issued
in accordance with the terms of the Transaction Documents, will be validly
issued, fully paid and nonassessable, free and clear of all Liens imposed by
the
Company other than restrictions on transfer provided for in the Transaction
Documents. Subject to the Authorized Share Approval, the Company has
reserved from its duly authorized capital stock an aggregate of 1,500,000,000
shares of Common Stock for issuance of the Underlying Shares.
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(g) Capitalization. The
capitalization of the Company is as set forth on Schedule 3.1(g), which
Schedule 3.1(g) shall also include the number of shares of Common Stock
owned beneficially, and of record, by Affiliates of the Company as of the date
hereof. The Company has not issued any capital stock since its most recently
filed periodic report under the Exchange Act, other than pursuant to the
exercise of employee stock options under the Company’s stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plans and pursuant to the conversion or exercise of
Common Stock Equivalents outstanding as of the date of the most recently filed
periodic report under the Exchange Act. No Person has any right of
first refusal, preemptive right, right of participation, or any similar right
to
participate in the transactions contemplated by the Transaction
Documents. Except as set forth in Schedule 3.1(g), as a result
of the purchase and sale of the Securities, there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into
or
exercisable or exchangeable for, or giving any Person any right to subscribe
for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or
may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
any
of such securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been issued
in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval
or authorization of any stockholder, the Board of Directors or others is
required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
(h) SEC
Reports; Financial Statements. Except as set forth in Schedule
3.1(g), the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by the Company under the Securities Act
and
the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the
two years preceding the date hereof (or such shorter period as the Company
was
required by law or regulation to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the “SEC Reports”) on a timely
basis or has received a valid extension of such time of filing and has filed
any
such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act, as applicable,
and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time
of
filing. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required
by
GAAP, and fairly present in all material respects the financial position of
the
Company and its consolidated Subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject,
in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments.
12
(i) Material
Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed
in
a subsequent SEC Report filed prior to the date hereof, (i) there has been
no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent
with
past practice, (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission and (C) except as set forth in Schedule 3.1(g), (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to
its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated
by this Agreement or as set forth on Schedule 3.1(i), no event, liability
or development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least one Trading Day prior to
the
date that this representation is made.
(j) Litigation. There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary or any of their respective properties before or by
any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, if there were an unfavorable decision, have or reasonably be expected
to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject
of
any Action involving a claim of violation of or liability under federal or
state
securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
(k) Labor
Relations. No material labor dispute exists or, to the knowledge
of the Company, is imminent with respect to any of the employees of the Company
which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is
a
party to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now expected
to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each
such
executive officer does not subject the Company or any of its Subsidiaries to
any
liability with respect to any of the foregoing matters. The Company
and its Subsidiaries are in compliance with all U.S. federal, state, local
and
foreign laws and regulations relating to employment and employment practices,
terms and conditions of employment and wages and hours, except where the failure
to be in compliance could not, individually or in the aggregate, reasonably
be
expected to have a Material Adverse Effect.
13
(l) Compliance. Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is
in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could
not
have or reasonably be expected to result in a Material Adverse
Effect.
(m) Regulatory
Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation
or
modification of any Material Permit.
(n) Title
to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good
and
marketable title in all personal property owned by them that is material to
the
business of the Company and the Subsidiaries, in each case free and clear of
all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment
of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.
(o) Patents
and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary
or
material for use in connection with their respective businesses as described
in
the SEC Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a
notice (written or otherwise) that any of the Intellectual Property Rights
used
by the Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another Person of
any
of the Intellectual Property Rights. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties, except where failure to
do so
could not, individually or in the aggregate, reasonably be expected to have
a
Material Adverse Effect.
14
(p) Insurance. Except
as disclosed in Schedule 3.1(p),the Company and the Subsidiaries are insured
by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
the
Company and the Subsidiaries are engaged, including, but not limited to,
directors and officers insurance coverage at least equal to the aggregate
Subscription Amount. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(q) Transactions
with Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to
any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has
a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $60,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx;
Internal Accounting Controls. Except as disclosed in
Schedule 3.1(r), the Company is in material compliance with all provisions
of
the Xxxxxxxx-Xxxxx Act of 2002 which are applicable to it as of the Closing
Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures
based
on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(s) Certain
Fees. Except as set forth in Schedule 3.1(s), no brokerage
or finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated
by
the Transaction Documents. The Purchasers shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf
of
other Persons for fees of a type contemplated in this Section that may be due
in
connection with the transactions contemplated by the Transaction
Documents.
15
(t) Private
Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no registration
under
the Securities Act is required for the offer and sale of the Securities by
the
Company to the Purchasers as contemplated hereby. The issuance and sale of
the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(u) Investment
Company. The Company is not, and is not an Affiliate of, and immediately
after receipt of payment for the Securities, will not be or be an Affiliate
required to file as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended within a period of one year from
the
date hereof.
(v) Registration
Rights. Other than each of the Purchasers, no Person has any
right to cause the Company to effect the registration under the Securities
Act
of any securities of the Company.
(w) Listing
and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. Except as set forth in
Schedule 3.1(h), the Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common Stock is
or
has been listed or quoted to the effect that the Company is not in compliance
with the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
(x) Application
of Takeover Protections. Except as provided in Schedule
3.1(x), the Company and the Board of Directors have taken all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or the laws of
its
state of incorporation that is or could become applicable to the Purchasers
as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation as a result of the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities.
(y) Disclosure. Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that neither
it
nor any other Person acting on its behalf has provided any of the Purchasers
or
their agents or counsel with any information that it believes constitutes or
might constitute material, nonpublic information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the
Company. All disclosure furnished by or on behalf of the Company to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
is
true and correct and does not contain any untrue statement of a material fact
or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The press releases disseminated by the Company
during the twelve months preceding the date of this Agreement taken as a whole
do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made
and
when made, not misleading. The Company acknowledges and agrees that
no Purchaser makes or has made any representations or warranties with respect
to
the transactions contemplated hereby other than those specifically set forth
in
Section 3.2 hereof.
16
(z) No
Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, except as set
forth in
Schedule 3.1(z), neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers
or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of (i) the Securities Act
which
would require the registration of any such securities under the Securities
Act,
or (ii) any applicable shareholder approval provisions of any Trading Market
on
which any of the securities of the Company are listed or
designated.
(aa) Solvency. Based
on the consolidated financial condition of the Company as of the Closing Date
after giving effect to the receipt by the Company of the proceeds from the
sale
of the Securities hereunder and after the consummation of the Merger, (i) the
fair saleable value of the Company’s assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature, (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof, and (iii) the anticipated cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate
all
of its assets, after taking into account all anticipated uses of the cash,
would
be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its
debt). The Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one
year
from the Closing Date. Schedule 3.1(aa) sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company
or
any Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement,
“Indebtedness” means (a) any liabilities for borrowed money or amounts
owed in excess of $50,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others, whether or not
the
same are or should be reflected in the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(bb) Tax
Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency
which
has been asserted or threatened against the Company or any
Subsidiary.
(cc) No
General Solicitation. Neither the Company nor any person acting on behalf of
the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.
17
(dd) Foreign
Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has
(i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf
of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.
(ee) Accountants. The
Company’s accounting firm is set forth on Schedule 3.1(ee) of the
Disclosure Schedule. To the knowledge and belief of the Company, such
accounting firm (i) is a registered public accounting firm as required by the
Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Company’s Annual Report for the year ending May
31, 2008.
(ff) Seniority. Except
as set forth on Schedule 3.1(ff), as of the Closing Date, no Indebtedness
or other claim against the Company is senior to the Debentures in right of
payment, whether with respect to interest or upon liquidation or dissolution,
or
otherwise, other than indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and capital
lease
obligations (which is senior only as to the property covered
thereby).
(gg) No
Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company and the Company is current with respect
to
any fees owed to its accountants and lawyers which could affect the Company’s
ability to perform any of its obligations under any of the Transaction
Documents.
(hh) Acknowledgment
Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by
any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers’ purchase of the Securities. The
Company further represents to each Purchaser that the Company’s decision to
enter into this Agreement and the other Transaction Documents has been based
solely on the independent evaluation of the transactions contemplated hereby
by
the Company and its representatives.
18
(ii) Acknowledgment
Regarding Purchasers’ Trading Activity. Notwithstanding anything
in this Agreement or elsewhere herein to the contrary (except for
Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the
Company that (i) none of the Purchasers has been asked to agree by the Company,
nor has any Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term, (ii)
past or future open market or other transactions by any Purchaser, specifically
including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities,
(iii) any Purchaser, and counter-parties in “derivative” transactions to which
any such Purchaser is a party, directly or indirectly, may presently have a
“short” position in the Common Stock, and (iv) each Purchaser shall not be
deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. The Company further
understands and acknowledges that (a) one or more Purchasers may engage in
hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
of
the Underlying Shares deliverable with respect to Securities are being
determined and (b) such hedging activities (if any) could reduce the value
of
the existing stockholders' equity interests in the Company at and after the
time
that the hedging activities are being conducted. The Company acknowledges
that such aforementioned hedging activities do not constitute a breach of any
of
the Transaction Documents.
(jj) Regulation
M Compliance. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company or (iii) paid
or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii)
and
(iii), compensation paid to the Company’s placement agent in connection with the
placement of the Securities.
3.2 Representations
and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser hereby, represents and warrants as of the
date
hereof and as of the Closing Date to the Company as follows:
(a) Organization;
Authority. Such Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority
to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of the Transaction Documents and performance by
such
Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate or similar action on the part
of
such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser
in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
19
(b) Own
Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling
such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any
of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings
with
any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting such Purchaser’s right to sell
the Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its
business.
(c) Purchaser
Status. At the time such Purchaser was offered the Securities, it
was, and at the date hereof it is, and on each date on which it exercises any
Warrants or converts any Debentures it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to
be registered as a broker-dealer under Section 15 of the Exchange
Act.
(d) Experience
of Such Purchaser. Such Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits
and
risks of the prospective investment in the Securities, and has so evaluated
the
merits and risks of such investment. Such Purchaser is able to bear
the economic risk of an investment in the Securities and, at the present time,
is able to afford a complete loss of such investment.
(e) General
Solicitation. Such Purchaser is not purchasing the Securities as
a result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
(f) Short
Sales and Confidentiality Prior To The Date Hereof. Other
than consummating the transactions contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any purchases or sales,
including Short Sales, of the securities of the Company during the period
commencing from the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder
until the date hereof (“Discussion Time”). Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made
the
investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to it
in
connection with this transaction (including the existence and terms of this
transaction).
20
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide
to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights
of
a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1,
of a legend on any of the Securities in the following form:
[NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE
UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION
WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of
the
pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser’s expense, the Company will
execute and deliver such reasonable documentation as a pledgee or secured party
of Securities may reasonably request in connection with a pledge or transfer
of
the Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing of
any
required prospectus supplement under Rule 424(b)(3) under the Securities Act
or
other applicable provision of the Securities Act to appropriately amend the
list
of Selling Stockholders thereunder.
21
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement
(including the Registration Statement) covering the resale of such security
is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares
are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The
Company shall cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the Effective Date if required by the Transfer Agent to effect
the removal of the legend hereunder. If all or any portion of a
Debenture or Warrant is converted or exercised (as applicable) at a time when
there is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule 144(k)
or
if such legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued
by
the staff of the Commission) then such Underlying Shares shall be issued free
of
all legends. The Company agrees that following the Effective Date or
at such time as such legend is no longer required under this Section 4.1(c),
it
will, no later than three Trading Days following the delivery by a Purchaser
to
the Company or the Transfer Agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend (such third Trading
Day,
the “Legend Removal Date”), deliver or cause to be delivered to such
Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation
on its records or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section. Certificates for
Underlying Shares subject to legend removal hereunder shall be transmitted
by
the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s
prime broker with the Depository Trust Company System as directed by such
Purchaser.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on
the
date such Securities are submitted to the Transfer Agent) delivered for removal
of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages have begun
to accrue) for each Trading Day after the second (2nd) Trading
Day after
the Legend Removal Date until such certificate is delivered without a
legend. Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Company’s failure to deliver certificates representing
any Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(e) Each
Purchaser, severally and not jointly with the other Purchasers, agrees that
such
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with
the
plan of distribution set forth therein, and acknowledges that the removal of
the
restrictive legend from certificates representing Securities as set forth in
this Section 4.1 is predicated upon the Company’s reliance upon this
understanding.
22
4.2 Acknowledgment
of Dilution. The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including without limitation its obligation
to
issue the Underlying Shares pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.3 Furnishing
of Information. Until the earliest of the time that (i) no
Purchaser owns Securities or (ii) the Warrants have expired, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act even if the Company
is not then subject to the reporting requirements of the Exchange
Act. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell
the
Securities under Rule 144. The Company further covenants that it will
take such further action as any holder of Securities may reasonably request,
to
the extent required from time to time to enable such Person to sell such
Securities without registration under the Securities Act within the requirements
of the exemption provided by Rule 144.
4.4 Integration. The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities to the
Purchasers in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.
4.5 Conversion
and Exercise Procedures. The form of Notice of Exercise included
in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures
required of the Purchasers in order to exercise the Warrants or convert the
Debentures. No additional legal opinion or other information or
instructions shall be required of the Purchasers to exercise their Warrants
or
convert their Debentures. The Company shall honor exercises of the
Warrants and conversions of the Debentures and shall deliver Underlying Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
4.6 Securities
Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New
York City time) on the fourth (4th) Trading
Day
following the date hereof, issue a Current Report on Form 8-K disclosing the
material terms of the transactions contemplated hereby and attaching the
Transaction Documents as exhibits thereto. The Company and each
Purchaser shall consult with each other in issuing any other press releases
with
respect to the transactions contemplated hereby, and neither the Company nor
any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required
by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except (i) as
required by federal securities law in connection with (A) any registration
statement contemplated by the Registration Rights Agreement and (B) the filing
of final Transaction Documents (including signature pages thereto) with the
Commission and (ii) to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers
with
prior notice of such disclosure permitted under this clause (ii).
23
4.7 Shareholder
Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such
plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the
Purchasers.
4.8 Non-Public
Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it nor any other Person acting on
its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.
4.9 Use
of
Proceeds. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes, including, but not limited to, a loan
to
the Target, and shall not use such proceeds for (a) the satisfaction of any
portion of the Company’s debt (other than payment of trade payables in the
ordinary course of the Company’s business and prior practices), (b) the
redemption of any Common Stock or Common Stock Equivalents or (c) the settlement
of any outstanding litigation.
4.10 Indemnification
of Purchasers. Subject to the provisions of this Section
4.10, the Company will indemnify and hold each Purchaser and its directors,
officers, stockholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities
Act
and Section 20 of the Exchange Act), and the directors, officers, stockholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding
a
lack of such title or any other title) of such controlling person (each, a
“Purchaser Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including
all
judgments, amounts paid in settlements, court costs and reasonable attorneys’
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in
this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser in any capacity, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with
any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall
be brought against any Purchaser Party in respect of which indemnity may be
sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but
the fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel,
a
material conflict on any material issue between the position of the Company
and
the position of such Purchaser Party, in which case the Company shall be
responsible for the reasonable fees and expenses of no more than one such
separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction
Documents.
24
4.11 Reservation
and Listing of Securities.
(a) On
the
business day immediately following the date on which Authorized Share Approval
is obtained, the Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents in
an
amount equal to the Required Minimum on such date.
(b) If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then
the
Board of Directors shall use commercially reasonable efforts to amend the
Company’s certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the Required Minimum
at such time, as soon as possible and in any event not later than the 75th
day
after such date.
(c) The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on such Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain
the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market.
(d) In
addition, the Company shall file an information statement on Schedule 14C with
the Commission no later than February 15, 2008 in connection with the executed
Action by Written Consent of the Stockholders and Authorized Share Approval
and
shall use commercially reasonably efforts to promptly respond to any comments
on
such Schedule 14C from the Commission. The Company shall file the
Amendment as promptly as possible in a manner consistent with Section 14(c)
of
the Exchange Act. In the event that such action by written consent of
the stockholders is not practicable, the Company shall hold a special meeting
of
stockholders (which may also be at the annual meeting of stockholders) within
30
calendar days of the date that the Company determines in good faith that such
action by written consent of the stockholders is not practicable for the purpose
of obtaining Authorized Share Approval, with the recommendation of the Board
of
Directors that such proposal is approved, and the Company shall solicit proxies
from its stockholders in connection therewith in the same manner as all other
management proposals in such proxy statement and all management-appointed proxy
holders shall vote their proxies in favor of such proposal. If the
Company does not obtain Authorized Share Approval at the first meeting, the
Company shall call a meeting every 4 months thereafter or shall solicit written
consent every 1 month thereafter until the earlier of (a) the date that
Authorized Share Approval is obtained and (b) the date on which no Debentures
remain outstanding. Each Purchaser hereby agrees with the Company
that it shall vote its shares of Common Stock which are eligible to vote at
any
such stockholder meeting or in connection with any consent solicitation in
favor
of Authorized Share Approval.
25
4.12 Participation
in Future Financing.
(a) From
the
date hereof until the date that is the later of (i) the date when no Debentures
remain outstanding and (ii) the 24 month anniversary of the Effective Date,
upon
any issuance by the Company or any of its Subsidiaries of Common Stock or Common
Stock Equivalents (a “Subsequent Financing”), each Purchaser shall have
the right to participate in up to an amount of the Subsequent Financing equal
to
100% of the Subsequent Financing (the “Participation Maximum”) on the
same terms, conditions and price provided for in the Subsequent
Financing.
(b) At
least
5 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Purchaser a written notice of its intention to effect
a
Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such
Purchaser if it wants to review the details of such financing (such additional
notice, a “Subsequent Financing Notice”). Upon the request of
a Purchaser, and only upon a request by such Purchaser, for a Subsequent
Financing Notice, the Company shall promptly, but no later than 1 Trading Day
after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount
of
proceeds intended to be raised thereunder and the Person or Persons through
or
with whom such Subsequent Financing is proposed to be effected and shall include
a term sheet or similar document relating thereto as an attachment.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 5th
Trading Day after all of the Purchasers have received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing, the amount
of
the Purchaser’s participation, and that the Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser
as of such 5th
Trading Day, such Purchaser shall be deemed to have notified the Company that
it
does not elect to participate.
(d) If
by
5:30 p.m. (New York City time) on the 5th Trading
Day after
all of the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing
(or
to cause their designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and with the Persons
set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 5th Trading
Day after
all of the Purchasers have received the Pre-Notice, the Company receives
responses to a Subsequent Financing Notice from Purchasers seeking to purchase
more than the aggregate amount of the Participation Maximum, each such Purchaser
shall have the right to purchase its Pro Rata Portion (as defined below) of
the
Participation Maximum. “Pro Rata Portion” means the ratio of (x)
the Subscription Amount of Securities purchased on the Closing Date by a
Purchaser participating under this Section 4.12 and (y) the sum of the aggregate
Subscription Amounts of Securities purchased on the Closing Date by all
Purchasers participating under this Section 4.12.
26
(f) The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above
in
this Section 4.12, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt
Issuance including, without limitation, an investment by Summit Partners, London
Stock Exchange and/or its subsidiary the AIM, the New York Stock Exchange,
Euronext, NASDAQ, ICE, Duecheborse, Dubai Investment Authority, Qatar Investment
Authority, or the American Stock Exchange, or (ii) an underwritten public
offering of Common Stock.
4.13 Subsequent
Equity Sales. From the date hereof until such time as no
Purchaser holds any of the Securities, the Company shall be prohibited from
effecting or entering into an agreement to effect any Subsequent Financing
involving a Variable Rate Transaction. “Variable Rate Transaction” means
a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line
of
credit, whereby the Company may sell securities at a future determined
price. Notwithstanding the foregoing, this Section 4.13 shall
not apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an Exempt Issuance.
4.14 Equal
Treatment of Purchasers. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration
is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures
in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For
clarification purposes, this provision constitutes a separate right granted
to
each Purchaser by the Company and negotiated separately by each Purchaser,
and
is intended for the Company to treat the Purchasers as a class and shall not
in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or
otherwise.
27
4.15 Short
Sales and Confidentiality After The Date Hereof. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither it nor any
Affiliate acting on its behalf or pursuant to any understanding with it will
execute any Short Sales during the period commencing at the Discussion Time
and
ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6. Each Purchaser,
severally and not jointly with the other Purchasers, covenants that until such
time as the transactions contemplated by this Agreement are publicly disclosed
by the Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Disclosure Schedules. Each Purchaser severally
and not jointly with any other Purchaser understands and acknowledges, and
agrees, to act in a manner that will not violate the positions of the Commission
as set forth in Item 65, Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no
Purchaser makes any representation, warranty or covenant hereby that it will
not
engage in Short Sales in the securities of the Company after the time that
the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.
4.16 Form
D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide
a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order
to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.17 Capital
Changes. Until the one year anniversary of the Effective Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in principal amount outstanding of the Debentures,
except as contemplated the Merger.
ARTICLE
V.
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before November 15,
2007;
provided, however, that such termination will not affect the right
of any party to xxx for any breach by the other party (or parties).
28
5.2 Fees
and Expenses. At the Closing, the Company has agreed to reimburse
Empire Financial Group (“Empire”) the non-accountable sum of $25,000 for
its legal fees and expenses, The Company shall deliver to each Purchaser, prior
to the Closing, a completed and executed copy of the Closing Statement attached
hereto as Annex A. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this
Agreement. The Company shall pay all transfer agent fees, stamp taxes
and other taxes and duties levied in connection with the delivery of any
Securities to the Purchasers.
5.3 Entire
Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
5.4 Notices. Any
and all notices or other communications or deliveries required or permitted
to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto prior to 5:30 p.m. (New York City time)
on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
set
forth on the signature pages attached hereto on a day that is not a Trading
Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments;
Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case
of an
amendment, by the Company and the Purchasers of at least 67% in interest of
the
Securities still held by Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought. No
waiver of any default with respect to any provision, condition or requirement
of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such
right.
5.6 Headings. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
5.7 Successors
and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser (other
than by merger). Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided that such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchasers.”
29
5.8 No
Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section
4.10.
5.9 Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed
by
and construed and enforced in accordance with the internal laws of the State
of
New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against
a
party hereto or its respective affiliates, directors, officers, stockholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in
the City of New York, borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding
is
improper or is an inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by law. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The
representations and warranties shall survive the Closing and the delivery of
the
Securities for the applicable statue of limitations.
5.11 Execution. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing
(or
on whose behalf such signature is executed) with the same force and effect
as if
such facsimile or “.pdf” signature page were an original thereof.
5.12 Severability.
If any term, provision, covenant or restriction of this Agreement is held by
a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
30
5.13 Rescission
and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time
upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Debenture
or
exercise of a Warrant, the Purchaser shall be required to return any shares
of
Common Stock delivered in connection with any such rescinded conversion or
exercise notice.
5.14 Replacement
of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor,
a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 Remedies. In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Purchasers and the Company
will
be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16 Payment
Set Aside. To the extent that the Company makes a payment or payments to any
Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds
of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation
or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
5.17 Usury. To
the extent it may lawfully do so, the Company hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document. Notwithstanding
any provision to the contrary contained in any Transaction Document, it is
expressly agreed and provided that the total liability of the Company under
the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum
Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other
sums in the nature of interest that the Company may be obligated to pay under
the Transaction Documents exceed such Maximum Rate. It is agreed that
if the maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to
any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser’s election.
31
5.18 Independent
Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with
the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any
way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or
in any other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation
the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser
has been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FWS. FWS does not
represent all of the Purchasers but only Empire. The Company has elected to
provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to
do so
by the Purchasers.
5.19 Liquidated
Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been
canceled.
5.20 Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall
not
be a Business Day, then such action may be taken or such right may be exercised
on the next succeeding Business Day.
5.21 Construction.
The parties agree that each of them and/or their respective counsel has reviewed
and had an opportunity to revise the Transaction Documents and, therefore,
the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
5.22 Waiver
of Jury Trial. In any action, suit or proceeding in any
jurisdiction brought by any party against any other party, the parties each
knowingly and intentionally, to the greatest extent permitted by applicable
law,
hereby absolutely, unconditionally, irrevocably and expressly waives forever
trial by jury.
32
(Signature
Pages Follow)
33
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as
of
the date first indicated above.
|
ZEALOUS
TRADING GROUP, INC.
|
Address
for Notice:
|
|
By:__________________________________________
Name:
Title:
|
Fax:
|
|
With
a copy to (which shall not constitute notice):
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
34
[PURCHASER
SIGNATURE PAGES TO ZLST SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
Name
of
Purchaser: ________________________________________________________
Signature
of Authorized Signatory of Purchaser:
_________________________________
Name
of
Authorized Signatory:
_______________________________________________
Title
of
Authorized Signatory:
________________________________________________
Email
Address of Purchaser:
_________________________________________________
Facsimile
Number of Purchaser:
_______________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription
Amount: _____________
Warrant
Shares: _________________
EIN
Number: [PROVIDE THIS UNDER SEPARATE
COVER]
[SIGNATURE
PAGES CONTINUE]
35
Annex
A
CLOSING
STATEMENT
Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto,
the
purchasers shall purchase up to $6,000,000 of Debentures and Warrants from
Zealous Trading Group, Inc. (the “Company”). All funds will be
wired into an account maintained by the Company. All funds will be
disbursed in accordance with this Closing Statement.
|
Disbursement
Date:
|
October
___, 2007
|
|
I. PURCHASE
PRICE
|
||
|
Gross
Proceeds to be Received
|
$
|
|
|
II. DISBURSEMENTS
|
||
|
$
|
||
|
$
|
||
|
$
|
||
|
$
|
||
|
$
|
||
|
Total
Amount Disbursed:
|
$
|
|
|
WIRE
INSTRUCTIONS:
|
||
|
To:
_____________________________________
|
||
|
To:
_____________________________________
|
||
36
