EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of March
29, 2006, by and among Zone 4 Play, Inc., a Nevada corporation (the "Company"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "PURCHASER" and collectively the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to SECTION 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to the
Purchasers, and the Purchasers, severally and not jointly, desire to purchase
from the Company, in the aggregate, up to 2,000,000 units, each consisting of
one share of Common Stock (as defined below) and a warrant to acquire one share
of Common Stock (the "Units"), on the Closing Date (as defined below).
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser hereby
agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this SECTION 1.1:
"ACTION" shall have the meaning ascribed to such term in SECTION 3.1(J).
"AFFILIATE" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person as such terms are used in and construed under Rule 144. With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser will
be deemed to be an Affiliate of such Purchaser.
"CLOSING" means the closing of the purchase and sale of the Common Stock
pursuant to SECTION 2.1.
"CLOSING DATE" means the Trading Day when all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (a) the Purchasers' obligations to pay the Subscription
Amount and (b) the Company's obligations to deliver the Shares have been
satisfied or waived.
"CLOSING PRICE" means on any particular date (a) the last reported closing
price per share of Common Stock on such date on the Trading Market (as reported
by Bloomberg L.P.), or (b) if there is no such price on such date, then the
closing price on the Trading Market on the date nearest preceding such date (as
reported by Bloomberg L.P.), (c) if the Common Stock is not then listed or
quoted on the Trading Market and if prices for the Common Stock are then
reported in the "pink sheets" published by the Pink Sheets LLC (formerly the
National Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices)), the most recent bid price per
share of the Common Stock so reported, or (d) if the shares of Common Stock are
not then publicly traded, the fair market value of a share of Common Stock as
determined by a qualified independent appraiser selected in good faith by the
Purchasers of a majority in interest of the Shares then outstanding.
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"COMMISSION" means the United States Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, $0.001 par value per
share, and any securities into which such common stock may hereafter be
reclassified.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
shares of Common Stock, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time convertible
into or exchangeable for, or otherwise entitles the holder thereof to receive,
shares of Common Stock.
"DISCLOSURE SCHEDULES" means the Disclosure Schedules of the Company
attached hereto and incorporated herein.
"EFFECTIVE DATE" means the date that a Registration Statement is first
declared effective by the Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to such term
in SECTION 3.1(O).
"LIENS" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other similar restriction.
"MATERIAL ADVERSE EFFECT" shall have the meaning ascribed to such term in
SECTION 3.1(B).
"MATERIAL PERMITS" shall have the meaning ascribed to such term in SECTION
3.1(M).
"OTCBB" means the Over-The-Counter Bulletin Board.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other legal entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition).
"PURCHASE PRICE" equals $1.00, per Unit, subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.
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"REGISTRATION STATEMENT" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale by the Purchasers of the Shares or a portion thereof (as provided for in
the Registration Rights Agreement).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the date of this Agreement, by and among the Company and each
Purchaser, in the form of EXHIBIT A hereto.
"REQUIRED APPROVALS" shall have the meaning ascribed to such term in
SECTION 3.1(E).
"RULE 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in SECTION
3.1(H).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the shares of Common Stock issued or issuable to each
Purchaser pursuant to this Agreement.
"SHORT SALES" shall include all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to include the
location and/or reservation of borrowable shares of Common Stock).
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the amounts set forth
below such Purchaser's signature block on the signature page hereto, in United
States dollars and in immediately available funds.
"SUBSIDIARY" shall mean the subsidiaries of the Company, if any, set forth
on SCHEDULE 3.1(A).
"TRADING DAY" means a day on which the Common Stock is traded on a Trading
Market.
"TRADING MARKET" means each of the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question: OTCBB,
the American Stock Exchange, the New York Stock Exchange, the Nasdaq National
Market or the Nasdaq SmallCap Market.
"TRANSACTION DOCUMENTS" means this Agreement, the Registration Rights
Agreement , the Warrant and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"UNIT" shall have the meaning ascribed to such term in the first whereas
clause of the preamble.
"WARRANT SHARES" shall have the meaning ascribed to such term in Section
2.1.
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"WARRANTS" shall have the meaning ascribed to such term in Section 2.1.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. On the Closing Date, each and every Purchaser shall purchase
from the Company, severally and not jointly with the other Purchasers, and the
Company shall issue and sell to each Purchaser, (a) a number of Shares equal to
such Purchaser's Subscription Amount divided by the Purchase Price and (b)
warrants (the "Warrants") to purchase the same number of shares of Common Stock
as the number of Shares set forth on the foregoing clause (the "Warrant Shares")
which warrants shall have an exercise price equal to $1.35 per share of Common
Stock and shall be exercised for 36 months after the Closing Date. The aggregate
Subscription Amounts for Units sold hereunder shall be up to $2,000,000.00. Upon
satisfaction or waiver of the conditions set forth in SECTIONS 2.2(A), (B), (C)
and (D), the Closing shall occur at the offices of the Company or such other
location as the parties shall mutually agree.
2.2 DELIVERIES; CLOSING CONDITIONS.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a copy of duly executed irrevocable instructions, which
shall be satisfactory in form and substance to each of the Purchasers,
to the Company's transfer agent instructing the transfer agent to
deliver, on an expedited basis, a certificate evidencing a number of
Shares equal to such Purchaser's Subscription Amount divided by the
Purchase Price, registered in the name of such Purchaser;
(iii) the Registration Rights Agreement duly executed by the
Company; and
(iv) duly executed Warrant representing the right to purchase the
number of Warrant Shares which such Purchaser is entitled to purchase.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to the
account as specified in writing by the Company; and
(iii) the Registration Rights Agreement duly executed by such
Purchaser.
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(c) All representations and warranties of the other party contained
herein shall remain true and correct in all material respects as of the
Closing Date and all covenants of the other party shall have been performed
if due prior to such date.
(d) From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (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 shall not have
been suspended or limited on any Trading Market, nor shall a general
commercial banking moratorium have been declared either by the United
States or New York State authorities, nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the
reasonable judgment of Purchasers representing a majority of the
Subscription Amounts made by all Purchasers, makes it impracticable or
inadvisable to purchase the Shares at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as otherwise set
forth under the corresponding section of the Disclosure Schedules attached
hereto, which Disclosure Schedules shall be deemed a part hereof, the Company
hereby represents and warrants as of the date hereof and as of the Closing Date
to each Purchaser as follows:
(a) SUBSIDIARIES. All of the direct and indirect Subsidiaries of the
Company are set forth on SCHEDULE 3.1(A). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe
for or purchase such securities.
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted except where failure to be so qualified,
organized or have such power and authority would not reasonably be expected
to have a Material Adverse Effect (as defined below). Neither the Company
nor any Subsidiary is in violation or default of any of the provisions of
its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, would not have or reasonably be expected
to result in (i) a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material adverse effect
on the results of operations, assets, business or financial condition of
the Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's ability to perform in any material respect
on a timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT"), provided, however, that
in no event shall any of the following, alone or in combination, be deemed
to constitute, nor shall any of the following be taken into account in
determining whether there has been or will be, a Material Adverse Effect:
(a) any change in the Company's stock price or trading volume in and of
itself (but not excluding the underlying cause of any such change pursuant
to this clause (a)); (b) any change, event, violation, inaccuracy,
circumstance or effect that results from changes, events or circumstances
affecting general economic conditions (which changes, events or
circumstances do not disproportionately affect such entity); (c) any
change, event, violation, inaccuracy, circumstance or effect resulting from
acts of war or terrorism or any escalation thereof in and of itself (but
excluding any changes or effect uniquely on or uniquely with respect to the
Company resulting from any such act pursuant to this clause (c); or (d) any
change, event, violation, inaccuracy, circumstance or effect that results
from any action or inaction taken by any Purchaser, and to the knowledge of
the Company, no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
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(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by each of the Transaction
Documents to which it is a party and otherwise to carry out its obligations
thereunder. The execution, delivery and performance by the Company of each
of the Transaction Documents to which it is a party and the consummation by
it of the transactions contemplated thereby have been duly authorized by
all necessary action on the part of the Company and no further action is
required by the Company in connection therewith other than in connection
with the Required Approvals. Each Transaction Document to which it is a
party has been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors'
rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) as the rights to indemnification or contribution hereunder and
thereunder may be limited by applicable law.
(d) NO CONFLICTS. The execution, delivery and performance by the
Company of the Transaction Documents to which it is a party, the issuance
and sale of the Shares and the consummation by the Company of the other
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of
time or both) of, any agreement, credit facility, debt or other instrument
evidencing a Company or Subsidiary debt or otherwise or other understanding
to which the Company or any Subsidiary is a party or by which any property
or material asset of the Company or any Subsidiary is bound, or (iii)
subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a
Subsidiary is bound, or (iv) violate the terms of any agreement by which
the Company or any Subsidiary is bound or to which any property or asset of
the Company or any Subsidiary is bound; except in the case of each of
clauses (ii), (iii) and (iv), such as would not have or reasonably be
expected to result in a Material Adverse Effect.
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(e) FILINGS, CONSENTS AND APPROVALS. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to SECTION 4.4 of this
Agreement, (ii) the filing with the Commission of the Registration
Statement, (iii) application(s) to each applicable Trading Market for the
listing of the Shares for trading thereon in the time and manner required
thereby, (iv) the filing of Form D with the Commission and such filings as
are required to be made under applicable state securities laws, and (v) any
other filings required to be made pursuant to the terms of the Registration
Rights Agreement (collectively, the "REQUIRED APPROVALS").
(f) ISSUANCE OF THE SHARES. The Shares, Warrants and Warrant Shares
have been duly authorized and, when issued and paid for in accordance with
the terms of the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction
Documents and under applicable federal and state securities laws. The
Company has reserved from its duly authorized capital stock the maximum
number of shares of Common Stock issuable pursuant to this Agreement.
(g) CAPITALIZATION. Since September 30, 2005, the Company has not
issued any capital stock other than pursuant to the exercise of stock
options under the Company's global share option plan, the issuance of
shares of Common Stock to employees pursuant to the Company's employee
stock purchase plan and pursuant to the conversion or exercise of
outstanding Common Stock Equivalents outstanding. No Person has any right
of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Units, and
except for warrants and shares issued under the Company's global share
option plan, and except for warrants and shares issuable to certain
advisors listed on SCHEDULE 3.1(G), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. The issue and sale of the Units will not obligate the Company
to issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. All of the outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and none
of such outstanding shares were issued in violation of any preemptive
rights or similar rights to subscribe for or purchase securities. No
further approval or authorization of any shareholder, the Board of
Directors of the Company or others is required for the issuance and sale of
the Units. Except as disclosed in the SEC Reports, there are no
shareholders agreements, voting agreements or other similar agreements with
respect to the Company's capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the Company's
shareholders.
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(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Exchange Act, including
without limitation, those filed pursuant to SECTION 13(A) or 15(D) thereof,
for the two years preceding the date hereof (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as
the "SEC REPORTS") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Reports comply
as to form in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"), except
as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of
and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to
normal, immaterial, year-end audit adjustments.
(i) MATERIAL CHANGES. Since September 30, 2005, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that would reasonably be expected to result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) liabilities incurred
in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made
with the Commission, (iii) the Company has not materially altered its
method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its shareholders or
purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending
before the Commission any request for confidential treatment of information
that has not been granted.
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(j) LITIGATION. There is no action, suit, inquiry, notice of violation
or proceeding pending or, to the knowledge of the Company, threatened, nor,
to the knowledge of the Company, is any investigation pending or
threatened, against the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) challenges the
legality, validity or enforceability of any of the Transaction Documents or
the Units or (ii) would, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor to the knowledge of the Company, any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been,
and to the knowledge of the Company, there is not pending, any
investigation by the Commission involving the Company or any current or
former director or officer of the Company. Since February 1, 2004, the
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company or any Subsidiary which would reasonably be expected to
result in a Material Adverse Effect.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received written notice of a claim that it is in default under,
any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties
is bound (whether or not such default or violation has been waived), (ii)
is in violation of any order of any court, arbitrator or governmental body,
or (iii) is in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state and local laws applicable to its business, except in each case as
would not have a Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits would not have or reasonably be expected to
result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the
Company nor any Subsidiary has received any written notice of proceedings
relating to the revocation or modification of any Material Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have good,
marketable and fee simple title to all real property owned by them that is
material to the business of the Company and the Subsidiaries and valid
title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear
of all Liens, except for Liens as do not materially affect the value of
such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases and no landlord for any
such real property or facility has notified the Company or any such
Subsidiary that any of them are in default under any such lease.
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(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure
to so have would have a Material Adverse Effect (collectively, the
"INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violate or infringe upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no known existing infringement by
another Person of any of the Intellectual Property Rights of others which
would have a Material Adverse Effect.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as the Company believes are prudent and customary
in the businesses in which the Company and the Subsidiaries are engaged.
Neither the Company nor any Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business without a significant increase in
cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than (i) for payment of salary, director fees, or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on
behalf of the Company and (iii) for other benefits under benefit or pension
plans sponsored by the Company, including without limitation stock option
agreements under any stock option plan of the Company.
(r) XXXXXXXX-XXXXX; INTERNAL ACCOUNTING CONTROLS. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. To the extent required
by applicable law, the Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences. To the extent required by applicable law, the Company has
established disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including its Subsidiaries, is made known to the certifying
officers by others within those entities. To the extent required by
applicable law, the Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the end of the
period covered by its most recently filed periodic report under the
Exchange Act (the date of such evaluation, the "EVALUATION DATE"). To the
extent required by applicable law, the Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date and
since the Evaluation Date, there have been no significant changes in the
Company's internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) or, to the best of the Company's
knowledge, in other factors that could significantly affect the Company's
internal controls.
- 10 -
(s) CERTAIN FEES. No brokerage or finder's fees or commissions are or
will be payable by the Company or any Subsidiary to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement. To the knowledge of the Company, the Purchasers shall have no
obligation with respect to any fees or with respect to any claims made
against the Company by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
(t) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
representations and warranties set forth in SECTION 3.2, no registration
under the Securities Act is required for the offer and sale of the Units by
the Company to the Purchasers as contemplated hereby. The issuance and sale
of the Units hereunder does not contravene the rules and regulations of the
Trading Market.
(u) INVESTMENT COMPANY. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Units, will not be or
be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(v) REGISTRATION RIGHTS. No person has any current right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) LISTING AND MAINTENANCE REQUIREMENT. The Company's Common Stock is
registered pursuant to SECTION 12(G) of the Exchange Act, and the Company
has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under
the Exchange Act nor has the Company received any written notification that
the Commission is contemplating terminating such registration.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its Board of
Directors have taken no action, to render inapplicable any laws of its
state of incorporation that is or could become applicable to the Purchasers
as a result of the Purchasers and the Company fulfilling their obligations
or exercising their rights under the Transaction Documents, including
without limitation the Company's issuance of the Units and the Purchasers'
ownership of the Units and there is no control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti takeover provision under the Company's
Articles of Incorporation (or similar charter documents).
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(y) DISCLOSURE. Except for terms of the Transaction Documents and the
fact that the Company is considering consummating the transactions
contemplated therein, the Company confirms that, neither the Company nor
any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business
and the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct in all
material respects with respect to such representations and warranties and
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
(z) SOLVENCY. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Units hereunder, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to be
paid on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after taking
into account all anticipated uses of the cash, would be sufficient to pay
all amounts on or in respect of its debt when such amounts are required to
be paid. The Company does not intend to incur debts beyond its ability to
pay such debts as they mature (taking into account the timing and amounts
of cash to be payable on or in respect of its debt).
(aa) FORM SB-2 AND FORM S-3 ELIGIBILITY. The Company is eligible to
register the resale of the Shares and the Warrant Shares by the Purchaser
under Form SB-2 or Form S-3 promulgated under the Securities Act and the
Company hereby covenants and agrees to use its best efforts to maintain its
eligibility to use Form S-3 until the Registration Statement covering the
resale of the Shares and Warrant Shares shall have been filed with, and
declared effective by, the Commission. If for any reason the Company is not
eligible to register the resale of the Shares and the Warrant Shares by the
Purchaser under Form S-3, the Company covenants and agrees to register the
resale of the Shares and Warrant Shares on Form SB-2 promulgated under the
Securities Act.
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(bb) TAXES. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal,
state and foreign income and franchise tax returns and has paid or accrued
all taxes shown as due thereon, and the Company has no knowledge of a tax
deficiency which has been asserted or threatened against the Company or any
Subsidiary.
(cc) GENERAL SOLICITATION. Neither the Company nor any person acting
on behalf of the Company has offered or sold any of the Units by any form
of general solicitation or general advertising. The Company has offered the
Units for sale only to the Purchasers and certain other "accredited
investors" within the meaning of Rule 501 under the Securities Act.
(dd) FOREIGN CORRUPT PRACTICES. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or
made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended.
(ee) AUDITOR. The Company's auditors are set forth on SCHEDULE 3.1(EE)
of the Disclosure Schedule. To the Company's knowledge, such auditors are
independent auditors as required by the Securities Act.
(ff) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF UNITS. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is party has been duly
executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by
applicable law.
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(b) INVESTMENT INTENT. Such Purchaser understands that the Units, and
the Shares, the Warrants and the Warrant Shares included therein are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Units and
each part thereof as principal for its own account for investment purposes
only and not with a view to or for distributing or reselling such Units or
any part thereof, has no present intention of distributing any of such
Units or any part thereof and has no arrangement or understanding with any
other persons regarding the distribution of such Units or any part thereof
(this representation and warranty not limiting such Purchaser's right to
sell the Shares or Warrant Shares pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws).
Such Purchaser is acquiring the Units and each part thereof hereunder in
the ordinary course of its business. Such Purchaser does not have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Units or any part thereof.
(c) PURCHASER STATUS. At the time such Purchaser was offered the
Units, it was, and at the date hereof it is, an "accredited investor" under
the Securities Act. Such Purchaser was not formed for the specific purpose
of acquiring the Units. Such Purchaser is not a registered broker dealer or
an affiliate of a registered broker dealer.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Shares, and has so evaluated the merits and risks of such investment. Such
Purchaser is able to bear the economic risk of an investment in the Units
(and each part thereof) and, at the present time, is able to afford a
complete loss of such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not purchasing the Units
(or any part thereof) as a result of any advertisement, article, notice or
other communication regarding the Units (or any part thereof) published in
any newspaper, magazine or similar media or broadcast over television or
radio or presented at any seminar or any other general solicitation or
general advertisement. The Purchaser first learned about this investment
opportunity on March 21, 2006.
(f) PURCHASERS ACTING INDIVIDUALLY. Such Purchaser is acting severally
as an individual and is not acting together with any other Person or other
Purchaser as a group.
(g) OPPORTUNITY TO CONDUCT DUE DILIGENCE. Such Purchaser was granted
the opportunity to conduct due diligence prior to entering into the
transactions contemplated by this Agreement.
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(h) CERTAIN FEES. No brokerage or finder's fees or commissions are or
will be payable by the Purchaser to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by this Agreement. To
the knowledge of the Purchaser, the Company shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be
due in connection with the transactions contemplated by this Agreement.
(i) DISCLOSURE. The Purchaser acknowledges and agrees that the Company
does not make nor has made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically set
forth in SECTION 3.1.
(j) SHORT SALES AND CONFIDENTIALITY PRIOR TO THE DATE HEREOF. Other
than the transactions contemplated hereunder, the Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with the Purchaser, executed any disposition,
including Short Sales, in the securities of the Company during the period
commencing from the time that the Purchaser first received a term sheet
from the Company or any other Person setting forth the material terms of
the transactions contemplated hereunder until the date hereof.
Notwithstanding the foregoing, in the case that the Purchaser is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of the Purchaser's assets and the portfolio managers have
no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of the Purchaser's assets, the
representation set forth above shall only apply with respect to the portion
of assets managed by the portfolio manager that made the investment
decision to purchase the Units or any part thereof covered by this
Agreement. Other than to other Persons party to this Agreement, the
Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of
this transaction).
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) Each of the Purchasers hereby acknowledges that the Units and any
part hereof may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Shares, Warrants or
Warrant Shares other than pursuant to an effective registration statement
or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in SECTION 4.1(B), the Company may
require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of such opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Shares, Warrants or Warrant Shares
under the Securities Act. As a condition of any such transfer, any such
transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement, as applicable. Unless the transfer of
the Warrants has been registered, no Warrants may be transferred to any
person that is not an "accredited investor."
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(b) The Purchasers agree to the imprinting, so long as is required by
this SECTION 4.1(B), of a legend on any of the Shares, Warrants and Warrant
Shares in the following form:
[THESE SHARES] [THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT] HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SHARES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION
THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT.
(c) The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Shares,
the Warrants or the Warrant Shares to a financial institution that is an
"accredited investor" as defined in Rule 501(a) under the Securities Act
and who agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Shares, the
Warrants or the Warrant Shares to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor
shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the
Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Shares, the Warrants or the Warrant Shares may
reasonably request in connection with a pledge or transfer of the Shares,
the Warrants or the Warrant Shares, including, if the Shares or Warrant
Shares are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
- 16 -
(d) Certificates evidencing the Shares or the Warrant Shares shall not
contain any legend (including the legend set forth in SECTION 4.1(B)), (i)
while a registration statement (including the Registration Statement)
covering the resale of any such security is effective under the Securities
Act, or (ii) following any sale of such Shares or the Warrant Shares
pursuant to Rule 144 to a non affiliate of the Company, or (iii) if such
Shares or the Warrant Shares are eligible for sale under Rule 144(k). The
Company shall cause its counsel to issue a legal opinion or instruction to
the Company's transfer agent promptly after the Effective Date if required
by the Company's transfer agent to effect the removal of the legend
hereunder. The Company agrees that following the Effective Date or at such
time as such legend is no longer required under this SECTION 4.1(D), it
will, no later than seven (7) Trading Days following the delivery by a
Purchaser to the Company or the Company's transfer agent of a certificate
representing Shares, issued with a restrictive legend (such date, the
"LEGEND REMOVAL DATE"), deliver or cause to be delivered to such Purchaser
a certificate representing such Shares that is free from all restrictive
and other legends. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Shares as set forth in this SECTION 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Shares pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an
exemption therefrom.
(f) Until 45 days after the Effective Date, the Company shall not
undertake a reverse or forward stock split or reclassification of the
Common Stock without the prior written consent of the Purchasers holding a
majority in interest of the Units.
4.2 FURNISHING OF INFORMATION. As long as any Purchaser owns Shares,
Warrants or Warrant Shares, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act. As long as any Purchaser owns Shares, Warrants or Warrant
Shares, if the Company is no longer required to file reports pursuant to the
Exchange Act (or if such filings are not otherwise generally available on the
Internet free of charge), it will prepare and furnish to the Purchasers (upon
receipt of a written request) and make publicly available in accordance with
Rule 144(c) such information as is required for the Purchasers to sell the
Shares, Warrants or Warrant Shares under Rule 144. The Company further covenants
that it will take such further action as any holder of Units may reasonably
request, all to the extent required from time to time to enable such Person to
sell such Shares, Warrants or Warrant Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
4.3 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
SECTION 2 of the Securities Act) that would be integrated with the offer or sale
of the Units in a manner that would require the registration under the
Securities Act of the sale of the Shares, Warrants or Warrant Shares to the
Purchasers or that would be integrated with the offer or sale of the Units or
any part thereof for purposes of the rules and regulations of any Trading Market
such that it would require shareholder approval prior to the closing of such
other transaction unless shareholder approval is obtained before the closing of
such subsequent transaction.
- 17 -
4.4 SECURITIES LAWS DISCLOSURE; PUBLICITY. Provided that the Company has
received each item required to be delivered by each Purchaser pursuant to
SECTION 2.2(B), the Company shall, by 9:00 a.m. Eastern time on the Trading Day
following the Closing Date, issue a press release or file a Current Report on
Form 8-K, disclosing the material terms of the transactions contemplated hereby.
No Purchaser shall issue any press release with respect to the transaction
contemplated hereby or otherwise make any such public statement without the
prior consent of the Company, which consent shall not unreasonably be withheld,
except if such disclosure is required by law, in which case the disclosing party
shall promptly provide the other party with prior notice of such public
statement or communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except (i) as
required by federal securities law in connection with the registration statement
contemplated by the Registration Rights Agreement and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure
permitted under subclause (i) or (ii).
4.5 SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Shares under the Transaction Documents.
4.6 NON-PUBLIC INFORMATION. Except as may be required to comply with the
terms and conditions of this Agreement, the Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.7 USE OF PROCEEDS. The Company shall use the net proceeds from the sale
of the Shares hereunder for general corporate and strategic purposes, including,
but not limited to, working capital and in connection with acquisitions, joint
ventures and other similar transactions, and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Company equity or equity equivalent securities or to settle any outstanding
litigation.
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4.8 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
SECTION 4.7, the Company will indemnify and hold the Purchasers and their
directors and officers, (each, a "PURCHASER PARTY") harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including without limitation all judgments, amounts paid in
settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against (i) a Purchaser, or
any of them or their respective Affiliates or (ii) a Purchaser Party, by any
shareholder of the Company who is not an Affiliate of such Purchaser or
Purchaser Party, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser's representation, warranties, covenants or agreements under the
Transaction Documents or any agreements or understandings such Purchaser or a
Purchaser Party may have with any such shareholder or any violations by the
Purchaser or a Purchaser Party of state or federal securities laws or any
conduct by such Purchaser or a Purchaser Party which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, such Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by an Purchaser
Party effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents or any
agreements or understandings such Purchaser or a Purchaser Party may have with
any such shareholder or any violations by the Purchaser or a Purchaser Party of
state or federal securities laws or any conduct by such Purchaser or a Purchaser
Party which constitutes fraud, gross negligence, willful misconduct or
malfeasance). From and after the Closing, the rights of the Purchasers under
this Section shall be the exclusive monetary remedy thereof with respect to any
breach of the Transaction Documents and any indemnifiable claim.
4.9 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares and Warrant Shares
pursuant to this Agreement.
4.10 LISTING OF COMMON STOCK . The Company agrees, if the Company applies
to have the Common Stock traded on any other Trading Market besides the OTCBB,
it will include in such application all of the Shares and Warrant Shares, and
will take such other action as is necessary to cause all of the Shares and
Warrant Shares to be listed on such other Trading Market as promptly as
possible. The Company will take all action commercially reasonable and necessary
to (a) continue the listing and trading of its Common Stock on a Trading Market
and (b) comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such Trading Market.
- 19 -
4.11 EQUAL TREATMENT OF PURCHASERS. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Shares or otherwise.
4.12 DELIVERY OF SHARES AFTER CLOSING The Company shall deliver, or cause
to be delivered, the Shares purchased by each Purchaser to such Purchaser within
Seven (7) Trading Days of the Closing Date.
ARTICLE V.
MISCELLANEOUS
5.1 FEES AND EXPENSES. Each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement.
5.2 ENTIRE AGREEMENT The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile with confirmation of
receipt at the facsimile number set forth on the signature pages attached hereto
prior to 5:00 p.m. (New York City time) on a Trading Day, (b) the next Trading
Day after the date of transmission, if such notice or communication is delivered
via facsimile with confirmation of receipt at the facsimile number set forth on
the signature pages attached hereto on a day that is not a Trading Day or later
than 6:30 p.m. (New York City time) on any Trading Day, (c) the second Trading
Day following the date of mailing, if sent by a nationally recognized overnight
courier service in the United States, or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto or
as such party may designate by advance written notice to the other party.
5.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
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5.5 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Units, subject to Article IV, provided such
transferee agrees in writing to be bound, with respect to the transferred
Shares, by the provisions hereof that apply to the "Purchasers" and delivers
such written instrument to the Company prior to such transfer.
5.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in SECTION 4.8.
5.8 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the State of Delaware for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
The parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of this Agreement,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its reasonable attorneys fees and expenses and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
5.9 SURVIVAL. The representations and warranties herein shall survive the
Closing and delivery of the Shares until the third anniversary hereof.
- 21 -
5.10 EXECUTION. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 SEVERABILITY. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 RESCISSION AND WITHDRAWAL RIGHT Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, other then
due to circumstances not reasonably within the Company's control, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.13 REPLACEMENT OF SHARES If any certificate or instrument evidencing any
Shares, Warrants or Warrant Shares is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and substitution for and
upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Shares, Warrants or
Warrant Shares.
5.14 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.15 PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
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5.16 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. 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 has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.
5.17 LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
(Signature Pages Follow)
- 23 -
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
ZONE4PLAY, INC. ADDRESS FOR NOTICE:
By: /s/ Xxxxxx Xxxxxx 000 Xxxxx Xxxx
--------------------- Xxxxxxxxxx, XX 00000
Name: Xxxxxx Xxxxxx
Title: Chief Executive Officer
With a copy to (which shall not constitute notice):
Z.A.G/S&W LLP
1290 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Tel:(000) 000 0000
Mobile:(000) 000 0000
Fax:(000) 000 0000
Website:xxx.xxx-xx.xxx
Attention: Xxxxxx X. Xxxxxxxxxx, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
- 24 -
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
By initialing the appropriate space below, the Purchaser hereby represents
that the Purchaser:
----------------- is a corporation, a business trust, or a partnership, not
(initials) formed for the specific purpose of acquiring the Units, with
total assets in excess of $5,000,000.
----------------- is a natural person whose individual net worth, or joint net
(initials) worth with his or her spouse, exceeds $ 1,000,000.
----------------- is a natural person who had an individual income in excess
(initials) of $200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of $300,000 in each
of those years, and has a reasonable expectation of reaching
the same income level in the current year.
----------------- is a trust with total assets in excess of $5,000,000, not
(initials) formed for the specific purpose of acquiring the Units.
----------------- is an entity in which all of the equity owners fall within
(initials) one of the categories set forth above.
Name of Investing Entity: ____________________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: ___________________
Name of Authorized Signatory: ________________________
Title of Authorized Signatory: __________________
Address for Notice of Investing Entity:
Address for Delivery of Units for Investing Entity (if not same as above):
Subscription Amount: $_______
Shares: $_________ ($____/share)
EIN Number:
/s/ Xxxx X. Chill
---------------------
Smithfield fiduciary LLC
By: Xxxx X. Chill
Title: Authorized Signatory
/s/ Xxxxxx Xxxxxxxxx
---------------------
Xxxxxx Xxxxxxxxx
/s/ Xxxxx Xxxxxxx
---------------------
Xxxxx Xxxxxxx
/s/ Xxxxx Xxxxxxxxx
---------------------
Xxxxx Xxxxxxxxx
/s/ Xxxxxxx Xxxx
---------------------
Xxxxxxx X Xxxx Custodian for Xxxxx Xxxx
Title: Custodian
/s/ Xxxxxxx Xxxx
---------------------
Xxxxxxx X Xxxx Custodian for Xxxxxxx Xxxx
Title: Custodian
/s/ Xxxxxxx Xxxx
---------------------
Xxxxxxx X Xxxx Custodian for Xxxxxxxx Xxxx
Title: Custodian
/s/ Xxxxxx Xxxx
---------------------
Xxxxxx Xxxx
/s/ Xxxxxx Xxxx
---------------------
Xxxxx Xxxx trust
By: Xxxxxx Xxxx
Title: Authorized Signatory
/s/ Xxxxxx X. Xxxxxx
---------------------
Cranshire Capital L.P
By: Xxxxxx X. Xxxxxx
Title: Chief Operating Officer
/s/ Xxxx Xxxxx
---------------------
Xxxx Xxxxx
/s/ Xxxxxxx X. Xxxxxxxxx
---------------------
Xxxxxxx X. Xxxxxxxxx
/s/ Xxxxxx Xxxxxxxxx
Iroquois Masterfund Ltd.
By: Xxxxxx Xxxxxxxxx
Title: Authorized Signatory
/s/ Xxxxxx Xxxxxxx
---------------------
WO Special opportunities LLC
By: Xxxxxx Xxxxxxx
Title: Director
[SIGNATURE PAGES CONTINUE]
- 25 -
SCHEDULES TO
SECURITIES PURCHASE AGREEMENT
dated as of March 29, 2006, by and among Zone4Play, Inc., a Nevada corporation
(the "Company"), and each purchaser identified on the signature pages hereto
(each, including its successors and assigns, a "PURCHASER" and collectively the
"PURCHASERS")
SCHEDULE 3.1(A)
SUBSIDIARIES OF THE COMPANY.
The following companies are wholly-owned subsidiaries of the Company:
Zone4Play (Delaware), Ltd.
Zone4Play (UK), Ltd.
Zone4Play (Israel), Ltd.
MIXTV, Ltd.
SCHEDULE 3.1(G)
WARRANTS AND SHARES ISSUED TO CERTAIN ADVISORS
The following warrants are to be issued:
To Kidron Corporate advisors LLC pursuant to an agreement dated December 1,
2005 Up to 124,138 warrants at $.725 per share.
SCHEDULE 3.1(EE)
THE COMPANY'S AUDITORS
Xxxx Xxxxx Xxxxxx & Kasierer a member of Ernst & Young Global
Tel Aviv, Israel
