SECURITIES PURCHASE AGREEMENT
Exhibit
4.1
THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”)
is
made and entered into as of May 24, 2007, by and among Xxxxxxxxxx, a
California corporation (the “Company”),
and
each of the investors identified on the Schedule of Investors attached hereto
as
Exhibit
A
(individually an “Investor”
and
collectively, the “Investors”).
R
E C I T A L S
A. The
Company and each Investor are executing and delivering this Agreement in
reliance upon the exemption from registration afforded by Section 4(2) of
the Securities Act of 1933, as amended (the “Securities
Act”),
and
Rule 506
of
Regulation D
(“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“SEC”)
under
the Securities Act.
B. Each
Investor, severally and not jointly, wishes to subscribe for and purchase,
and
the Company wishes to sell, upon the terms and conditions stated in this
Agreement, (i) that aggregate number of shares of the Series A Cumulative
Redeemable Convertible Preferred Stock, no par value per share, of the Company
(the “Series
A Preferred Stock”),
set
forth opposite such Investor’s name on the Schedule of Investors in Exhibit A
(which
aggregate amount for all Investors together shall be 5,909,089 shares of Series
A Preferred Stock and shall collectively be referred to herein as the
“Series
A Preferred Shares”),
and
(ii) warrants, in substantially the form attached hereto as Exhibit E
(the
“Warrants”)
to
acquire up to that number of shares of the Company’s common stock, no par value
per share (the “Common
Stock”),
set
forth opposite such Investor’s name on the Schedule of Investors (the shares of
Common Stock issuable upon exercise of or otherwise pursuant to the Warrants,
collectively, the “Warrant
Shares”).
Pursuant to the Company’s Amended and Restated Articles of Incorporation (the
“Restated
Articles”)
in the
form attached hereto as Exhibit F,
the
shares of Series A Preferred Stock are convertible into shares of Common
Stock (the shares of Common Stock issuable upon conversion of or otherwise
pursuant to the Series A Preferred Stock, collectively the “Conversion
Shares”).
C. The
Series A Preferred Shares, the Conversion Shares, the Warrants and the Warrant
Shares issued pursuant to this Agreement are collectively are referred to herein
as the “Securities.”
NOW,
THEREFORE, in consideration of the foregoing premises and the respective
promises of the parties set forth herein, the parties hereto agree as
follows:
ARTICLE
I
DEFINITIONS
For
purposes of this Agreement, in addition to the other capitalized terms defined
elsewhere in this Agreement, the following terms shall have the meanings
specified or referred to in this Article I:
“Action”
or
“Actions”
shall
mean any litigation, suits, actions, causes of actions, and proceedings or
investigations, collectively.
“Affiliate”
shall
mean, with respect to any individual, partnership, corporation, limited
liability company, association, business trust, joint venture, governmental
entity or other entity (“Person”),
any
Person that controls, is controlled by, or is under common control with, such
Person.
“Agility
Warrant”
shall
mean that certain Warrant to Purchase Stock of X. X. Xxxxxxxxxx dated
as of September 23, 2005 that entitles the Agility Warrantholder to purchase
up
to 4.1% of the total number of shares of X. X. Xxxxxxxxxx Common Stock
(calculated on a fully diluted basis as of the date of the Agility
Warrant).
“Agility
Warrantholder”
shall
mean Agility Capital, LLC.
“Agility
Repurchase”
shall
mean the repurchase by X. X. Xxxxxxxxxx of the Agility Warrant held by
the Agility Warrantholder, together with the repurchase of 771,323 shares of
X. X. Xxxxxxxxxx Common Stock owned by the Agility Warrantholder and
the repayment of all amounts owed by X. X. Xxxxxxxxxx to Agility pursuant to
that certain Loan Agreement dated September 23, 2005 by and between Agility
and
X. X. Xxxxxxxxxx.
“Business”
shall
mean the business of the Company and its Subsidiaries as of the date
hereof.
“Business
Day”
shall
mean any day other than Saturday, Sunday or other day on which commercial banks
in the State of California are authorized or required by law to remain
closed.
“Buy-In”
shall
have the meaning set forth in Section
5.1(e).
“Buy-In
Price”
shall
have the meaning set forth in Section
5.1(e).
“Closing”
shall
mean the closing of the purchase and sale of the Securities pursuant to
Section
2.1.
“Closing
Date”
shall
mean the date and time of the Closing and shall be 1:00 p.m., California Time,
on the date hereof.
“Closing
Price”
shall
mean, for any date, the closing price per share of the Common Stock for such
date (or the nearest preceding date) on the primary Trading Market or exchange
or quotation system on which the Common Stock is then listed or
quoted.
“Common
Shares”
shall
mean shares of the Company’s Common Stock.
“Common
Stock”
shall
have the meaning set forth in the Recitals.
“Company
Balance Sheet”
shall
have the meaning set forth in Section
3.9.
“Company
Counsel”
shall
mean Xxxxx & Xxxxxx, LLP, counsel to the Company.
“Company
Employee Benefit Plan”
shall
have the meaning set forth in Section
3.16(c).
“Contingent
Obligation”
shall
mean, as to any Person: any direct or indirect liability, contingent or
otherwise, of that Person with respect to any indebtedness, lease, dividend
or
other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid
or
discharged, or that any agreements relating thereto will be complied with,
or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.
-2-
“Conversion
Shares”
shall
have the meaning set forth in the Recitals.
“Convertible
Securities”
shall
mean any stock or securities (other than Options) convertible into or
exercisable or exchangeable for Common Stock.
“Disclosure
Materials”
shall
mean this Agreement, the Schedules attached hereto, the Offering Memorandum
and
the Proxy Statement.
“Effective
Date”
shall
mean the date that the Registration Statement is first declared effective by
the
SEC.
“Effectiveness
Period”
shall
have the meaning set forth in the Registration Rights Agreement.
“Environmental,
Health, and Safety Liabilities”
shall
mean any cost, damages, expense, liability, obligation, or other responsibility
arising from or under Environmental Law or Occupational Safety and Health Law
and consisting of or relating to:
(a) any
environmental, health, or safety matters or conditions (including on-site or
off-site contamination, occupational safety and health, and regulation of
chemical substances or products);
(b) fines,
penalties, judgments, awards, settlements, legal or administrative proceedings,
damages, losses, claims, demands and response, investigative, remedial, or
inspection costs and expenses arising under Environmental Law or Occupational
Safety and Health Law;
(c) financial
responsibility under Environmental Law or Occupational Safety and Health Law
for
cleanup costs or corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions (“Cleanup”)
required by applicable Environmental Law or Occupational Safety and Health
Law
(whether or not such Cleanup has been required or requested by any Governmental
Body or any other Person) and for any natural resource damages; or
(d) any
other
compliance, corrective, investigative, or remedial measures required under
Environmental Law or Occupational Safety and Health Law.
The
terms
“removal,”
“remedial,”
and
“response
action”
include
but are not limited to the types of activities covered by the United States
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
Section 9601 et seq., as amended (“CERCLA”).
-3-
“Environmental
Laws”
shall
mean any federal, state and local environmental laws, rules, regulations,
standards and requirements, including, without limitation, those respecting
hazardous materials and substances (including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. sec. 9601, et.
seq.;
the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. sec. 6901.
et.
seq.;
the
Federal Water Pollution Control Act, as amended, 33 U.S.C sec. 1251,
et.
seq.;
the
Toxic Substances Control Act, as amended, 15 U.S.C. sec. 9601, et.
seq.;
the
Emergency Planning and Community Right to Know Act, 42 U.S.C. sec. 11001,
et.
seq.;
the
Safe Drinking Water Act, 42 U.S.C. sec. 300f, et.
seq.;
the
Solid Waste Disposal Act, as amended; and all comparable state and local laws;
and any common law (including without limitation common law that may impose
strict liability) that may impose liability or obligations for injuries or
damages to, or threatened as a result of, the present of or exposure to any
hazardous materials or substances).
“Escrow
Agent”
shall
mean Mellon Bank, N.A.
“Escrow
Agreement”
shall
mean that certain Escrow Agreement dated as of May 16, 2007 by and among
the Company, X. X. Xxxxxxxxxx and the Escrow Agent.
“ERISA”
shall
mean the Employee Retirement Income Security Act of 1974 or any successor law,
and regulations and rules issued pursuant to that Act or any successor
law.
“Exchange
Act”
shall
mean the Securities Exchange Act of 1934, as amended, or any successor law,
and
regulations and rules issued pursuant to that Act or any successor
law.
“Exchange
Act Registration Statement”
shall
have the meaning set forth in the Registration Rights Agreement.
“Excluded
Investors”
shall
mean X. Xxxxx & Co. and its Affiliates.
“Filing
Date”
shall
have the meaning set forth in the Registration Rights Agreement.
“Financial
Statements”
shall
have the meaning set forth in Section 3.9.
“GAAP”
shall
mean generally accepted United States accounting principles, applied on a
consistent basis.
“Governmental
Body”
shall
mean any:
(a) nation,
state, county, city, town, village, district, or other jurisdiction of any
nature;
(b) federal,
state, local, municipal, foreign, or other government;
(c) governmental
or quasi-governmental authority of any nature (including any governmental
agency, branch, department, official, or entity and any court or other
tribunal);
(d) multi-national
organization or body; or
(e) body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory, or taxing authority or power of any
nature.
-4-
“Indebtedness”
of
any
Person shall mean, without duplication: (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase
price
of property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising
under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under
any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby,
is
classified as a capital lease, (G) all indebtedness referred to in clauses
(A)
through (F) above secured by (or for which the holder of such Indebtedness
has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above.
“Indemnified
Party”
shall
have the meaning set forth in Section
5.8(b).
“Indemnifying
Party”
shall
have the meaning set forth in Section
5.8(b).
“Intellectual
Property”
shall
have the meaning set forth in Section
3.14.
“Investor
Party”
shall
have the meaning set forth in Section
5.8(a).
“Investors”
shall
have the meaning set forth in the preface above.
“Lead
Investors”
shall
mean each of (i) Xxxxxx Partners LLC, and (ii) Xxxxx X. Xxxxxx and the
Affiliates of Xx. Xxxxxx.
“Legal
Requirement”
shall
mean any federal, state, local, municipal, foreign, international,
multinational, or other administrative order, constitution, law, ordinance,
principle of common law, regulation, statute, or treaty.
“Legend
Removal Date”
shall
have the meaning set forth in Section
5.1(d).
“Liability”
or
“Liabilities”
shall
mean debts, liabilities, commitments or obligations of any nature, absolute,
accrued, contingent or otherwise.
“Lien”
or
“Liens”
shall
mean any mortgage, pledge, security interest, conditional sale or other title
retention agreement, encumbrance, lien, easement, claim, right, covenant,
restriction, right of way, warrant, option or charge of any kind.
“Losses”
shall
have the meaning set forth in Section
5.8(a).
-5-
“Material
Adverse Effect”
shall
mean any circumstance, change, event, fact, development or effect that (i)
has
had, or would have, a material adverse effect on the results of operations,
assets, business or financial condition of the Company and the Subsidiary,
taken
as a whole on a consolidated basis, or (ii) materially and adversely impairs
the
Company’s ability to perform its obligations under any of the Transaction
Documents, provided, that none of the following alone shall be deemed, in and
of
itself, to constitute a Material Adverse Effect: (i) a change in the market
price or trading volume of the Common Stock (provided,
however,
that
this clause (i) shall not exclude any underlying circumstance, change, event,
fact, development or effect that may have caused such change in market price
or
trading volume) or (ii) changes in general economic conditions or changes
affecting the industry in which the Company operates generally (as opposed
to
Company-specific changes) so long as such changes do not have a disproportionate
effect on the Company and the Subsidiary taken as a whole.
“Occupational
Safety and Health Law”
shall
mean any Legal Requirement designed to provide safe and healthful working
conditions and to reduce occupational safety and health hazards, and any
program, whether governmental or private (including those promulgated or
sponsored by industry associations and insurance companies), designed to provide
safe and healthful working conditions.
“Offering
Memorandum”
shall
mean the Subsidiary’s Offering Memorandum dated February 2007, a copy of which
has been delivered to each Investor.
“Options”
shall
mean any outstanding rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.
“OSHA”
shall
mean the Occupational Safety and Health Administration.
“OTCBB”
shall
mean the OTC Bulletin Board.
“Permit”
or
“Permits”
shall
mean any licenses, permits, authorizations, approvals, consents, franchises
and
orders required for the conduct and operation of business as presently
conducted.
“Permitted
Liens”
shall
mean any (i) Liens for taxes not yet due and payable or for taxes that are
being
contested in good faith through appropriate proceedings, (ii) Liens for purchase
money security interests and Liens securing rental payments under capital lease
arrangements, (iii) other Liens arising in the ordinary course of business
and
not incurred in connection with the borrowing of money, and (iv) Liens described
on Schedule
3.13.
“Pink
Sheets”
shall
mean Pink Sheets, LLC.
“Placement
Agent”
has
the
meaning set forth in Section
3.24.
“Placement
Warrants”
shall
mean a warrant to acquire up to an aggregate of 385,434 shares of Common Stock
issued to the Placement Agent and/or its Affiliates.
“Placement
Warrant Shares”
shall
mean shares of Common Stock issuable upon exercise of or otherwise pursuant
to
the Placement Warrants.
-6-
“Preferred
Stock”
shall
mean the Company’s authorized shares of preferred stock.
“Preferred
Repurchase”
shall
mean the repurchase by the Subsidiary of the Subsidiary Preferred Stock from
Xxx
Research Corporation immediately after the Closing.
“Proceeding”
shall
have the meaning set forth in the Registration Rights Agreement.
“Property”
shall
have the meaning set forth in Section
3.20.
“Proxy
Statement”
shall
mean that certain Proxy Statement of the Company dated February 14,
2007.
“Registrable
Securities”
shall
have the meaning set forth in the Registration Rights Agreement.
“Registration
Rights Agreement”
shall
mean the Registration Rights Agreement dated the date hereof in substantially
the form attached hereto as Exhibit G.
“Registration
Statement”
shall
have the meaning set forth in the Registration Rights Agreement.
“Regulation
D”
shall
have the meaning set forth in the Recitals.
“Restated
Articles”
shall
have the meaning set forth in the Recitals.
“X. X. Xxxxxxxxxx”
shall
mean X. X. Xxxxxxxxxx (formerly, Xxxxxxxxxx), a California corporation and
wholly-owned subsidiary of the Company.
“Rule
144,”
“Rule
415,”
and
“Rule
424”
shall
mean Rule 144, Rule 415 and Rule 424, respectively, promulgated by the SEC
pursuant to the Securities Act, as such Rules may be amended from time to time,
or any similar rule or regulation hereafter adopted by the SEC having
substantially the same effect as such Rule.
“SEC”
shall
have the meaning set forth in the Recitals.
“Securities”
shall
have the meaning set forth in the Recitals.
“Securities
Act”
shall
mean the Securities Act of 1933, as amended, or any successor law, and
regulations and rules issued pursuant to that Act or any successor
law.
“Series
A Preferred Shares”
shall
have the meaning set forth in the Recitals.
“Series A
Preferred Stock”
shall
have the meaning set forth in the Recitals.
“Share
Exchange Agreement”
shall
mean that certain Share Exchange Agreement dated January 31, 2007 by and between
the Company (formerly, CTK Windup Corporation) and X. X. Xxxxxxxxxx (formerly,
Xxxxxxxxxx) as amended by that certain Amendment No. 1 to Share Exchange
Agreement dated as of April 30, 2007 by and between the Company and X. X.
Xxxxxxxxxx.
-7-
“Short
Sales”
shall
have the meaning set forth in Section 4.8.
“Subsidiary”
shall
mean X. X. Xxxxxxxxxx.
“Subsidiary
Common Stock”
shall
mean the common stock, no par value per share, of
X. X. Xxxxxxxxxx.
“Subsidiary
Financial Statements”
shall
have the meaning set forth in Section 3.9.
“Subsidiary
Preferred Stock”
shall
mean 5,769,736 shares of Series A Preferred Stock of
X. X. Xxxxxxxxxx.
“Trading
Day”
shall
mean a day on which the Common Stock is traded on a Trading Market; provided,
that in the event that the Common Stock is not listed or quoted on a Trading
Market, then Trading Day shall mean a Business Day.
“Trading
Market”
shall
mean whichever of the New York Stock Exchange, the American Stock Exchange,
the
NASDAQ Global Market, the NASDAQ Capital Market, the OTCBB or the Pink Sheets,
LLC on which the Common Stock is listed or quoted for trading on the date in
question.
“Transaction
Documents”
shall
mean this Agreement, the Schedules and Exhibits attached hereto, the Warrants,
the Restated Articles, the Registration Rights Agreement and the Transfer Agent
Instructions.
“Transfer
Agent”
shall
mean Computershare, Inc., or any successor transfer agent for the
Company.
“Transfer
Agent Instructions”
shall
mean the instructions by the Company to the Transfer Agent in the form attached
hereto as Exhibit D.
“Warrants”
shall
have the meaning set forth in the Recitals.
“Warrant
Shares”
shall
have the meaning set forth in the Recitals.
ARTICLE
II
PURCHASE
AND SALE
2.1 Closing.
Subject
to the terms and conditions set forth in this Agreement, at the Closing the
Company shall issue and sell to each Investor, and each Investor shall,
severally and not jointly, subscribe for and purchase from the Company, such
number of Series A Preferred Shares and Warrants for the price set forth
opposite such Investor’s name on Exhibit
A
hereto
under the headings “Series A Preferred Shares” and “Warrants” and as set
forth in the Investor Signature Page attached to this Agreement. The date and
time of the Closing and shall be 1:00 p.m., California Time, on the Closing
Date. The Closing shall take place at the offices of the Company’s Counsel.
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2.2 Closing
Deliveries.
(a) At
the
Closing, the Company shall deliver or cause to be delivered to each Investor
the
following:
(i) one
or
more stock certificates, containing the restrictive legend set forth in
Section
5.1(b),
evidencing such number of Series A Preferred Shares set forth opposite such
Investor’s name on Exhibit A
hereto
under the heading “Series A Preferred Shares,” registered in the name of
such Investor;
(ii) a
Warrant, issued in the name of such Investor, pursuant to which such Investor
shall have the right to acquire such number of Warrant Shares equal to 15%
of
the number of Conversion Shares issuable to such Investor if such Investor
immediately exercised its conversion rights in respect of the Series A Preferred
Shares purchased from the Company pursuant to Section
2.2(a)(i),
and
which number of Warrant Shares is set forth opposite such Investor’s name on
Exhibit A
hereto
under the heading “Warrant Shares”;
(iii) the
Registration Rights Agreement between the Company and each Investor, duly
executed by the Company;
(iv) a
legal
opinion of Company Counsel, reasonably acceptable to each Investor,
substantially in the form of Exhibit C,
executed by such counsel;
(v) any
and
all consents, approvals, notices, filings or recordations of third parties
required with respect to the execution and delivery of this Agreement or the
transactions contemplated hereby or by any of the agreements, documents or
instruments referred to herein;
(vi) evidence
in form and substance reasonably satisfactory to each Investor that the Company
has closed the transactions pursuant to the Share Exchange
Agreement;
(vii)
evidence
in form and substance reasonably satisfactory to each Investor that the Company
has filed the Restated Articles with the Secretary of State of the State of
California on or prior to the Closing;
(viii) evidence,
in form and substance reasonably satisfactory to each Investor, that each of
the
Preferred Repurchase and the Agility Repurchase has closed prior to, or will
close immediately after, the Closing and that in connection with the closing
of
the Agility Repurchase, any and all liens upon the assets of the Subsidiary
held
by the Agility Warrantholder shall terminate concurrent with or promptly after
such closings;
(ix)
a
certificate of the president or chief executive officer of the Company
certifying that the representations and warranties by the Company set forth
in
this Agreement and in any certificate or document delivered pursuant to the
provisions of this Agreement are true and accurate, on and as of the Closing
Date, and that the Company has performed and complied in all material respects
with all agreements, obligations and conditions required by this Agreement
to be
performed or complied with by it on or prior to the Closing Date;
-9-
(x)
a
copy of
the Articles of Incorporation and Bylaws of the Company, each as amended to
date, and the resolutions adopted by the Board of Directors of the Company
approving, authorizing and directing the execution of this Agreement by the
Company and the transactions contemplated thereby, each certified by the
Secretary of the Company as being in full force and effect on and as of the
Closing Date; and
(xi) certificates
of the Secretary of State of California dated within five (5) Business Days
of
the Closing Date to the effect that the Company and X. X. Xxxxxxxxxx are validly
existing corporations in good standing under the laws of the State of
California.
(b) At
or
prior to the Closing, each Investor shall deliver or cause to be delivered
to
the Company and/or the Escrow Agent, as the case may be, the following:
(i) the
purchase price set forth on the Investor Signature Page and opposite such
Investor’s name on Exhibit
A
hereto
under the heading “Purchase Price” in United States dollars and in immediately
available funds, by wire transfer to the escrow account with the Escrow Agent
as
follows:
ABA
Routing: 000000000
Account
No.: 000-4562
Account
Name: CTK Windup Corp./Xxxxxxxxxx
Mellon Bank, N.A., Escrow Agent
Attn:
Xxx
X. Xxxxx
Telephone:
(000) 000-0000
(ii) the
Investor Signature Page attached to this Agreement evidencing such Investor’s
subscription for, and obligation to purchase, such number of Series A Preferred
Shares and Warrants as set forth therein, provided that the parties agree that
the Investor may deliver the Investor Signature Page to the Company and the
corresponding purchase price to the Escrow Agent prior to the Closing with
the
understanding that (A) the Company will affix the date of the Closing to this
Agreement and the Investor Signature Page, and (B) such funds will be released
by the Escrow Agent to the Company only if the Closing has occurred and only
in
accordance with the provisions of Section
6.3;
(iii) completed
Instruction Sheet for Investors set forth on Exhibit B
hereto,
duly executed by each Investor and delivered to the Company; and
(iv) the
Registration Rights Agreement between the Company and each Investor, duly
executed by the Investor.
-10-
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to the Investors as follows (which
representations and warranties shall be deemed to apply, where appropriate,
to
the Subsidiary of the Company), on and as of the date hereof:
3.1 Organization
and Good Standing.
Each of
the Company and the Subsidiary is a corporation duly 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,
operate and lease its properties and to carry on its business as now conducted,
and is duly qualified to do business and is in good standing in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities make such qualification necessary, except where the failure
to
be so qualified would not have a Material Adverse Effect.
3.2 Power
and Authority.
The
Company has requisite power and authority to enter into this Agreement, to
perform its obligations hereunder and to carry out the transactions contemplated
hereby. The execution and delivery of this Agreement, the performance by the
Company of its obligations hereunder and the consummation of the transactions
contemplated hereby have been duly authorized by all corporate actions on the
part of the Company required by applicable law, the Company’s Amended and
Restated Articles of Incorporation or its Amended and Restated Bylaws. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as may be limited
by
(i) applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors rights
generally, and (ii) the effect of rules of law governing the availability of
specific performance and other equitable remedies.
3.3 No
Violation.
Neither
the execution and delivery of this Agreement nor the performance by the Company
of its obligations hereunder nor the consummation of the transactions
contemplated hereby will (a) contravene any provision of the Amended and
Restated Articles of Incorporation or Amended and Restated Bylaws of the Company
or the Subsidiary; (b) violate, be in conflict with, constitute a default under,
permit the termination of, cause the acceleration of the maturity of any debt
or
obligation of the Company or the Subsidiary under, require the consent of any
other party to, constitute a breach of, create a loss of a material benefit
under, or result in the creation or imposition of any Lien, upon any property
or
assets of the Company or the Subsidiary under, any mortgage, indenture, lease,
contract, agreement, instrument or commitment to which the Company or the
Subsidiary is a party or by which it or he or any of its or his respective
assets or properties may be bound; (c) to the knowledge of the Company, violate
any statute or law or any judgment, decree, order, regulation or rule of any
court or Governmental Body to which the Company, the Subsidiary, or the Business
is subject or by which the Company, the Subsidiary, or any of their respective
assets or properties are bound; or (d) result in the loss of any license,
privilege or certificate benefiting the Company, the Subsidiary, or the
Business.
3.4 Consents
and Approvals.
No
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority or any other third party is
required to be made or obtained by the Company in connection with the execution,
delivery or performance of this Agreement.
-11-
3.5 The
Securities.
The
Securities (including the Warrant Shares and Conversion Shares) are duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens and will not be subject to preemptive or similar rights
of shareholders (other than those imposed by the Investors). The Company has
reserved from its duly authorized capital stock the maximum number of shares
of
Common Stock issuable upon exercise of the Warrants and conversion of the
Series A Preferred Shares. The offer, issuance and sale of the
Series A Preferred Shares, the Conversion Shares, the Warrants and the
Warrant Shares to the Investors pursuant to the Agreement, and in the case
of
the Warrant Shares, pursuant to the Warrants, and in the case of the Conversion
Shares, pursuant to the Restated Articles, are exempt from the registration
requirements of the Securities Act or any other applicable securities laws.
3.6 Capitalization.
The
aggregate number of shares and type of all authorized, issued and outstanding
classes of capital stock, options and other securities of the Company and the
Subsidiary (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company or the Subsidiary,
as
the case may be) as of immediately preceding the Closing is set forth in
Schedule
3.6.
All
outstanding shares of capital stock of the Company and the Subsidiary are duly
authorized, validly issued, fully paid and nonassessable and have been issued
in
compliance in all material respects with all applicable securities laws. The
Company did not have outstanding on the date hereof any other options, warrants,
script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or entered into any agreement giving any Person
any right to subscribe for or acquire, any shares of Preferred Stock, Common
Stock, or securities or rights convertible or exchangeable into shares of Common
Stock. The Subsidiary did not have outstanding on the date hereof any other
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or entered into any
agreement giving any Person any right to subscribe for or acquire, any shares
of
the Subsidiary’s common stock, preferred stock, or securities or rights
convertible or exchangeable into shares of the Subsidiary’s common stock or
preferred stock. Except for customary adjustments as a result of stock
dividends, stock splits, combinations of shares, reorganizations,
recapitalizations, reclassifications or other similar events, there are no
anti-dilution or price adjustment provisions contained in any security issued
by
the Company (or in any agreement providing rights to security holders) and
the
issuance and sale of the Securities will not obligate the Company to issue
shares of Series A Preferred Stock or other securities of the Company to any
Person (other than the Investors) and will not result in a right of any holder
of securities to adjust the exercise, conversion, exchange or reset price under
such securities. To the knowledge of the Company, except as set forth on
Schedule
3.6,
no
Person or group of related Persons beneficially owns (as determined pursuant
to
Rule 13d-3 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 outstanding Common Stock.
3.7 Subsidiaries.
The
Company has no direct or indirect subsidiary other than the Subsidiary. The
Company owns directly all of the capital stock of the Subsidiary free and clear
of any Lien and all the issued and outstanding shares of capital stock of the
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
-12-
3.8 Litigation.
Except
as set forth on Schedule
3.8,
there
are no Actions to which the Company or the Subsidiary is a party, including,
without limitation, Actions for personal injury, products liability, wrongful
death or other tortious conduct, or breach of warranty arising from or relating
to materials, commodities, products or goods used, transferred, processed,
manufactured, sold, distributed or shipped by the Company or the Subsidiary
(i)
involving or relating to the Company or the Subsidiary or any of their
respective assets, properties or rights, or (ii) pending, or, to the Company’s
knowledge, threatened, against the Company or the Subsidiary, or any of their
respective assets, properties or rights, before any court, arbitrator or
administrative or Governmental Body which, if adversely resolved, would have
a
Material Adverse Effect on the Business.
3.9 Financial
Statements.
Set
forth on Schedule 3.9
is the
audited balance sheet of the Company as of December 31, 2006 (the
“Company
Balance Sheet”)
and
the audited balance sheets of the Subsidiary as of December 31, 2006 and 2005,
and the related statements of income and changes in financial position or cash
flows, as appropriate, for the periods then ended (the “Subsidiary
Financial Statements”)
(all
such financial statements are hereinafter collectively referred to as the
“Financial
Statements”).
The
Financial Statements, together with the notes thereto, if any, (i) were compiled
from the books and records of the Company and the Subsidiary, as the case may
be, regularly maintained by management and used to prepare the financial
statements of the Company and the Subsidiary, as the case may be, (ii) were
prepared in accordance with GAAP consistently applied throughout the period
then
ended and all periods prior to that period; and (iii) present fairly and
accurately the financial condition of the Company and the Subsidiary for the
period or as of the dates thereof, subject, where appropriate, to normal
year-end audit adjustments, in each case in accordance with GAAP consistently
applied during the period covered.
3.10 No
Undisclosed Liabilities.
The
Company has, and on the Closing Date will have, no Liabilities other than those
which (i) are fully reflected reserved against in the Company Balance Sheet,
(ii) have been incurred since December 31, 2006 in the ordinary course of
business in amounts and for terms consistent, individually and in the aggregate,
with the past practice of the Company, or (iii) have been specifically disclosed
in the Schedules hereto by reference to the specific section of this Agreement
to which such disclosure relates. The Subsidiary has, and on the Closing Date
will have, no Liabilities other than those which (i) are fully reflected
reserved against in the Subsidiary Financial Statements, (ii) have been incurred
since December 31, 2006 in the ordinary course of business in amounts and
for terms consistent, individually and in the aggregate, with the past practice
of the Subsidiary, or
(iii)
have been specifically disclosed in the Schedules hereto by reference to the
specific section of this Agreement to which such disclosure
relates.
3.11 Taxes
and Tax Returns.
All of
the tax returns and reports of the Company and the Subsidiary required by
applicable law to be filed prior to the date hereof have been duly filed and
all
taxes shown as due thereon have been paid. There are in effect no waivers of
the
applicable statutes of limitations for any federal, state, local or foreign
taxes for any period. No liability for any federal, state, local or foreign
income, sales, use, withholding, payroll, franchise, real property or personal
property taxes is pending, and there is no proposed liability for any such
taxes
to be imposed upon the properties or assets of the Company or the Subsidiary.
Neither the Company nor the Subsidiary has any liability for any federal, state,
local or foreign income, sales, use, withholding, payroll, franchise, real
property or personal property taxes, assessments, amounts, interest or penalties
of any nature whatsoever other than as shown on the Financial Statements and
there is no basis for any additional claim or assessment other than with respect
to liabilities for taxes which may have accrued since the date of the Financial
Statements in the ordinary course of business and reserved against on the books
and records of the Company or the Subsidiary compiled in accordance with
generally accepted accounting principles which have been consistently applied
to
the Closing. The provisions for taxes reflected in the Financial Statements
are
adequate for federal, state, county and local taxes for the period ended on
December 31, 2006 and for all prior periods, whether disputed or undisputed.
There are no present disputes about taxes of any nature payable by the Company
or the Subsidiary.
-13-
3.12 Absence
of Certain Changes.
Except
as set forth on Schedule 3.12,
since
December 31, 2006, the Company and the Subsidiary have conducted the
Business only in the ordinary course and consistent with prior practices and
have not:
(a) suffered
any Material Adverse Effect;
(b) paid,
discharged or satisfied any Liability or other expenses, other than the payment,
discharge or satisfaction of the Liabilities described in Section 3.10
at the
time the same were due and payable and in the ordinary course of
business;
(c) paid
or
otherwise made any contribution to any profit-sharing or pension plan or other
Company Employee Benefit Plan;
(d) mortgaged
or pledged, or permitted the imposition of any Lien upon, any of its properties
or assets (real, personal or mixed, tangible or intangible), other than those
incurred in the ordinary course of business;
(e) cancelled
or compromised any debts, or waived or permitted to lapse any material claims
or
rights, or sold, assigned, transferred or otherwise disposed of, other than
in
the ordinary course, any of its properties or assets (real, personal or mixed,
tangible or intangible);
(f) disposed
of or permitted to lapse any rights to the use of any patent, registered
trademark, service xxxx, trade name or copyright, or disposed of or disclosed
to
any person any trade secret, formula, process or know-how material to the
Business not theretofore a matter of public knowledge;
(g) granted
any increase in the compensation of any officer, employee or consultant of
the
Company or the Subsidiary (including any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any officer, employee or
consultant;
(h) entered
into any commitment or transaction not in the ordinary course of business or
made any capital expenditure or commitment for any additions to property, plant
or equipment, except commitments, transactions or capital expenditures which
do
not in any single case exceed $50,000 or in the aggregate exceed
$100,000;
(i) made
any
change in any method of accounting or accounting practice (including, without
limitation, any change in depreciation or amortization policies or
rates);
-14-
(j) paid,
loaned or advanced any amount to, or sold, transferred or leased any properties
or assets (real, personal or mixed, tangible or intangible) to, or entered
into
any agreement or arrangement with, any of its officers, directors, employees,
shareholders, or any family member or Affiliate of any of its officers,
directors, employees or shareholders, or any officer, director, employee or
shareholder of any such Affiliate;
(k) declared,
set aside, paid or made any dividend or other distribution or payment in respect
of the capital stock of the Company, or any direct or indirect redemption,
purchase or other acquisition of any of its shares of capital stock, or agreed
to do any of the foregoing;
(l) knowingly
waived or released any right or claim of the Company or the
Subsidiary;
(m) received
a commencement notice or, to the knowledge of the Company or the Subsidiary,
received any threat of commencement, of any civil or criminal litigation,
investigation or proceeding against the Company or the Subsidiary;
(n) experienced
any labor trouble or, to the knowledge of the Company, received any claim of
wrongful discharge or worker’s compensation claim;
(o) agreed,
whether in writing or otherwise, to take any action referred to in and
prohibited by this Section 3.12;
or
(p) become
aware of any other event or condition that has had or would reasonably be
expected to have a Material Adverse Effect.
3.13 Title
to Properties; Encumbrances.
(a) The
Company and the Subsidiary have good and marketable title to all of their
respective properties and assets (real, personal or mixed, tangible or
intangible), including without limitation the Intellectual Property. None of
the
Company’s nor the Subsidiary’s properties or assets is subject to any Lien,
except Permitted Liens, none of which adversely affects the Business or the
continued operations of the Company or the Subsidiary.
(b) All
material property and assets (real, personal or mixed, tangible or intangible)
used or required by the Company and the Subsidiary in the conduct of the
Business are fully owned by the Company and/or the Subsidiary (except to the
extent of any Permitted Liens). All such property and assets, or the leases
or
licenses thereof, constitute all property, assets and contractual rights
necessary for the conduct of the Business as presently conducted.
3.14 Intellectual
Property.
Except
as set forth on Schedule 3.14,
the
Company and the Subsidiary own all right, title and interest in, or have the
right to use, sell or license all patent applications, patents, trademark
applications, trademarks, service marks, trade names, copyright applications,
copyrights, trade secrets, know-how, technology, customer lists, proprietary
processes and formulae, all source and object code, algorithms, inventions,
development tools and all documentation and media constituting, describing
or
relating to the above, including, without limitation, manuals, memoranda and
records and other intellectual property and proprietary rights used in or
reasonably necessary or required for the conduct of the Business (collectively,
the “Intellectual
Property”).
-15-
3.15 Compliance
with Laws.
Neither
the Company nor the Subsidiary has been charged with, and, to the Company’s
knowledge, neither the Company nor the Subsidiary is threatened with or under
any investigation with respect to, any charge concerning any violation of any
provision of any federal, state, local or foreign law, regulation, ordinance,
order or administrative ruling affecting the Business, the Company or the
Subsidiary, and neither Company nor the Subsidiary is in default with respect
to
any order, writ, injunction or decree of any court, agency or instrumentality
affecting the Business, the Company or the Subsidiary. To the Company’s
knowledge, neither the Company nor the Subsidiary is in violation of any
federal, state, local or foreign law, ordinance or regulation or any other
requirement of any Governmental Body or regulatory body, court or arbitrator
applicable to the Business, the Company or the Subsidiary which would have
a
Material Adverse Effect. Without limiting the generality of the foregoing,
the
Company and the Subsidiary are in compliance in all material respects with
all
Occupational Safety and Health Laws, including those rules and regulations
promulgated by OSHA, except where such non-compliance would not have a Material
Adverse Effect.
3.16 Employee
Benefit Plans.
(a) Neither
the Company nor the Subsidiary has a formal plan or commitment, whether legally
binding or not, to create any additional “employee benefit plan” (as defined in
Section 3(3) of ERISA), practice or agreement or modify or change any existing
plan, practice or agreement that would affect any of its employees or terminated
employees. Benefits under all employee benefit plans are as represented and
have
not been and will not be increased subsequent to the date copies of such plans
have been provided.
(b) Neither
the Company nor the Subsidiary contributes to or has any obligation to
contribute to, has not at any time contributed to or had an obligation to
contribute to, sponsor or maintain, and has not at any time sponsored or
maintained, a “multi-employer plan” (within the meaning of Section 3(37) of
ERISA) for the benefit of employees or former employees of the Company or the
Subsidiary.
(c) The
Company and the Subsidiary have, in all material respects, performed all
obligations, whether arising by operation of law, contract, or past custom,
required to be performed under or in connection with the Company’s Employee
Benefit Plans (each, a “Company
Employee Benefit Plan”),
and
neither the Company nor the Subsidiary has knowledge of the default or violation
by any other party with respect thereto.
(d) There
are
no Actions, suits or claims (other than routine claims for benefits) pending,
or, to the Company’s knowledge, threatened, against any Company Employee Benefit
Plan or against the assets funding any Company Employee Benefit
Plan.
(e) Neither
the Company nor the Subsidiary maintains nor contributes to any “employee
welfare benefit” (as such term is defined in Section 3(i) of ERISA) plan
which provides any benefits to retirees or former employees of the Company
or
the Subsidiary.
-16-
3.17 Employment
Law Matters.
(a) Each
of
the Company and the Subsidiary (i) is in material compliance with all applicable
laws respecting employment, employment practices, terms and conditions of
employment and wages and hours; (ii) is in material compliance with all
applicable laws and regulations relating to the employment of aliens or similar
immigration matters; and (iii) is not engaged in any unfair labor practice,
including, but not limited to, discrimination or wrongful
discharge.
(b) Neither
the Company nor the Subsidiary has at anytime had, nor to the Company’s
knowledge, is there now threatened, a strike, picket, work stoppage, work
slowdown or other labor trouble, against or directly affecting the Company
or
the Subsidiary that had or would reasonably be expected to have a Material
Adverse Effect.
(c) None
of
the employees of the Company or the Subsidiary is represented by a labor union,
and no petition has been filed or proceedings instituted by any employee or
group of employees with any labor relations board seeking recognition of a
bargaining representative. Neither the Company nor the Subsidiary is a party
to
any multi-employer collective bargaining agreement covering any of its
employees.
(d) There
are
no controversies or disputes pending, or, to the Company’s knowledge,
threatened, between the Company and the Subsidiary, on the one hand, and any
employees of the Company or the Subsidiary on the other hand. No unfair labor
practice complaints have been filed against the Company or the Subsidiary with
the National Labor Relations Board or any other Governmental Body or
administrative body, and neither the Company nor the Subsidiary has received
any
written notice or communication reflecting an intention or a threat to file
any
such complaint.
3.18 Contracts
and Commitments.
(a) Neither
the Company nor the Subsidiary is a party to any written agreement that would
restrict it from carrying on the Business anywhere in the world.
(b) Neither
the Company nor the Subsidiary is a party to any “take-or-pay”
contracts.
(c) Except
as
set forth on Schedule 3.18,
neither
the Company nor the Subsidiary is a party to any employment agreements,
arrangements and commitments, including severance or termination arrangements
and commitments (whether written or oral), between the Company and/or the
Subsidiary and any employees of the Company and/or Subsidiary.
(d) Neither
the Company nor the Subsidiary is, and to the knowledge of the Company, no
other
party is, in default under or in breach or violation of, nor has the Company
nor
the Subsidiary received notice of any asserted claim of default by the Company,
the Subsidiary or by any other party under, or a breach or violation of, any
contracts that are material to the Business.
-17-
3.19 No
Brokers.
Except
for amounts owed to the Placement Agent, neither the Company nor the Subsidiary
is obligated for the payment of fees or expenses of any investment banker,
broker or finder in connection with the origin, negotiation or execution of
this
Agreement.
3.20 Environmental
Matters.
Each of
the Company and the Subsidiary is in compliance in all material respects with
all Environmental Laws. There is no Action pending before any court,
Governmental Body or board or other forum or threatened by any person or entity
(i) for noncompliance by the Company or the Subsidiary with any Environmental
Law (ii) relating to the release into the environment by the Company or the
Subsidiary of any pollutant, toxic or hazardous material or waste generated
by
the Company and the Subsidiary, whether or not occurring at or on a site owned,
leased or operated by the Company or the Subsidiary. Except as set forth on
Schedule
3.20,
there
has not been by the Company or the Subsidiary, nor to the knowledge of the
Company has there been at all, any past, storage, disposal, generation,
manufacture, refinement, transportation, production or treatment of any
hazardous materials or substances at, upon or from the facilities occupied
or
used by the Company or the Subsidiary and any other real property presently
or
formerly owned by, used by or leased to or by the Company or the Subsidiary,
or
any predecessor of the Company or the Subsidiary (collectively, the
“Property”).
To
the knowledge of the Company, neither the Company or the Subsidiary nor any
properties owned or operated by the Company or the Subsidiary has been or is
in
violation or is otherwise liable under, any Environmental Law. To the knowledge
of the Company, there are no asbestos-containing materials, underground storage
tanks or polychlorinated biphenyls (PCBs) located on the Property. To the
knowledge of the Company, there has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or
above
the Property or into the environment surrounding such Property of any hazardous
materials or substances in violation of any Environmental Law or requiring
any
remedial action. To the knowledge of the Company, the Company and the Subsidiary
have all permits, registrations, approvals and licenses required by any
Governmental Body under any Environmental Law to be obtained by the Company
and
the Subsidiary in connection with the conduct of the Business.
3.21 Insurance.
All of
the Company’s or the Subsidiary’s policies of fire, liability, worker’s
compensation and other forms of insurance owned or held by the Company or the
Subsidiary are in full force and effect, insure against risks and liabilities
to
the extent and in the manner deemed appropriate and sufficient by the Company
and the Subsidiary in their respective reasonable business judgment, and neither
the Company nor the Subsidiary has received any notice of cancellation with
respect thereto. To the Company’s knowledge, neither the Company nor the
Subsidiary is in default with respect to any provision contained in any such
policy and has not failed to give any notice or present any claim under any
such
policy in a timely fashion.
3.22 Suppliers
and Customers.
The
Company does not have any knowledge that any supplier or customer or group
of
related suppliers or customers of the Company or the Subsidiary has canceled
or
otherwise terminated or threatened to cancel or otherwise terminate, its
relationship with the Company or the Subsidiary, which termination would have
a
Material Adverse Effect, or that any such supplier or customer or group of
related suppliers or customers expects to reduce its business with the Company
or the Subsidiary by reason of the transactions contemplated by this Agreement
or for any other reason whatsoever.
3.23 Licenses,
Permits and Authorizations.
Each of
the Company and the Subsidiary has all necessary Permits for the use and
ownership or leasing of its properties and assets as currently operated, used,
owned or leased, except for such Permits as to which the lack thereof does
not
and would not have a Material Adverse Effect on the Company, the Subsidiary,
or
the Business. All of the Permits are valid, in full force and effect and in
good
standing. There is no claim or Action pending, or, to the Company’s knowledge,
threatened, which disputes the validity of any such Permit or threatens to
revoke, cancel, suspend or limit any such Permit.
-18-
3.24 No
General Solicitation; Placement Agent’s Fees.
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) in connection with the offer or sale of
the
Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commission (other than for
persons engaged by any Investor or its investment advisor) relating to or
arising out of the issuance of the Securities pursuant to this Agreement. The
Company shall pay, and hold each Investor harmless against, any liability,
loss
or expense (including, without limitation, reasonable attorney’s fees and
out-of-pocket expenses) arising in connection with any such claim for fees
arising out of the issuance of the Securities pursuant to this Agreement. The
Company acknowledges that is has engaged X. Xxxxx & Co. (the
“Placement
Agent”)
as its
placement agent in connection with the sale of the Securities. Other than the
Placement Agent, the Company has not engaged any placement agent or other agent
in connection with the sale of the Securities.
3.25 Private
Placement.
Neither
the Company nor any of its Affiliates nor, any Person acting on the Company’s
behalf has, directly or indirectly, at any time within the past six months,
made
any offer or sale of any security or solicitation of any offer to buy any
security under circumstances that would (i) eliminate the availability of the
exemption from registration under Regulation D under the Securities Act in
connection with the offer and sale by the Company of the Securities as
contemplated hereby or (ii) cause the offering of the Securities pursuant to
the
Transaction Documents to be integrated with prior offerings by the Company
for
purposes of any applicable law, regulation or stockholder approval provisions,
including, without limitation, under the rules and regulations of any Trading
Market. The Company is not required to be registered as, and is not an Affiliate
of, an “investment company” within the meaning of the Investment Company Act of
1940, as amended. The Company is not required to be registered as, a United
States real property holding corporation within the meaning of the Foreign
Investment in Real Property Tax Act of 1980.
3.26 Registration
Rights.
Except
with respect to the Registrable Securities and Placement Warrant Shares, the
Company has not granted or agreed to grant to any Person any rights (including
“piggy-back” registration rights) to have any securities of the Company
registered with the SEC or any other governmental authority that have not been
satisfied or waived.
3.27 Application
of Takeover Protections.
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 charter documents or the laws of its state of
incorporation that is or could become applicable to any of the Investors as
a
result of the Investors and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including, without
limitation, as a result of the Company’s issuance of the Securities and the
Investors’ ownership of the Securities.
-19-
3.28 Acknowledgment
Regarding Investors’ Purchase of Securities.
Based
upon the assumption that the transactions contemplated by this Agreement are
consummated in all material respects in conformity with the Transaction
Documents, the Company acknowledges and agrees that each of the Investors (other
than Excluded Investors) is acting solely in the capacity of an arm’s length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby. The Company further acknowledges that no
Investor (other than Excluded Investors) 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 and any advice given by
any
Investor (other than Excluded Investors) or any of their respective
representatives or agents in connection with the Transaction Documents and
the
transactions contemplated hereby and thereby is merely incidental to the
Investors’ purchase of the Securities. The Company further represents to each
Investor that the Company’s decision to enter into this Agreement has been based
solely on the independent evaluation of the transactions contemplated hereby
by
the Company and its representatives.
3.29 Internal
Accounting Controls.
The
Company and the Subsidiary 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.
3.30 Foreign
Corrupt Practices.
Neither
the Company nor the Subsidiary nor, to the knowledge of the Company, any
director, officer, agent, employee or other Person acting on behalf of the
Company or the Subsidiary has, in the course of its actions for, or on behalf
of, the Company (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is
in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as
amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
3.31 Indebtedness.
Except
as set forth on Schedule 3.31,
neither
the Company nor the Subsidiary (i) has any outstanding Indebtedness, (ii) is
in
violation of any term of or in default under any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iii) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of
the
Company’s officers, has or is expected to have a Material Adverse Effect.
3.32 Accounts
Receivable.
All
accounts receivable of the Company and the Subsidiary shown on the Financial
Statements and all accounts receivable created after the date of the date of
the
Financial Statements, subject to reserves created in the ordinary course of
business on a basis consistent with the past practices and policies of the
Company and the Subsidiary, as the case may be, and otherwise in accordance
with
generally accepted accounting principles, (a) have been collected or (b) to
the
Company’s knowledge, are valid and enforceable, arose from bona-fide sales to
third parties in the ordinary course of business, and are collectible at the
aggregate recorded amounts thereof on the books of the Company and the
Subsidiary, as the case may be.
-20-
3.33 Condition
of Tangible Assets.
Each of
the Company’s and the Subsidiary’s facilities and tangible assets, including,
without limitation, machinery, equipment, vehicles, furniture, plants and
buildings, are in good operating condition and repair (ordinary wear and tear
excepted) and are adequate for the uses to which they have been put by the
Company and the Subsidiary in the ordinary course of business, except for parts
or repairs of an immaterial nature in the aggregate, and neither the Company
nor
the Subsidiary has received any notice that any of such facilities or assets
is
in need of substantial maintenance or repair.
3.34 Disclosure.
No
representation or warranty of the Company in this Agreement (including, without
limitation, the Schedules of the Company hereto and the Disclosure Materials)
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary to make the statements herein
or
therein not misleading.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS
Each
of
the Investors, severally and not jointly, hereby represents and warrants to
the
Company as follows on and as of the date hereof:
4.1 Organization;
Authority.
Such
Investor is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with the requisite
corporate, partnership or other power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The purchase
by
such Investor of the Securities hereunder has been duly authorized by all
necessary action on the part of such Investor. This Agreement has been duly
executed and delivered by such Investor and constitutes the valid and binding
obligation of such Investor, enforceable against it in accordance with its
terms, except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting
the
enforcement of creditors rights generally, and (ii) the effect of rules of
law
governing the availability of specific performance and other equitable
remedies.
4.2 No
Public Sale or Distribution.
Such
Investor is (i) acquiring the Series A Preferred Shares and the Warrants,
(ii) upon conversion of the Series A Preferred Stock will acquire the
Conversion Shares issuable upon conversion thereof, and (iii) upon exercise
of the Warrants will acquire the Warrant Shares issuable upon exercise thereof,
in the ordinary course of business for its own account and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered under the Securities Act or under
an exemption from such registration and in compliance with applicable federal
and state securities laws, and such Investor does not have a present arrangement
to effect any distribution of the Securities to or through any person or entity;
provided,
however,
that by
making the representations herein, such Investor does not agree to hold any
of
the Securities for any minimum or other specific term and reserves the right
to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act.
-21-
4.3 Investor
Status.
At the
time such Investor was offered the Securities, it was, and at the date hereof
it
is, an “accredited investor” as defined in Rule 501(a) under the Securities Act
or a “qualified institutional buyer” as defined in Rule 144A(a) under the
Securities Act. Such Investor is not a registered broker dealer registered
under
Section 15(a) of the Exchange Act, or a member of the NASD, Inc. or an entity
engaged in the business of being a broker dealer. Except as otherwise disclosed
in writing to the Company on Exhibit
B-2
(attached hereto) on or prior to the date of this Agreement, such Investor
is
not affiliated with any broker dealer registered under Section 15(a) of the
Exchange Act, or a member of the NASD, Inc. or an entity engaged in the business
of being a broker dealer.
4.4 Experience
of Such Investor.
Such
Investor, either alone or together with its representatives has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in
the
Securities, and has so evaluated the merits and risks of such investment. Such
Investor understands that it must bear the economic risk of this investment
in
the Securities indefinitely, and is able to bear such risk and is able to afford
a complete loss of such investment.
4.5 Access
to Information.
Such
Investor acknowledges that it has reviewed the Disclosure Materials and has
been
afforded: (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning
the
terms and conditions of the offering of the Securities and the merits and risks
of investing in the Securities; (ii) access to information about the Company
and
the Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. Neither such inquiries nor any other
investigation conducted by or on behalf of such Investor or its representatives
or counsel shall modify, amend or affect such Investor’s right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction Documents.
4.6 No
Governmental Review.
Such
Investor understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
4.7 No
Conflicts.
The
execution, delivery and performance by such Investor of this Agreement and
the
consummation by such Investor of the transactions contemplated hereby will
not
(i) result in a violation of the organizational documents of such Investor
or
(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, indenture or instrument to which such Investor is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to such Investor,
except in the case of clauses (ii) and (iii) above, for such that are not
material and do not otherwise affect the ability of such Investor to consummate
the transactions contemplated hereby.
-22-
4.8 Illegal
Transactions.
No
Investor, directly or indirectly, and no Person acting on behalf of or pursuant
to any understanding with any Investor, has engaged in any transactions in
the
securities of the Company (including, without limitation, any Short Sales
involving any of the Company’s securities) since the time that such Investor was
first contacted by the Company, the Placement Agent or any other Person
regarding this investment in the Company. Such Investor covenants that neither
it nor any Person acting on its behalf or pursuant to any understanding with
such Investor will engage, directly or indirectly, in any transactions in the
securities of the Company (including Short Sales) prior to the time the
transactions contemplated by this Agreement are publicly disclosed.
“Short
Sales”
include, without limitation, all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the Exchange Act and all types of direct
and indirect stock pledges, forward sale contracts, options, puts, calls, short
sales, swaps, derivatives and similar arrangements (including on a total return
basis), and sales and other transactions through non-United States
broker-dealers or foreign regulated brokers.
4.9 Restricted
Securities.
The
Investors understand that the Securities are characterized as “restricted
securities” under the United States federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act only in certain limited
circumstances.
4.10 Legends.
It is
understood that certificates evidencing the Securities shall bear the legend
set
forth in Section 5.1(b).
4.11 No
Legal, Tax or Investment Advice.
Such
Investor understands that nothing in this Agreement or any other materials
presented by or on behalf of the Company to the Investor in connection with
the
purchase of the Securities constitutes legal, tax or investment advice. Such
Investor has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of the Securities. Such Investor understands that the Placement Agent
has acted solely as the agent of the Company in this placement of the
Securities, and that the Placement Agent makes no representation or warranty
with regard to the merits of this transaction or as to the accuracy of any
information such Investor may have received in connection therewith (including,
without limitation, the Disclosure Materials). Such Investor acknowledges that
he has not relied on any information or advice furnished by or on behalf of
the
Placement Agent, other than the Offering Memorandum, the Proxy Statement, this
Agreement and the schedules and exhibits and other agreements related hereto
and
thereto.
ARTICLE
V
OTHER
AGREEMENTS OF THE PARTIES
5.1 Transfer
Restrictions.
(a) The
Investors covenant that the Securities will only be disposed of pursuant to
an
effective registration statement under, and in compliance with the requirements
of, the Securities Act or pursuant to an available exemption from the
registration requirements of the Securities Act, and in compliance with any
applicable state securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or to the Company,
or
pursuant to Rule 144(k), the Company may require the transferor to provide
to
the Company an opinion of counsel selected by the transferor, the form and
substance of which opinion shall be reasonably satisfactory to the Company,
to
the effect that such transfer does not require registration under the Securities
Act. Notwithstanding the foregoing, the Company hereby consents to and agrees
to
register on the books of the Company and with its transfer agent, without any
such legal opinion, except to the extent that the transfer agent requests such
legal opinion, any transfer of Securities by an Investor to an Affiliate of
such
Investor, provided that the transferee certifies to the Company that it is
an
“accredited investor” as defined in Rule 501(a) under the Securities Act and
provided that such Affiliate does not request any removal of any existing
legends on any certificate evidencing the Securities.
-23-
(b) The
Investors agree to the imprinting, so long as is required by this Section
5.1(b),
of the
following legend on any certificate evidencing any of the Securities:
THESE
SECURITIES 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”),
OR
ANY APPLICABLE STATE SECURITIES LAWS 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 COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY THE
SECURITIES.
Certificates
evidencing Securities shall not be required to contain such legend or any other
legend (i) while a registration statement (including the Registration Statement)
covering the resale of the Securities is effective under the Securities Act,
(ii) following any sale of such Securities pursuant to Rule 144 if the holder
provides the Company with a legal opinion (and the documents upon which the
legal opinion is based) reasonable acceptance to the Company to the effect
that
the Securities can be sold under Rule 144, (iii) if the holder provides the
Company with a legal opinion (and the documents upon which the legal opinion
is
based) reasonably acceptable to the Company to the effect that the Securities
are eligible for sale under Rule 144(k), or (iv) if the holder provides the
Company with a legal opinion (and the documents upon which the legal opinion
is
based) reasonably acceptable to the Company to the effect that the legend is
not
required under applicable requirements of the Securities Act (including
controlling judicial interpretations and pronouncements issued by the Staff
of
the SEC).
(c) The
Company will not object to and shall permit (except as prohibited by law) an
Investor to pledge or grant a security interest in some or all of the Securities
in connection with a bona fide margin agreement or other loan or financing
arrangement secured by the Securities, and if required under the terms of such
agreement, loan or arrangement, the Company will not object to and shall permit
(except as prohibited by law) such Investor to transfer pledged or secured
Securities to the pledges or secured parties. Except as required by law, such
a
pledge or transfer would not be subject to approval of the Company, no legal
opinion of the pledgee, secured party or pledgor shall be required in connection
therewith, and no notice shall be required of such pledge. Each Investor
acknowledges that the Company shall not be responsible for any pledges relating
to, or the grant of any security interest in, any of the Securities or for
any
agreement, understanding or arrangement between any Investor and its pledgee
or
secured party. At the appropriate Investor’s expense, the Company will execute
and deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of
the
Securities, including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of selling
shareholders thereunder. Provided that the Company is in compliance with the
terms of this Section
5.1(c),
the
Company’s indemnification obligations pursuant to the terms of the Registration
Rights Agreement shall not extend to any Proceeding or Losses arising out of
or
related to this Section 5.1(c).
-24-
(d) Following
the Effective Date, or at such earlier time as a legend is no longer required
for certain Securities, the Company will no later than three (3) Trading Days
following the delivery by an Investor to the Company or the Transfer Agent
(with
notice to the Company) of (i) a legended certificate representing such
Conversion Shares or Warrant Shares (endorsed or with stock powers attached,
signatures guaranteed, and otherwise in form necessary to affect the reissuance
and/or transfer ) or (ii) an exercise notice in the manner stated in the
Warrants to effect the exercise of such Warrant in accordance with its terms
and
an opinion of counsel to the extent required by Section 5.1(a)
(such
third Trading Day, the “Legend
Removal Date”),
deliver or cause to be delivered to such Investor a certificate representing
such Securities that is free from all restrictive and other legends. The
Company may not make any notation on its records or give instructions to the
Transfer Agent that enlarge the restrictions on transfer set forth in this
Section
5.1.
Certificates for Conversion Shares or Warrant Shares subject to legend
removal hereunder shall be transmitted by the Transfer Agent to the Investors
by
crediting the account of the Investor’s prime broker or other financial
institution as directed by such Investor with the Depository Trust Company.
(e) If
the
Company fails to deliver the unlegended certificates by the Legend Removal
Date
as required under Section
5.1(d),
and
prior to the receipt of such unlegended certificates, the Investor purchases
(in
an open market transaction or otherwise) shares of Common Stock to deliver
in
satisfaction of a sale by the Investor of shares of Common Stock that such
Investor anticipated receiving from the Company without any restrictive legend
(a “Buy-In”),
then
the Company shall, within three (3) Business Days after such Investor's request
and in such Investor’s sole discretion, either (i) pay cash to the Investor in
an amount equal to such Investor’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In
Price”),
at
which point the Company’s obligation to deliver such certificate (and to issue
such shares of Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to such Investor a certificate or certificates
representing such shares of Common Stock and pay cash to the Investor in an
amount equal to the excess (if any) of the Buy-In Price over the product of
(a)
such number of shares of Common Stock, times (b) the Closing Price of a share
of
the Company’s Common Stock on the Legend Removal Date.
-25-
5.2 Furnishing
of Information.
Until
the date that all Investors owning Conversion Shares or Warrant Shares (or
having the right to acquire Conversion Shares or Warrant Shares) may sell all
of
them under Rule 144(k) of the Securities Act (or any successor provision),
the
Company shall 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 Effective Date pursuant to the Exchange Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request to satisfy the provisions of this Section 5.2.
5.3 Integration.
The
Company shall not, and shall use its commercially reasonably efforts to ensure
that no Affiliate thereof shall, sell, offer for sale or solicit offers to
buy
or otherwise negotiate in respect of any security (as defined in Section 2
of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Investors or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.
5.4 Reservation
of Securities.
The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations to issue such Common Shares under the terms
of the Series A Preferred Shares and the Warrants. In the event that at any
time
the then authorized shares of Common Stock are insufficient for the Company
to
satisfy its obligations to issue such Common Shares under the terms of the
Series A Preferred Shares and the Warrants, the Company shall promptly take
such
actions as may be required to increase the number of authorized
shares.
5.5 Publicity.
The
Company shall, on or before 5:30 a.m., California time, on the first Trading
Day
following execution of this Agreement, issue a press release reasonably
acceptable to the Investors disclosing all material terms of the transactions
contemplated hereby. Except as herein provided, the Company shall not publicly
disclose the name of any Investor, or include the name of any Investor in any
press release without the prior written consent of such Investor, unless
otherwise required by law. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents not to, provide any Investor with any material nonpublic information
regarding the Company or any of its Subsidiaries from and after the issuance
of
the above referenced press release without the express written consent of such
Investor.
5.6 Use
of Proceeds.
The
Company (including the Subsidiary) intends to use the net proceeds from the
sale
of the Securities in the manner described in the Offering Memorandum. Pending
these uses, the Company intends to invest the net proceeds from this offering
in
short-term, interest-bearing, investment-grade securities, or as otherwise
pursuant to the Company’s customary investment policies.
5.7 Registration
Rights Agreement.
The
Company and the Investors shall, concurrently with the Closing, enter into
a
Registration Rights Agreement in substantially the form attached hereto as
Exhibit G.
-26-
5.8 Indemnification.
(a) The
Company shall indemnify and hold harmless each Investor, the officers,
directors, agents, brokers, investment advisors, representatives and employees
of each of them, each Person who controls each Investor (within the meaning
of
Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agent, representatives and employees of each such
controlling Person (each, an “Investor
Party”),
to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and reasonable attorneys’ fees) and expenses (collectively,
“Losses”),
as
incurred, as a result of or relating to (including, but not limited to, any
third party claims against such Investor Party) any breach of any of the
representations, warranties, covenants or agreements made by the Company in
this
Agreement or in any of the other Transaction Documents, except to the extent,
but only to the extent, that any such Losses are attributable to any Investor’s
breach of any of the representations, warranties, covenants or agreements made
by such Investor in this Agreement or in any of the other Transaction
Documents.
(b) If
any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “Indemnified
Party”),
such
Indemnified Party promptly shall notify the Person from whom indemnity is sought
(the “Indemnifying
Party”)
in
writing, and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party
and
the payment of all fees and expenses incurred in connection with defense
thereof; provided,
however,
that
the failure of any Indemnified Party to give such notice shall not relieve
the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except to the extent that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume
the
defense of such Proceeding and to employ counsel reasonably satisfactory to
such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing
that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from
all
liability on claims that are the subject matter of such Proceeding.
-27-
All
fees
and expenses of the Indemnified Party (including reasonable attorneys’ fees and
expenses to the extent incurred in connection with investigating or preparing
to
defend such Proceeding in a manner not inconsistent with this Section 5.8)
shall
be paid to the Indemnified Party, as incurred, within ten (10) Business Days
of
written notice thereof to the Indemnifying Party (regardless of whether it
is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided,
however,
that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review that such Indemnified Party is not entitled to
indemnification hereunder).
(c) The
indemnity agreements contained in this Section 5
are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties. Notwithstanding the foregoing, the obligations of the
Investors herein shall be the several, and not joint, obligation of each
Investor as to itself and not as to any other Investor.
5.9 Director
Nominee.
Pursuant to the rights granted to the Investors contained in Article IV, Section
6 of the Restated Articles, the Investors hereby nominate Xxx Xxxxxxx as a
member of the Board of Directors of the Company and the Company hereby agrees
to
appoint Xx. Xxxxxxx to the Board of Directors immediately after the
Closing.
5.10 Trading
of Conversion Shares and Warrant Shares.
Promptly following the effectiveness of the Exchange Act Registration Statement
with the SEC, the Company shall take all necessary action to cause the
Conversion Shares and the Warrant Shares to be approved for trading on the
OTCBB
or such other Trading Market (other than the Pink Sheets, LLC) as the Company
may determine.
ARTICLE
VI
CONDITIONS
6.1 Conditions
Precedent to the Obligations of the Investors.
The
obligation of each Investor to acquire Securities at the Closing is subject
to
the satisfaction or waiver by such Investor, at or before the Closing, of each
of the following conditions:
(a) Representations
and Warranties.
The
representations and warranties of the Company contained herein shall be true
and
correct in all respects as of the date when made and as of the Closing as though
made on and as of such date.
(b) Performance.
The
Company and each other Investor shall have performed, satisfied and complied
in
all material respects with all covenants, agreements and conditions required
by
the Transaction Documents to be performed, satisfied or complied with by it
at
or prior to the Closing.
-28-
(c) Consents
and Approvals.
The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
(d) No
Material Adverse Effect.
Between
the execution of this Agreement and the Closing, no event or series of events
(other than stock price fluctuations) shall have occurred which has had or
reasonably would be expected to have or result in a Material Adverse
Effect.
(e) Deliverables.
The
Company shall have delivered all of the Company deliverables set forth in
Section 2.2(a)
for
distribution at Closing.
(f) Cross-Receipt.
The
Company and the Investors shall have executed and delivered a cross-receipt
acknowledging the Company’s delivery to the Investors of the Series A Preferred
Shares and Warrants and the Investors’ payment therefor.
(g) No
Termination.
This
Agreement shall not have been terminated pursuant to Section
7.1.
(h) Minimum
Proceeds.
The
Company shall have raised at least $11.5 million in gross proceeds in connection
with the offering of the Securities hereby.
6.2 Conditions
Precedent to the Obligations of the Company.
The
obligation of the Company to sell the Securities at the Closing is subject
to
the satisfaction or waiver by the Company, at or before the Closing, of each
of
the following conditions:
(a) Representations
and Warranties.
The
representations and warranties of the Investors contained herein shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made on and as of such date; and
(b) Performance.
The
Investors shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investors at or
prior to the Closing.
(c) Cross-Receipt.
The
Company and the Investors shall have executed and delivered a cross-receipt
acknowledging the Company’s delivery to the Investors of the Series A Preferred
Shares and Warrants and the Investors’ payment therefor.
(d) No
Termination.
This
Agreement shall not have been terminated pursuant to Section
7.1.
(e) Minimum
Proceeds.
The
Company shall have raised at least $11.5 million in gross proceeds in connection
with the offering of the Securities hereby.
6.3 Satisfaction
of Conditions Precedent; Escrow Release.
(a) The
Company and the Investors acknowledge that the Company, Subsidiary and Escrow
Agent have entered into the Escrow Agreement in respect of the purchase and
sale
of the Securities hereunder. At the request of an Investor, the Company shall
provide such Investor with a true, correct and complete copy of the Escrow
Agreement.
-29-
(b) On
or
prior to the Closing Date, the Company shall notify each Investor whether or
not
the conditions precedent set forth in Section
6.1
have
been satisfied. Promptly following receipt of such notice, and the Investors
concurring with the Company that the conditions precedent set forth in
Section
6.1
have
been satisfied, the Investors purchasing a majority of the Securities shall,
by
written notice, instruct and authorize the Company to (i) deliver the
Company Certificate (as defined in the Escrow Agreement) to the Escrow Agent,
and (ii) direct the Escrow Agent to deliver the amount deposited with the Escrow
Agent to the Company (in accordance with such wire transfer instructions as
the
Company shall provide by written notice to the Escrow Agent). Any notice to
the
Company hereunder shall be in accordance with the provisions of Section 7.4
and
shall be addressed to the address set forth on the signature page
hereof.
(c) Each
Investor consents and agrees to the provisions of this Section
6.3
and
agrees to be bound hereby.
ARTICLE
VII
MISCELLANEOUS
7.1 Termination.
This
Agreement may be terminated by the Company or any Investor, by written notice
to
the other parties, if the Closing has not been consummated by the fifth
(5th)
Business Day following the date of this Agreement; provided that no such
termination will affect the right of any party to xxx for any breach by the
other party (or parties).
7.2 Fees
and Expenses.
Except
as expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to
the
negotiation, preparation, execution, delivery and performance of this Agreement;
provided,
however,
that
the Company shall reimburse each of the Lead Investors for the reasonable
attorneys’ fees and expenses incurred by each such Lead Investor in connection
with the transactions hereunder. The maximum amount payable by the Company
to
each Lead Investor pursuant to this Section 7.2
shall be
$20,000. The Company shall pay all Transfer Agent fees, stamp taxes and other
taxes and duties levied in connection with the sale and issuance of their
applicable Securities.
7.3 Entire
Agreement.
The
Transaction Documents, together with the Exhibits and Schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules. At or after the Closing, and
without further consideration, the Company will execute and deliver to the
Investors such further documents as may be reasonably requested in order to
give
practical effect to the intention of the parties under the Transaction
Documents.
-30-
7.4 Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earlier of: (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified for
notice prior to 5:00 p.m., California time, on a Business Day; (ii) the Business
Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified for notice later
than
5:00 p.m., California time, on any date and earlier than 11:59 p.m., California
time, on such date; (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service; and (iv) actual receipt
by the party to whom such notice is required to be given. The addresses,
facsimile numbers and email addresses for such notices and communications are
those set forth on the signature pages hereof, or such other address or
facsimile number as may be designated in writing hereafter, in the same manner,
by any such Person.
7.5 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 of
the
Investors 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.
7.6 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.
7.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Investors. Any Investor may assign its rights under this
Agreement to any Person to whom such Investor assigns or transfers any
Securities, provided (i) such transferor agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished
to
the Company after such assignment, (ii) the Company is furnished with written
notice of (x) the name and address of such transferee or assignee and (y) the
Registrable Securities with respect to which such registration rights are being
transferred or assigned pursuant to the Registration Rights Agreement, (iii)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities
Act
and applicable state securities laws, (iv) such transferee agrees in writing
to
be bound, with respect to the transferred Securities, by the provisions hereof
that apply to the “Investors” and (v) such transfer shall have been made in
accordance with the applicable requirements of this Agreement and with all
laws
applicable thereto.
7.8 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
-31-
7.9 Governing
Law; Venue; Waiver of Jury Trial.
THE
CORPORATE LAWS OF THE STATE OF CALIFORNIA SHALL GOVERN ALL ISSUES CONCERNING
THE
RELATIVE RIGHTS OF THE COMPANY AND ITS SHAREHOLDERS. ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF
CALIFORNIA. THE COMPANY AND INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE COUNTY
OF ORANGE, STATE OF CALIFORNIA, FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT
BY
THE COMPANY OR ANY INVESTOR HEREUNDER, 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
WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY
THE
COMPANY OR ANY INVESTOR, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. 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
COMPANY AND INVESTORS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.
7.10 Survival.
The
representations and warranties, agreements and covenants contained herein shall
survive the Closing.
7.11 Execution.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or email attachment, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature
is
executed) with the same force and effect as if such facsimile or email-attached
signature page were an original thereof.
7.12 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.
7.13 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) the Transaction Documents, whenever any Investor
exercises a right, election, demand or option owed to such Investor by the
Company under a Transaction Document and the Company does not timely perform
its
related obligations within the periods therein provided, then, prior to the
performance by the Company of the Company’s related obligation, such Investor
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.
-32-
7.14 Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, 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
the execution by the holder thereof of a customary lost certificate affidavit
of
that fact and an agreement to indemnify and hold harmless the Company for any
losses in connection therewith. 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 Securities.
7.15 Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Investors and the Company will
be entitled to seek 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 (other than in connection with any action for temporary
restraining order) the defense that a remedy at law would be adequate.
7.16 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to any Investor hereunder
or
any Investor enforces or exercises its rights hereunder or 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 by 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.
7.17 Independent
Nature of Investors’ Obligations and Rights.
The
obligations of each Investor under any Transaction Document are several and
not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to this Agreement has been made by such Investor
independently of any other Investor 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 which may have been made or given by
any
other Investor or by any agent or employee of any other Investor, and no
Investor or any of its agents or employees shall have any liability to any
other
Investor (or any other person) relating to or arising from any such information,
materials, statements or opinions. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association,
a
joint venture or any other kind of entity, or create a presumption that the
Investors 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
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no other
Investor will be acting as agent of such Investor in connection with monitoring
its investment hereunder. Each Investor 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 Investor to be joined as an additional party
in
any proceeding for such purpose.
[SIGNATURE
PAGES TO FOLLOW]
-33-
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as
of
the date first indicated above.
|
XXXXXXXXXX
|
|
|
By:
/s/ Xxxxxxx Xxxxx
Name:
Xxxxxxx Xxxxx
Title:
CFO
|
|
|
Address
for Notice:
000
Xxxxxxx Xxxx
Xxx
Xxxx Xxxxxx, XX 00000
Facsimile
No.: (000) 000-0000
Telephone
No.: (000) 000-0000
Attn:
President
|
|
|
With
a copy to:
|
Xxxxx
& Xxxxxx, LLP
000
Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx
Xxxx, XX 00000
Facsimile:
(000) 000-0000
Telephone:
(000) 000-0000
Attn:
Xxxxx X. Xxxxxxx, Esq.
|
-34-
Investor
Signature Page
By
its
execution and delivery of this signature page, the undersigned Investor hereby
joins in and agrees to be bound by the terms and conditions of the Securities
Purchase Agreement dated as of May __, 2007 (the “Purchase
Agreement”)
by and
among Xxxxxxxxxx and the Investors (as defined therein), and agrees to subscribe
for and purchase the number of Series A Preferred Shares and Warrants set
forth below, and authorizes this signature page to be attached to the Purchase
Agreement or counterparts thereof.
|
Name
of Investor:
|
|
|
______________________________
|
|
|
By:________________________________
Name:______________________________
Title:_______________________________
|
|
| Address: | |
|
______________________________
______________________________
______________________________
Telephone
No.: ______________________
Facsimile
No.:________________________
Email
Address:_______________________
Number
of Series A Preferred Shares:_______
Number
of Warrants:___________________
Aggregate
Purchase Price:
$______________
|
-35-
Exhibits:
A Schedule
of Investors
B Instruction
Sheet for Investors
C Form
of
Opinion of Company Counsel
D Company
Transfer Agent Instructions
E Form
of
Warrant
F Form
of
Restated Articles
G Form
of
Registration Rights Agreement
H Plan
of
Distribution
-36-
EXHIBIT
A
SCHEDULE
OF INVESTORS
|
Investor
|
Series
A
Preferred
Shares
|
Warrants
|
Warrant
Shares
|
Purchase
Price
|
|||||||||
|
Xxxxx
X. Xxxxxx, III
|
1,000,000
|
150,000
|
150,000
|
$
|
2,200,000.00
|
||||||||
|
Milfam
II L.P.
|
1,000,000
|
150,000
|
150,000
|
$
|
2,200,000.00
|
||||||||
|
Xxxxxx
SMidCap Fund LP
|
1,186,363
|
177,954
|
177,954
|
$
|
2,609,998.60
|
||||||||
|
Xxxxxx
Xxxxx
|
772,727
|
115,909
|
115,909
|
$
|
1,699,999.40
|
||||||||
|
The
Xxxxxx X Xxxxxxxxxxxx & Xxxxxxx Xxxxxxxxxxxx Revocable
Trust
|
454,545
|
68,182
|
68,182
|
$
|
999,999.00
|
||||||||
|
Xxxxx
Xxxxxxxx Capital Income Partners (QP), LP
|
363,637
|
54,546
|
54,546
|
$
|
800,001.00
|
||||||||
|
Catalysis
Offshore, Ltd.
|
159,091
|
23,864
|
23,864
|
$
|
350,000.20
|
||||||||
|
PTR
Fund L.P.
|
113,636
|
17,045
|
17,045
|
$
|
249,999.20
|
||||||||
|
Xxxxxxxx
Xxxxxxx Company
|
113,636
|
17,045
|
17,045
|
$
|
249,999.20
|
||||||||
|
Palm
Beach Trading
|
45,455
|
6,818
|
6,818
|
$
|
100,001.00
|
||||||||
|
Newport
Micro Fund II, LLC
|
45,455
|
6,818
|
6,818
|
$
|
100,001.00
|
||||||||
|
Xxxxxxx
& Bennet Profit Sharing Plan
|
22,727
|
3,409
|
3,409
|
$
|
49,999.40
|
||||||||
|
Xxxxx
X. Xxxxx
|
22,727
|
3,409
|
3,409
|
$
|
49,999.40
|
||||||||
|
Xxxxxxx
X. Xxxxx
|
22,727
|
3,409
|
3,409
|
$
|
49,999.40
|
||||||||
|
Xxxx
Xxxxxxxx
|
22,727
|
3,409
|
3,409
|
$
|
49,999.40
|
||||||||
|
Xxxxxxx
X. Xxxx
|
22,727
|
3,409
|
3,409
|
$
|
49,999.40
|
||||||||
|
R.
Xxxxx Xxxxxxx
|
22,727
|
3,409
|
3,409
|
$
|
49,999.40
|
||||||||
|
Xxxxxx
SMidCap Offshore Fund LTD
|
177,273
|
26,591
|
26,591
|
$
|
390,000.60
|
||||||||
|
Xxxxx
Xxxxxxxx Income Partners, LP
|
45,454
|
6,818
|
6,818
|
$
|
100,000.00
|
||||||||
|
Xxxxx
Xxxxxxxx Capital Income Fund, Ltd.
|
136,364
|
20,455
|
20,455
|
$
|
300,000.00
|
||||||||
|
Catalysis
Partners, LLC
|
159,091
|
23,864
|
23,864
|
$
|
350,000.20
|
||||||||
A-1
EXHIBIT
H
PLAN
OF DISTRIBUTION
The
selling security holders may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which
the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling security holders may use any one or more of
the
following methods when selling shares:
| · |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
| · |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
| · |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
| · |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| · |
privately
negotiated transactions;
|
| · |
short
sales;
|
| · |
broker-dealers
may agree with the selling security holders to sell a specified number
of
such shares at a stipulated price per
share;
|
| · |
a
combination of any such methods of sale;
and
|
| · |
any
other method permitted pursuant to applicable
law.
|
The
selling security holders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling security holders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling security holders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling security holders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved. Any profits on the
resale of shares of common stock by a broker-dealer acting as principal might
be
deemed to be underwriting discounts or commissions under the Securities Act.
Discounts, concessions, commissions and similar selling expenses, if any,
attributable to the sale of shares will be borne by a selling stockholder.
The
selling security holders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares
if
liabilities are imposed on that person under the Securities Act.
The
selling security holders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if
they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus after we have filed a supplement to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act supplementing
or
amending the list of selling stockholders to include the pledgee, transferee
or
other successors in interest as selling stockholders under this
prospectus.
H-1
The
selling security holders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed a supplement to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act supplementing or amending
the
list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event,
any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
We
are
required to pay all fees and expenses incident to the registration of the shares
of common stock. We have agreed to indemnify the selling stockholders against
certain losses, claims, damages and liabilities, including liabilities under
the
Securities Act.
The
selling security holders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed
sale
of shares of common stock by any selling security holder. If we are notified
by
any selling stockholder that any material arrangement has been entered into
with
a broker-dealer for the sale of shares of common stock, if required, we will
file a supplement to this prospectus. If the selling security holders use this
prospectus for any sale of the shares of common stock, they will be subject
to
the prospectus delivery requirements of the Securities Act.
The
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of our common stock and activities of the selling security
holders.
H-2
