Exhibit 10.15
COMMON STOCK AND WARRANT PURCHASE
AGREEMENT
Dated as of September 26, 2006
by and among
FREEHAND SYSTEMS INTERNATIONAL, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE I PURCHASE AND SALE OF COMMON STOCK AND WARRANTS..................1
Section 1.1 Purchase Price and Sale of Common Stock and Warrants............1
Section 1.2 Closings........................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES..................................3
Section 2.1 Representations and Warranties of the Company...................3
Section 2.2 Representations and Warranties of the Purchasers...............14
ARTICLE III COVENANTS......................................................16
Section 3.1 Securities Compliance..........................................16
Section 3.2 Registration ..................................................16
Section 3.3 Inspection Rights..............................................16
Section 3.4 Compliance with Laws...........................................17
Section 3.5 Keeping of Records and Books of Account........................17
Section 3.6 Reporting Requirements.........................................17
Section 3.7 Other Agreements...............................................17
Section 3.8 Use of Proceeds................................................17
Section 3.9 Reporting Status...............................................17
Section 3.10 Disclosure of Transaction......................................18
Section 3.11 Disclosure of Material Information.............................18
Section 3.12 No Integrated Offerings........................................18
Section 3.13 Pledge of Securities...........................................18
Section 3.14 Subsequent Financings..........................................19
Section 3.15 Lock-Up Agreement .............................................20
Section 3.16 OTC Bulletin Board ............................................20
Section 3.17 Investor Relations Firm........................................20
Section 3.18 Confidentiality................................................20
Section 3.19 Best Efforts...................................................21
ARTICLE IV CONDITIONS.....................................................21
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Securities............................ ..21
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Securities...........................21
ARTICLE V CERTIFICATE LEGEND.............................................23
Section 5.1 Legend.........................................................23
ARTICLE VI INDEMNIFICATION................................................25
Section 6.1 General Indemnity..............................................25
Section 6.2 Indemnification Procedure......................................25
ARTICLE VII MISCELLANEOUS..................................................26
Section 7.1 Fees and Expenses..............................................26
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue...........26
TABLE OF CONTENTS
(continued)
Page
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Section 7.3 Entire Agreement; Amendment....................................27
Section 7.4 Notices........................................................27
Section 7.5 Waivers........................................................28
Section 7.6 Headings.......................................................28
Section 7.7 Successors and Assigns.........................................28
Section 7.8 No Third Party Beneficiaries...................................28
Section 7.9 Governing Law..................................................28
Section 7.10 Survival.......................................................29
Section 7.11 Counterparts...................................................29
Section 7.12 Publicity......................................................29
Section 7.13 Severability...................................................29
Section 7.14 Further Assurances.............................................29
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
This COMMON STOCK AND WARRANT PURCHASE AGREEMENT this ("Agreement"),
dated as of September 26, 2006 by and among FreeHand Systems International,
Inc., a Delaware corporation (the "Company"), and the purchasers listed on
Exhibit A hereto (each a "Purchaser" and collectively, the "Purchasers"), for
the purchase and sale of shares of the Company's common stock, par value $0.0001
per share (the "Common Stock") by the Purchasers.
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS
Section 1.1 Purchase Price and Sale of Common Stock and Warrants.
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(a) Subject to the terms and conditions hereof, the Company agrees
to issue and sell to the Purchasers and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Purchasers, severally but not jointly, agree to purchase
from the Company an aggregate of up to 4,000,000 shares of Common Stock (the
"Shares") at a price per share of $0.75 (the "Per Share Purchase Price") for an
aggregate purchase price of up to $3,000,000 (the "Purchase Price"). Each
Purchaser shall pay the portion of the Purchase Price set forth opposite its
name on Exhibit A hereto. The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Section 4(2) of the U.S. Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act"), including Regulation D ("Regulation D"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
(b) Upon the following terms and conditions and for no additional
consideration, each of the Purchasers shall be issued (i) Series A Warrants, in
substantially the form attached hereto as Exhibit B-1 (the "Series A Warrants"),
to purchase the number of shares of Common Stock equal to fifty percent (50%) of
the number of Shares purchased by each Purchaser pursuant to the terms of this
Agreement, as set forth opposite such Purchaser's name on Exhibit A hereto, (ii)
Series B Warrants, in substantially the form attached hereto as Exhibit B-2 (the
"Series B Warrants"), to purchase the number of shares of Common Stock equal to
fifty percent (50%) of the number of Shares purchased by each Purchaser pursuant
to the terms of this Agreement, as set forth opposite such Purchaser's name on
Exhibit A hereto, (iii) Series C Warrants, in substantially the form attached
hereto as Exhibit B-3 (the "Series C Warrants"), to purchase the number of
shares of Common Stock equal to fifty percent (50%) of the number of Shares
purchased by each Purchaser pursuant to the terms of this Agreement, as set
forth opposite such Purchaser's name on Exhibit A hereto, (iv) Series J
Warrants, in substantially the form attached hereto as Exhibit B-4 (the "Series
J Warrants"), to purchase the number of shares of Common Stock equal to one
hundred percent (100%) of the number of Shares purchased by each Purchaser
pursuant to the terms of this Agreement, as set forth opposite such Purchaser's
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name on Exhibit A hereto, (v) Series D Warrants, in substantially the form
attached hereto as Exhibit B-5 (the "Series D Warrants"), to purchase the number
of shares of Common Stock equal to fifty percent (50%) of the number of Shares
purchased by each Purchaser pursuant to the terms of this Agreement, as set
forth opposite such Purchaser's name on Exhibit A hereto; (vi) Series E
Warrants, in substantially the form attached hereto as Exhibit B-6 (the "Series
E Warrants"), to purchase the number of shares of Common Stock equal to fifty
percent (50%) of the number of Shares purchased by each Purchaser pursuant to
the terms of this Agreement, as set forth opposite such Purchaser's name on
Exhibit A hereto; and (vii) Series F Warrants, in substantially the form
attached hereto as Exhibit B-7 (the "Series F Warrants" and, together with the
Series A Warrants, the Series B Warrants, the Series C Warrants, the Series J
Warrants, the Series D Warrants and the Series E Warrants, the "Warrants"), to
purchase the number of shares of Common Stock equal to fifty percent (50%) of
the number of Shares purchased by each Purchaser pursuant to the terms of this
Agreement, as set forth opposite such Purchaser's name on Exhibit A hereto. The
Warrants shall expire five (5) years following the applicable Closing Date (as
defined below), except for the Series J Warrants, which shall expire one (1)
year following the applicable Closing Date. Each of the Warrants shall have an
exercise price per share equal to the Warrant Price (as defined in the
applicable Warrant). Any shares of Common Stock issuable upon exercise of the
Warrants (and such shares when issued) are herein referred to as the "Warrant
Shares". The Shares, the Warrants and the Warrant Shares are sometimes
collectively referred to herein as the "Securities".
Section 1.2 Closing. In consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Company agrees to issue and sell to the Purchasers and, in
consideration of and in express reliance upon the representations, warranties,
covenants, terms and conditions of this Agreement, the Purchasers, severally but
not jointly, agree to purchase the number of Shares and Warrants set forth
opposite their respective names on Exhibit A. The closing of the purchase and
sale of the Shares and Warrants, in each case, to be acquired by the Purchasers
from the Company under this Agreement shall take place at the offices of Xxxxxx
Xxxxx Xxxxxxxx & Xxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx
00000 (the "Closing") at such time and on such date as the Purchasers and the
Company may agree upon (the "Closing Date"), provided, that all of the
conditions set forth in Article IV hereof and applicable to the Closing shall
have been fulfilled or waived in accordance herewith. Subject to the terms and
conditions of this Agreement, at the Closing the Company shall deliver or cause
to be delivered to each Purchaser (x) a certificate for the number of Shares set
forth opposite the name of such Purchaser on Exhibit A hereto, (y) its Warrants
to purchase such number of shares of Common Stock as is set forth opposite the
name of such Purchaser on Exhibit A attached hereto and (z) any other documents
required to be delivered pursuant to Article IV hereof. At or prior to the
Closing, each Purchaser shall deliver its Purchase Price by wire transfer to the
escrow account pursuant to the Escrow Agreement (as hereafter defined).
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchasers as follows, as of the
date hereof and the Closing Date, except as set forth on the Schedule of
Exceptions attached hereto with each numbered Schedule corresponding to the
section number herein:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity except as set
forth on Schedule 2.1(g) hereto. The Company and each such Subsidiary (as
defined in Section 2.1(g)) is duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified will not have a Material Adverse Effect. For the
purposes of this Agreement, "Material Adverse Effect" means any effect on the
business, results of operations, prospects, assets or condition (financial or
otherwise) of the Company that is material and adverse to the Company and its
Subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company from
entering into and performing any of its obligations under the Transaction
Documents (as defined below) in any material respect.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants and that certain Registration Rights Agreement by and among the Company
and the Purchasers, dated as of the date hereof, substantially in the form of
Exhibit C attached hereto (the "Registration Rights Agreement"), the Lock-Up
Agreement (as defined in Section 3.20 hereof) in the form attached hereto as
Exhibit D, the Escrow Agreement by and among the Company, the Purchasers and the
escrow agent, dated as of the date hereof, substantially in the form of Exhibit
E attached hereto (the "Escrow Agreement" and, together with this Agreement, the
Registration Rights Agreement, the Lock-Up Agreement and the Warrants, the
"Transaction Documents") and to issue and sell the Securities in accordance with
the terms hereof and to complete the transactions contemplated by the
Transaction Documents. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company, its Board of Directors or stockholders is required. When executed and
delivered by the Company, each of the Transaction Documents shall constitute a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
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(c) Capitalization. The authorized capital stock of the Company as
of the date hereof is set forth on Schedule 2.1(c) hereto. All of the
outstanding shares of the Common Stock and any other outstanding security of the
Company have been duly and validly authorized and validly issued, fully paid and
nonassessable and were issued in accordance with the registration or
qualification provisions of the Securities Act, or pursuant to valid exemptions
therefrom. Except as set forth in this Agreement and as set forth on Schedule
2.1(c) hereto, no shares of Common Stock or any other security of the Company
are entitled to preemptive rights, registration rights, rights of first refusal
or similar rights and there are no outstanding options, warrants, scrip, rights
to subscribe to, call or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and as set forth on
Schedule 2.1(c) hereto, there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on Schedule 2.1(c) hereto,
the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. Except as set forth on Schedule 2.1(c), the
Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company. Except as disclosed on Schedule 2.1(c), (i) there are no
outstanding debt securities, or other form of material debt of the Company or
any of its Subsidiaries, (ii) there are no contracts, commitments,
understandings, agreements or arrangements under which the Company or any of its
Subsidiaries is required to register the sale of any of their securities under
the Securities Act, (iii) there are no outstanding securities of the Company or
any of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings, agreements or arrangements
by which the Company or any of its Subsidiaries is or may become bound to redeem
a security of the Company or any of its Subsidiaries, (iv) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities, (v) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements, or
any similar plan or agreement and (vi) as of the date of this Agreement, except
as disclosed on Schedule 2.1(c), to the Company's and each of its Subsidiaries'
knowledge, no Person (as defined below) or group of related Persons beneficially
owns (as determined pursuant to Rule 13d-3 promulgated under the Exchange Act)
or has the right to acquire by agreement with or by obligation binding upon the
Company, beneficial ownership of in excess of 5% of the Common Stock. Any Person
with any right to purchase securities of the Company that would be triggered as
a result of the transactions contemplated hereby or by any of the other
Transaction Documents has waived such rights or the time for the exercise of
such rights has passed, except where failure of the Company to receive such
waiver would not have a Material Adverse Effect. Except as set forth on Schedule
2.1(c), there are no options, warrants or other outstanding securities of the
Company (including, without limitation, any equity securities issued pursuant to
any Company Plan) the vesting of which will be accelerated by the transactions
contemplated hereby or by any of the other Transaction Documents. Except as set
forth in Schedule 2.1(c), none of the transactions contemplated by this
Agreement or by any of the other Transaction Documents shall cause, directly or
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indirectly, the acceleration of vesting of any options issued pursuant the
Company's stock option plans.
(d) Issuance of Securities. The Shares and the Warrants to be
issued at the Closing have been duly authorized by all necessary corporate
action and, when paid for and issued in accordance with the terms hereof and the
Warrants, respectively, the Shares and the Warrant Shares will be validly
issued, fully paid and nonassessable and free and clear of all liens,
encumbrances and rights of refusal of any kind and the holders shall be entitled
to all rights accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Certificate of Incorporation (the "Certificate") or
Bylaws (the "Bylaws"), each as amended to date, or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound or
affected, except, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is required
under federal, state, foreign or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or issue and sell the
Securities in accordance with the terms hereof (other than any filings, consents
and approvals which may be required to be made by the Company under applicable
state and federal securities laws, rules or as may be required for the Company
to carry out its obligations under the Registration Rights Agreement).
(f) Financial Statements. Except as disclosed on Schedule 2.1(f)
hereto, the Company has delivered to the Purchasers true and complete copies of
the Company's audited financial statements for the fiscal years ended March 31,
2005 and March 31, 2006 (March 31, 2006 defined herein as the "Audited Financial
Statements Date") and unaudited financial statements for the fiscal quarters
ended June 30, 2005 and June 30, 2006 (collectively, the "Financial
Statements"). Except as disclosed on Schedule 2.1(f) hereto, the Financial
Statements complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder, and the Financial Statements 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, not misleading. Except as
disclosed on Schedule 2.1(f) hereto, as of their respective dates, the Financial
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Statements were complete and correct in all material respects and complied with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such Financial Statements have been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP") applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the Notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its Subsidiaries as of 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 year-end audit
adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each
Subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such Subsidiary. For the purposes of
this Agreement, "Subsidiary" shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
(h) No Material Adverse Change. Since the Audited Financial
Statements Date, the Company has not experienced or suffered any Material
Adverse Effect.
(i) No Undisclosed Liabilities. Since the Audited Financial
Statements Date, neither the Company nor any of its Subsidiaries has incurred
any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
other than those incurred in the ordinary course of the Company's or its
Subsidiaries respective businesses or which, individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect. Since the Audited
Financial Statements Date, none of the Company or any of its Subsidiaries has
participated in any transaction material to the condition of the Company which
is outside of the ordinary course of its business.
(j) No Undisclosed Events or Circumstances. Since the Audited
Financial Statements Date, no event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective businesses,
properties, operations or financial condition, which, under applicable law, rule
6
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto 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" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $300,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of liabilities for
borrowed money of others in excess of $100,000, 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 $25,000 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.
(l) Title to Assets. Each of the Company and the Subsidiaries has
good and valid title to all of its real and personal property, free and clear of
any mortgages, pledges, charges, liens, security interests or other
encumbrances, except for those that, individually or in the aggregate, do not
cause a Material Adverse Effect. All said leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or any of the transactions contemplated
hereby or thereby or any action taken or to be taken pursuant hereto or thereto.
Except as set forth on Schedule 2.1(m) hereto, there is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened against or
involving the Company, any Subsidiary or any of their respective properties or
assets, which individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or any Subsidiary in their capacities as such, which
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth on Schedule 2.1(n) hereto or such that,
individually or in the aggregate, the noncompliance therewith could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
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(o) Taxes. The Company and each of the Subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid all taxes shown to be due and all additional
assessments, and adequate provisions have been and are reflected in the
financial statements of the Company and the Subsidiaries for all current taxes
and other charges to which the Company or any Subsidiary is subject and which
are not currently due and payable. None of the federal income tax returns of the
Company or any Subsidiary has been audited by the Internal Revenue Service. The
Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any Subsidiary for any
period, nor of any basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto,
the Company has not employed any broker or finder or incurred any liability for
any brokerage or investment banking fees, commissions, finders' structuring
fees, financial advisory fees or other similar fees in connection with the
Transaction Documents.
(q) Disclosure. Neither this Agreement or the Schedules hereto nor
any other documents, certificates or instruments furnished to the Purchasers by
or on behalf of the Company or any Subsidiary in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which
they were made herein or therein, not misleading.
(r) Operation of Business. The Company and each of the
Subsidiaries owns or possesses the rights to use all patents, trademarks, domain
names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property
rights relating thereto, service marks, trade names, copyrights, licenses and
authorizations which are necessary for the conduct of its business as now
conducted without any conflict or infringement with the rights of others.
(s) Environmental Compliance. The Company and each of its
Subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. "Environmental Laws" shall mean all applicable laws relating
to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its Subsidiaries, except for such instances as would not individually or in
the aggregate have a Material Adverse Effect. The Company and each of its
Subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. Except for such instances as would not
8
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or would be reasonably likely to violate any Environmental Law
after the Closing or that would be reasonably likely to give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including, without limitation,
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
(t) Books and Records; Internal Accounting Controls. The records
and documents of the Company and its Subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
its Subsidiaries, the location and collection of their assets, and the nature of
all transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of its 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, (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences and (v) accounts, notes and other receivables and inventory are
recorded accurately, and proper and adequate procedures are implemented to
effect the collection thereof on a current and timely basis. There are no
significant deficiencies or material weaknesses in the design or operation of
internal controls over financial reporting that would reasonably be expected to
adversely affect the Company's ability to record, process, summarize and report
financial information, and there is no fraud, whether or not material, that
involves management or, to the knowledge of the Company, other employees who
have a significant role in the Company's internal controls and the Company has
provided to the Purchaser copies of any written materials relating to the
foregoing.
(u) Material Agreements. Except for the Transaction Documents
(with respect to clause (i) only) or as set forth on Schedule 2.1(u) hereto, or
as would not be reasonably likely to have a Material Adverse Effect, (i) the
Company and each of its Subsidiaries have performed all obligations required to
be performed by them to date under any written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement, filed or required to be
filed with the Commission (the "Material Agreements"), (ii) neither the Company
nor any of its Subsidiaries has received any notice of default under any
Material Agreement and, (iii) to the best of the Company's knowledge, neither
the Company nor any of its Subsidiaries is in default under any Material
Agreement.
(v) Transactions with Affiliates. Except as set forth on Schedule
2.1(v) hereto, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other continuing
transactions between (a) the Company, any Subsidiary or any of their respective
customers or suppliers on the one hand, and (b) on the other hand, any officer,
employee, consultant or director of the Company, or any of its Subsidiaries, or
9
any person owning any capital stock of the Company or any Subsidiary or any
member of the immediate family of such officer, employee, consultant, director
or stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. Subject to the accuracy and
completeness of the representations and warranties of the Purchasers contained
in Section 2.2 hereof, the Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Securities hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Securities or similar securities to, or solicit
offers with respect thereto from, or enter into any negotiations relating
thereto with, any person, or has taken or will take any action so as to bring
the issuance and sale of any of the Securities under the registration provisions
of the Securities Act and applicable state securities laws, and neither the
Company nor any of its affiliates, nor any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of any of the Securities.
(x) Governmental Approvals. Except for the filing of any notice
prior or subsequent to the Closing that may be required under applicable state
and/or federal securities laws (which if required, shall be filed on a timely
basis), no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Securities, or for
the performance by the Company of its obligations under the Transaction
Documents.
(y) Employees; Labor Relations. Neither the Company nor any
Subsidiary has any collective bargaining arrangements or agreements covering any
of its employees, except as set forth on Schedule 2.1(y) hereto. Except as set
forth on Schedule 2.1(y) hereto, neither the Company nor any Subsidiary has any
employment contract, agreement regarding proprietary information,
non-competition agreement, non-solicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating to
the right of any officer, employee or consultant to be employed or engaged by
the Company or such Subsidiary. Since the Audited Financial Statements Date, no
officer, consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, would be reasonably likely
to have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any Subsidiary. Except as could not reasonably be
expected to have a Material Adverse Effect, (i) neither the Company nor any of
its Subsidiaries is engaged in any unfair labor practice, (ii) there is no
strike, labor dispute, slowdown or stoppage pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, and (iii)
neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or contract.
10
(z) Absence of Certain Developments. Except as provided on
Schedule 2.1(z) hereto, since the Audited Financial Statements Date, neither the
Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities
or any right, options or warrants with respect thereto;
(ii) borrowed any amount in excess of $300,000 or incurred
or become subject to any other liabilities in excess of $100,000 (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of its
prior fiscal year, as adjusted to reflect the current nature and volume of the
business of the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance in
excess of $250,000 or paid any obligation or liability (absolute or contingent)
in excess of $250,000, other than current liabilities paid in the ordinary
course of business;
(iv) declared or made any payment or distribution of cash
or other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock, in each case in excess of $50,000 individually or $100,000 in the
aggregate;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, in each case in excess of $100,000,
except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights in excess of $250,000, or disclosed any proprietary
confidential information to any person except to customers in the ordinary
course of business or to the Purchasers or their representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $100,000;
(x) entered into any material transaction, whether or not
in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$10,000;
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(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
(aa) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its Subsidiaries which is or would be materially adverse to the Company and its
Subsidiaries. The execution and delivery of this Agreement and the issuance and
sale of the Securities will not involve any transaction which is subject to the
prohibitions of Section 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or in connection with which a tax could be imposed
pursuant to Section 4975 of the Internal Revenue Code of 1986, as amended,
provided that, if any of the Purchasers, or any person or entity that owns a
beneficial interest in any of the Purchasers, is an "employee pension benefit
plan" (within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a "party in interest" (within the meaning of Section 3(14) of ERISA),
the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are
met. As used in this Section 2.1(z), the term "Plan" shall mean an "employee
pension benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any Subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any Subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(bb) Anti-takeover Device. Neither the Company nor any of its
Subsidiaries has any outstanding shareholder rights plan or "poison pill" or any
similar arrangement. There are no provisions of any anti-takeover or business
combination statute applicable to the Company, the Certificate and the Bylaws
which would preclude the issuance and sale of the Securities, the reservation
for issuance of the Warrant Shares and the consummation of the other
transactions contemplated by this Agreement or any of the other Transaction
Documents.
(cc) Independent Nature of Purchasers. The Company acknowledges
that the obligations of each Purchaser under the Transaction Documents are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under the Transaction Documents and the Company shall not
be excused from performance of its obligations to any Purchaser under the
Transaction Documents as a result of nonperformance or breach by any other
Purchaser. The Company acknowledges that the decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by such Purchaser
independently of any other purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its Subsidiaries which may have
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any Purchaser (or any other person) relating to or arising from any
12
such information, materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or 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. The Company acknowledges
that 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. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of the
Purchasers and such counsel does not represent all of the Purchasers and the
other Purchasers have retained their own individual counsel with respect to the
transactions contemplated hereby. The Company acknowledges that it 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.
(dd) No Integrated Offering. 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 the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Regulation D and Rule 506 thereof under
the Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Securities to be
integrated with other offerings if such other offering, if integrated, would
cause the offer and sale of the Securities not to be exempt from registration
pursuant to Regulation D and Rule 506 thereof under the Securities Act. The
Company does not have any registration statement pending before the Commission
or currently under the Commission's review and since March 1, 2006, the Company
has not offered or sold any of its equity securities or debt securities
convertible into shares of Common Stock.
(ee) Investment Company. The Company is not an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission thereunder.
(ff) Xxxxxxxx-Xxxxx Act. The Company is in compliance with the
applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx
Act"), and the rules and regulations promulgated thereunder, that are effective
and for which compliance by the Company is required as of the date hereof and
intends to comply with other applicable provisions of the Xxxxxxxx-Xxxxx Act,
and the rules and regulations promulgated thereunder, upon the effectiveness of
such provisions or the date by which compliance therewith by the Company is
required.
13
Section 2.2 Representations and Warranties of the Purchasers.
Each of the Purchasers hereby represents and warrants to the Company with
respect solely to itself and not with respect to any other Purchaser as follows
as of the date hereof and as of the Closing Date:
(a) Organization and Standing of the Purchasers. If the Purchaser
is an entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Such Purchaser has the requisite
power and authority to enter into and perform the Transaction Documents and to
purchase the Securities being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by such Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate, partnership or other action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders,
partners or members, as the case may be, is required. When executed and
delivered by the Purchasers, the other Transaction Documents shall constitute
valid and binding obligations of such Purchaser enforceable against such
Purchaser in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
(c) No Conflict. The execution, delivery and performance of the
Transaction Documents by such Purchaser and the consummation by such Purchaser
of the transactions contemplated thereby and hereby do not and will not (i)
violate any provision of such Purchaser's charter or organizational documents,
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which such Purchaser is a party or by
which such Purchaser's respective properties or assets are bound, or (iii)
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to such Purchaser or by which any property or
asset of such Purchaser are bound or affected, except, in all cases, other than
violations pursuant to clauses (i) or (iii) (with respect to federal and state
securities laws) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, materially and adversely affect such Purchaser's ability to perform
its obligations under the Transaction Documents.
(d) Acquisition for Investment. Such Purchaser is purchasing the
Shares and Warrants and will purchase any Warrant Shares solely for its own
account and not with a view to or for sale in connection with distribution. Such
Purchaser does not have a present intention to sell any of the Shares, Warrants
or Warrant Shares, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of any of the Shares, the Warrants or the
Warrant Shares to or through any person or entity; provided, however, that by
making the representations herein, such Purchaser does not agree to hold the
Shares, the Warrants or the Warrant Shares for any minimum or other specific
term and reserves the right to dispose of the Shares, the Warrants or the
14
Warrant Shares at any time in accordance with Federal and state securities laws
applicable to such disposition. Such Purchaser acknowledges that it (i) has such
knowledge and experience in financial and business matters such that Purchaser
is capable of evaluating the merits and risks of Purchaser's investment in the
Company, (ii) is able to bear the financial risks associated with an investment
in the Securities and (iii) has been given full access to such records of the
Company and the Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation.
(e) Rule 144. Such Purchaser understands that the Securities must
be held indefinitely unless such Securities are registered under the Securities
Act or an exemption from registration is available. Such Purchaser acknowledges
that such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Such Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. Such Purchaser understands that the Securities are
being offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Securities. Such Purchaser
understands that no United States federal or state agency or any government or
governmental agency has passed upon or made any recommendation or endorsement of
the Securities.
(g) No General Solicitation. Such Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications. Such Purchaser, in making the decision to purchase the
Securities, has relied upon independent investigation made by it and the
representations, warranties and agreements set forth in the Transaction
Documents and has not relied on any information or representations made by third
parties.
(h) Accredited Investor. Such Purchaser is an "accredited
investor" (as defined in Rule 501 of Regulation D), and such Purchaser has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Securities. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the Exchange
Act and such Purchaser is not a broker-dealer. Such Purchaser acknowledges that
an investment in the Securities is speculative and involves a high degree of
risk. Such Purchaser understands that the Company is relying upon the truth and
accuracy of such information set forth therein to determine the suitability of
such Purchaser to acquire the Securities.
15
(i) Certain Fees. The Purchasers have not employed any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
(j) Independent Investment. No Purchaser has agreed to act with
any other Purchaser for the purpose of acquiring, holding, voting or disposing
of the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Securities.
(k) Trading Activities. Each Purchaser's trading activities with
respect to the Shares shall be in compliance with all applicable federal and
state securities laws. No Purchaser nor any of its affiliates has an open short
position in the Common Stock, each Purchaser agrees that it shall not, and that
it will cause its affiliates not to, engage in any short sales with respect to
the Common Stock.
ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.
Section 3.2 Registration. The Company shall cause its Common
Stock to be registered under Sections 12(b) or 12(g) of the Exchange Act no
later than the effective date of the Registration Statement (as defined in the
Registration Rights Agreement), to comply in all respects with its reporting and
filing obligations under the Exchange Act, to comply with all requirements
related to any registration statement filed pursuant to this Agreement, and to
not take any action or file any document (whether or not permitted by the
Securities Act or the rules promulgated thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act, except as permitted herein.
Section 3.3 Inspection Rights. Subject to the terms of Sections
3.11 and 3.18 hereof, the Company shall permit, during normal business hours and
upon reasonable request and reasonable notice, each Purchaser or any employees,
agents or representatives thereof, so long as such Purchaser shall be obligated
hereunder to purchase the Shares or shall beneficially own any Shares, Warrants
or Warrant Shares, for purposes reasonably related to such Purchaser's interests
as a stockholder to examine and make reasonable copies of the records and books
of account of, and visit and inspect the properties, assets, operations and
16
business of the Company and any Subsidiary, and to discuss the affairs, finances
and accounts of the Company and any Subsidiary with any of its officers,
consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and
cause each Subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which would be reasonably likely to have a
Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company
shall keep and cause each Subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its Subsidiaries.
Section 3.6 Reporting Requirements. Following such time that the
Company is required to become registered under the Exchange Act pursuant to the
terms of this Agreement, if the Commission ceases making the Company's periodic
reports available via the Internet without charge, then the Company shall,
promptly after filing with the Commission, furnish the following to each
Purchaser so long as such Purchaser shall be obligated hereunder to purchase the
Securities or shall beneficially own Shares or Warrant Shares:
(a) Quarterly Reports on Form 10-Q or Form 10-QSB filed with the
Commission;
(b) Annual Reports on Form 10-K or Form 10-KSB filed with the
Commission; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings that are, in each case, provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into
any agreement in which the terms of such agreement would restrict or impair the
right or ability of the Company or any Subsidiary to perform its obligations
under any Transaction Document.
Section 3.8 Use of Proceeds. The net proceeds from the sale of
the Shares hereunder shall be used by the Company for working capital and
general corporate purposes and not to redeem any Common Stock or securities
convertible, exercisable or exchangeable into Common Stock or to settle any
outstanding litigation.
Section 3.9 Reporting Status; Eligibility to Use Form SB-2. So
long as a Purchaser beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the Commission pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination. Subject to the
terms of the Transaction Documents, the Company further covenants that it will
take such further action as the Purchasers may reasonably request, all to the
extent required from time to time to enable the Purchasers to sell the
Securities without registration under the Securities Act within the limitation
17
of the exemptions provided by Rule 144 promulgated under the Securities Act.
Upon the request of the Purchasers, the Company shall deliver to the Purchasers
a written certification of a duly authorized officer as to whether it has
complied with such requirements. The Company currently meets the "registrant
eligibility" and transaction requirements set forth in the general instructions
to Form SB-2 applicable to "resale" registrations on Form SB-2 and the Company
shall file all reports required to be filed by the Company with the Commission
in a timely manner.
Section 3.10 Disclosure of Transaction. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the "Press Release") as soon as practicable after the Closing but in no
event later than one (1) business day after the Closing; provided, however, that
if the Closing occurs after 4:00 P.M. Eastern Time on any Trading Day (as
defined below), the Company shall issue the Press Release no later than 9:00
A.M. Eastern Time on the first Trading Day following such Closing Date. The
Press Release shall be subject to prior review and comment by the Purchasers.
"Trading Day" means any day during which the OTC Bulletin Board (or other
principal exchange on which the Common Stock is traded) shall be open for
trading.
Section 3.11 Disclosure of Material Information. The Company
covenants and agrees that neither it nor any other person acting on its behalf
has provided or 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
representations in effecting transactions in securities of the Company.
Section 3.12 No Integrated Offerings. The Company shall not make
any offers or sales of any security (other than the Securities being offered or
sold hereunder) under circumstances that would require registration of the
Securities being offered or sold hereunder under the Securities Act.
Section 3.13 Pledge of Securities. The Company acknowledges and
agrees that the Securities may be pledged by a Purchaser in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Common Stock. The pledge of Common Stock shall not be deemed to
be a transfer, sale or assignment of the Common Stock hereunder, and no
Purchaser effecting a pledge of Common Stock shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document; provided that a
Purchaser and its pledgee shall be required to comply with the provisions of
Article V hereof in order to effect a sale, transfer or assignment of Common
Stock to such pledgee. At the Purchasers' expense, the Company hereby agrees to
execute and deliver such documentation as a pledgee of the Common Stock may
reasonably request in connection with a pledge of the Common Stock to such
pledgee by a Purchaser.
Section 3.14 Subsequent Financings.
---------------------
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(a) For a period of one (1) year following the effective date of
the Registration Statement, the Company covenants and agrees to promptly notify
(in no event later than five (5) days after making or receiving an applicable
offer) in writing (a "Rights Notice") the Purchasers of the terms and conditions
of any proposed offer or sale to, or exchange with (or other type of
distribution to) any third party (a "Subsequent Financing"), of Common Stock or
any debt or equity securities convertible, exercisable or exchangeable into
Common Stock. The Rights Notice shall describe, in reasonable detail, the
proposed Subsequent Financing, the names and investment amounts of all investors
participating in the Subsequent Financing, the proposed closing date of the
Subsequent Financing, which shall be within twenty (20) calendar days from the
date of the Rights Notice, and all of the terms and conditions thereof and
proposed definitive documentation to be entered into in connection therewith.
The Rights Notice shall provide each Purchaser an option (the "Rights Option")
during the ten (10) Trading Days following delivery of the Rights Notice (the
"Option Period") to inform the Company whether such Purchaser will purchase up
to its pro rata portion of all or a portion of the securities being offered in
such Subsequent Financing on the same, absolute terms and conditions as
contemplated by such Subsequent Financing. If any Purchaser elects not to
participate in such Subsequent Financing, the other Purchasers may participate
on a pro-rata basis so long as such participation in the aggregate does not
exceed the total Purchase Price hereunder. For purposes of this Section, all
references to "pro rata" means, for any Purchaser electing to participate in
such Subsequent Financing, the percentage obtained by dividing (x) the number of
Shares purchased by such Purchaser at the Closing by (y) the total number of all
of the Shares purchased by all of the participating Purchasers at the Closing.
Delivery of any Rights Notice constitutes a representation and warranty by the
Company that there are no other material terms and conditions, arrangements,
agreements or otherwise except for those disclosed in the Rights Notice, to
provide additional compensation to any party participating in any proposed
Subsequent Financing, including, but not limited to, additional compensation
based on changes in the Purchase Price or any type of reset or adjustment of a
purchase or conversion price or to issue additional securities at any time after
the closing date of a Subsequent Financing. If the Company does not receive
notice of exercise of the Rights Option from the Purchasers within the Option
Period, the Company shall have the right to close the Subsequent Financing on
the scheduled closing date with a third party; provided that all of the material
terms and conditions of the closing are the same as those provided to the
Purchasers in the Rights Notice. If the closing of the proposed Subsequent
Financing does not occur on that date, any closing of the contemplated
Subsequent Financing or any other Subsequent Financing shall be subject to all
of the provisions of this Section 3.14(a), including, without limitation, the
delivery of a new Rights Notice. The provisions of this Section 3.14(a) shall
not apply to issuances of securities in a Permitted Financing.
(b) For purposes of this Agreement, a Permitted Financing (as
defined hereinafter) shall not be considered a Subsequent Financing. A
"Permitted Financing" shall mean (i) securities issued (other than for cash) in
connection with a merger, acquisition, or consolidation, (ii) securities issued
pursuant to the conversion or exercise of convertible or exercisable securities
issued or outstanding on or prior to the date of this Agreement or issued
pursuant to this Agreement (so long as the conversion or exercise price in such
securities are not amended to lower such price and/or adversely affect the
Purchasers), (iii) securities issued in connection with bona fide strategic
license agreements or other partnering arrangements so long as such issuances
are not for the purpose of raising capital, (iv) Common Stock issued or the
19
issuance or grants of options to purchase Common Stock pursuant to the Company's
stock option plans and employee stock purchase plans outstanding as they exist
on the date of this Agreement or implemented within thirty (30) days of Closing,
and (v) any warrants issued to the placement agent and its designees for the
transactions contemplated by the Purchase Agreement.
(c) For a period of two (2) years following the Closing Date, the
Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a "Variable Rate Transaction". The
term "Variable Rate Transaction" shall mean 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.
(d) For the period commencing on the Closing Date and ending on
the date that is one hundred eighty (180) days following the effective date of
the Registration Statement, the Company shall not file any registration
statement under the Securities Act without the prior written consent of the
Purchasers.
Section 3.15 Lock-Up Agreement. The persons listed on Schedule
3.15 attached hereto shall be subject to the terms and provisions of a lock-up
agreement in substantially the form as Exhibit D hereto (the "Lock-Up
Agreement"), which shall provide the manner in which such persons will sell,
transfer or dispose of their shares of Common Stock.
Section 3.16 OTC Bulletin Board. The Company shall use its best
efforts to obtain the quotation of the Common Stock on the OTC Bulletin Board as
promptly as practicable following the Closing.
Section 3.17 Investor Relations Firm. As promptly as practicable
following the Closing, the Company shall hire an investor relations firm and
purchase a minimum of one third party independent research report.
Section 3.18 Confidentiality. Each party agrees that it will not
disclose and it will cause its officers, directors, employees, representatives,
agents, and advisers not to disclose, any Confidential Information (as
hereinafter defined) with respect to the other party furnished, at any time or
in any manner, provided that (i) any disclosure of such information may be made
to which the Company and Purchaser consent in writing; and (ii) such information
may be disclosed if so required by law or regulatory authority. "Confidential
Information" means information or knowledge obtained in any due diligence or
other investigation relating to the negotiation and execution of this Agreement,
information relating to the terms of the transactions contemplated hereby and
any information identified as confidential in writing from one party to the
other; provided, however, that Confidential Information shall not include
information or knowledge that (a) becomes generally available to the public
20
absent any breach of this Section 3.18, (b) was available on a non-confidential
basis to a party prior to its disclosure pursuant to this Agreement, or (c)
becomes available on a non-confidential basis from a third party who is not
bound to keep such information confidential.
Section 3.19 Best Efforts. Each of the parties hereto shall use
its best efforts to satisfy each of the conditions to be satisfied by it as
provided in Sections 4.1 and 4.2 of this Agreement.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company
to Close and to Sell the Securities. The obligation hereunder of the Company to
close and issue and sell the Securities to the Purchasers at the Closing Date is
subject to the satisfaction or waiver, at or before the Closing of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties.
The representations and warranties of each Purchaser shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchasers shall have
delivered to the Company the Purchase Price for the Shares to be purchased by
each Purchaser.
(e) Delivery of Transaction Documents. The Transaction Documents
shall have been duly executed and delivered by the Purchasers and, with respect
to the Escrow Agreement, the escrow agent, to the Company.
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Close and to Purchase the Securities. The obligation hereunder of
each Purchaser to purchase the Securities and consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, at or
before the Closing Date, of each of the conditions set forth below. These
21
conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all respects as of the
Closing Date, except for representations and warranties that speak as of a
particular date, which shall be true and correct in all respects as of such
date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. Trading in the Common Stock shall not have
been suspended by the Commission or the principal exchange or market on which
Common Stock is traded (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 Financial Markets ("Bloomberg") shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the New
York Stock Exchange, nor shall a banking moratorium have been declared either by
the United States or New York State authorities.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Opinion of Counsel. The Purchasers shall have received an
opinion of counsel to the Company, dated the date of such Closing, substantially
in the form of Exhibit F hereto, with such exceptions and limitations as shall
be reasonably acceptable to counsel to the Purchasers.
(g) Shares and Warrants. At or prior to the Closing Date, the
Company shall have delivered to the Purchasers certificates representing the
Shares (in such denominations as each Purchaser may request) and the Warrants
(in such denominations as each Purchaser may request) duly executed by the
Company, in each case, being acquired by the Purchasers at the Closing.
22
(h) Secretary's Certificate. The Company shall have delivered to
the Purchasers a secretary's certificate, dated as of the Closing Date, as to
(i) the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(i) Officer's Certificate. On the Closing Date, the Company shall
have delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of such Closing Date, confirming the accuracy of
the Company's representations, warranties and its compliance with covenants as
of such Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in this Section 4.2 as of the Closing Date
(provided that, with respect to the matters in paragraphs (d) and (e) of this
Section 4.2, such confirmation shall be based on the knowledge of the executive
officer after due inquiry).
(j) Registration Rights Agreement. As of the Closing Date, the
Company shall have duly executed and delivered the Registration Rights Agreement
in the form of Exhibit C attached hereto.
(k) Lock-Up Agreement. As of the Closing Date, the persons listed
on Schedule 3.15 hereto shall have delivered to the Purchasers a fully executed
Lock-Up Agreement in the form of Exhibit D attached hereto.
(l) Escrow Agreement. At the Closing, the Company and the escrow
agent shall have executed and delivered the Escrow Agreement in the form of
Exhibit E attached hereto to each Purchaser.
(m) Convertible Securities. On or prior to the Closing Date, any
outstanding securities of the Company that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock, shall have been converted, exchanged, exercised, redeemed or otherwise
cancelled.
(n) Commission Filings. Prior to the Closing Date, the Company
shall have delivered to the Purchasers true and complete copies of any
documents, if any, filed by the Company with the Commission.
(o) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Securities
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or "blue sky" laws):
23
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the
Shares and the Warrant Shares, without the legend set forth above if at such
time, prior to making any transfer of any such Shares or Warrant Shares, such
holder thereof shall give written notice to the Company describing the manner
and terms of such transfer and removal as the Company may reasonably request.
Such proposed transfer and removal will not be effected until: (a) either (i)
the Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that the registration of the Shares or Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and has
become and remains effective under the Securities Act, (iii) the Company has
received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Company will respond to any such
notice from a holder within three (3) Trading Days. In the case of any proposed
transfer under this Section 5.1, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but shall
in no event be required, (x) to qualify to do business in any state where it is
not then qualified, or (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then subject. The
restrictions on transfer contained in this Section 5.1 shall be in addition to,
and not by way of limitation of, any other restrictions on transfer contained in
any other section of this Agreement. Whenever a certificate representing the
Shares or Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu of delivering physical certificates representing the Shares or
Warrant Shares, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, the
Company shall cause its transfer agent to electronically transmit the Shares or
Warrant Shares to a Purchaser by crediting the account of such Purchaser's Prime
Broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system
(to the extent not inconsistent with any provisions of this Agreement).
24
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify
and hold harmless the Purchasers (and their respective directors, officers,
agents, managers, partners, members, shareholders, affiliates, successors and
assigns) from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Purchasers and their directors,
officers, agents, managers, partners, members, shareholders, affiliates,
successors and assigns as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company and its directors, officers,
affiliates, agents, successors and assigns as a direct result of any inaccuracy
in or breach of the representations, warranties or covenants made by such
Purchaser herein. The maximum aggregate liability of each Purchaser pursuant to
its indemnification obligations under this Article VI shall not exceed the
portion of the Purchase Price paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article VI except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
indemnifying party a conflict of interest between it and the indemnified party
exists with respect to such action, proceeding or claim (in which case the
indemnifying party shall be responsible for the reasonable fees and expenses of
one separate counsel for the indemnified parties), to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. In the event that
the indemnifying party advises an indemnified party that it will not contest
such a claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the indemnified party's
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
25
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent which
consent shall not be unreasonably withheld. Notwithstanding anything in this
Article VI to the contrary, the indemnifying party shall not, without the
indemnified party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such claim. The
indemnification required by this Article VI shall be made by periodic payments
of the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, so long as
the indemnified party irrevocably agrees to refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification. The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Except as otherwise set forth in
this Agreement and the other Transaction Documents, each party shall pay the
fees and expenses of its advisors, 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, provided
that the Company shall pay all actual attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with (i) the preparation, negotiation, execution and delivery of this
Agreement and the other Transaction Documents and the transactions contemplated
thereunder, which payment shall be made at the Closing, of which $7,500 has been
paid prior to the date hereof, (ii) the filing and declaration of effectiveness
by the Commission of the Registration Statement and (iii) any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents. The Company shall also pay up to $15,000 to the Purchasers at the
Closing in connection with all due diligence expenses incurred by the Purchasers
and all reasonable fees and expenses incurred by the Purchasers in connection
with the enforcement of this Agreement or any of the other Transaction
Documents, including, without limitation, all reasonable attorneys' fees and
expenses.
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.
----------------------------------------------------
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents are not performed in accordance
with their specific terms or are otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
26
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) The parties agree that venue for any dispute arising under
this Agreement will lie exclusively in the state or federal courts located in
New York County, New York, and the parties irrevocably waive any right to raise
forum non conveniens or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the State of New York. The Company and each Purchaser consent
to process being served in any such suit, action or proceeding by mailing a copy
thereof 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 in this Section 7.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the Registration Rights Agreement, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party.
Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
Following the Closing, no provision of this Agreement may be waived or amended
other than by a written instrument signed by the Company and the Purchasers
holding at least a majority of all Shares then held by the Purchasers. Any
amendment or waiver effected in accordance with this Section 7.3 shall be
binding upon each Purchaser (and their permitted assigns) and the Company.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: FreeHand Systems International, Inc.
00 Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxx Xxxx, President and CEO
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
27
with copies (which copies
shall not constitute notice
to the Company) to: Xxxxxx & Jaclin, LLP
000 Xxxxx 0 Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
If to any Purchaser: At the address of such
Purchaser set forth on Exhibit A to this
Agreement, with copies to such Purchaser's
counsel (which copies shall not constitute
notice to such Purchaser) as set forth on
Exhibit A or as specified in writing by such
Purchaser.
with copies to: Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other parties hereto.
Section 7.5 Waivers. No waiver by any party 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 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 accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection
headings in this Agreement are for convenience only and shall not constitute a
part of this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. After the Closing, the assignment by a party to this Agreement of any
rights hereunder shall not affect the obligations of such party under this
Agreement. Subject to Section 5.1 hereof, the Purchasers may assign the
Securities and its rights under this Agreement and the other Transaction
Documents and any other rights hereto and thereto without the consent of the
Company.
Section 7.8 No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to any of the conflicts of law principles which would
28
result in the application of the substantive law of another jurisdiction. This
Agreement shall not be interpreted or construed with any presumption against the
party causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
the Closing.
Section 7.11 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart.
Section 7.12 Publicity. The Company agrees that it will not
disclose, and will not include in any public announcement, the names of the
Purchasers without the consent of the Purchasers, which consent shall not be
unreasonably withheld or delayed, or unless and until such disclosure is
required by law, rule or applicable regulation, and then only to the extent of
such requirement.
Section 7.13 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Warrants
and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
FREEHAND SYSTEMS INTERNATIONAL, INC.
By: /s/ XXX XXXX
------------------------------------
Name: Xxx Xxxx
Title: President and CEO
PURCHASER:
By:_____________________________________
Name:
Title:
EXHIBIT A
LIST OF PURCHASERS
Names and Addresses Investment Amount, Number of Shares
of Purchasers & Warrants Purchased
------------- ----------------------
Vision Opportunity Master Fund, Ltd. Investment Amount: $3,000,000
00 X 00xx Xx., 0xx floor Shares: 4,000,000
Xxx Xxxx, XX 00000 Series A Warrants: 2,000,000
Series B Warrants: 2,000,000
Series C Warrants: 2,000,000
Series J Warrants: 4,000,000
Series D Warrants: 2,000,000
Series E Warrants: 2,000,000
Series F Warrants: 2,000,000
i
EXHIBIT B-1
FORM OF SERIES A WARRANT
ii
EXHIBIT B-2
FORM OF SERIES B WARRANT
iii
EXHIBIT B-3
FORM OF SERIES C WARRANT
iv
EXHIBIT B-4
FORM OF SERIES J WARRANT
v
EXHIBIT B-5
FORM OF SERIES D WARRANT
vi
EXHIBIT B-6
FORM OF SERIES E WARRANT
vii
EXHIBIT B-7
FORM OF SERIES F WARRANT
viii
EXHIBIT C
FORM OF REGISTRATION RIGHTS AGREEMENT
ix
EXHIBIT D
FORM OF LOCK-UP AGREEMENT
x
EXHIBIT E
FORM OF ESCROW AGREEMENT
xi
EXHIBIT F
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the failure to so qualify would have a Material
Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Transaction Documents and to
issue the Shares and the Warrants. The execution, delivery and performance of
each of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated thereby have been duly and validly authorized by
all necessary corporate action and no further consent or authorization of the
Company, its Board of Directors or its stockholders is required. Each of the
Transaction Documents have been duly executed and delivered and each of the
Transaction Documents constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms.
The Shares are not subject to any preemptive rights under the Certificate of
Incorporation or the Bylaws.
3. The Shares and the Warrants have been duly authorized and, the
Shares when delivered against payment in full as provided in the Purchase
Agreement, will be validly issued, fully paid and nonassessable. The shares of
Common Stock issuable upon exercise of the Warrants have been duly authorized
and reserved for issuance, and when delivered against payment in full as
provided in the Warrants, will be validly issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with
the terms of the Transaction Documents and the issuance of the Shares and the
Warrants do not (a) violate any provision of the Certificate of Incorporation or
Bylaws, (b) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a party and
which is known to us, (c) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment known to us to
which the Company is a party or by which the Company is bound or by which any of
its respective properties or assets are bound, or (d) result in a violation of
any Federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction or decree (including Federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected, except, in all cases other than violations
pursuant to clauses (a) and (d) above, for such conflicts, default,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required under Federal, state or local law, rule or regulation in connection
with the valid execution, delivery and performance of the Transaction Documents,
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or the offer, sale or issuance of the Shares and the Warrants other than filings
as may be required by applicable Federal and state securities laws.
6. To our knowledge, there is no action, suit, claim,
investigation or proceeding pending or threatened against the Company which
questions the validity of the Agreement or the transactions contemplated thereby
or any action taken or to be taken pursuant thereto. There is no action, suit,
claim, investigation or proceeding pending, or to our knowledge, threatened,
against or involving the Company or any of its properties or assets and which,
if adversely determined, is reasonably likely to result in a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Shares and the Warrants
are exempt from the registration requirements of the Securities Act of 1933, as
amended.
8. The Company is not, and as a result of and immediately upon
Closing will not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
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