EXHIBIT 2.1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into as
of November 17, 2004 by and among SUNAIR ELECTRONICS, INC., a Florida
corporation (the "COMPANY"), and COCONUT PALM CAPITAL INVESTORS II, LTD., a
Florida limited partnership (the "PURCHASER").
1. AUTHORIZATION. The Company has authorized the issuance and sale to
the Purchaser, subject to the terms and conditions of this Agreement, of up to
Five Million (5,000,000) Units (as herein defined) for a purchase price per Unit
of Five Dollars ($5.00). For purposes of this Agreement, the term "UNIT" means
(a) one (1) share of the Company's common stock, par value $0.10 per share (the
"COMMON STOCK"), (b) warrants to purchase an additional one (1) share of Common
Stock for each share of Common Stock purchased hereunder at an exercise price of
$6.00 per share of Common Stock exercisable in whole or in part at any time and
from time to time on or after the date of issuance of such warrants on the
applicable Closing Date (as herein defined) and at or before 5:00 p.m. on the
third anniversary thereof, pursuant to the terms of the warrant certificate
substantially in the form of EXHIBIT A attached hereto, (c) warrants to purchase
an additional one (1) share of Common Stock for each share of Common Stock
purchased hereunder, at an exercise price of $7.00 per share of Common Stock
exercisable in whole or in part at any time and from time to time on or after
the date of issuance of such warrants on the applicable Closing Date and at or
before 5:00 p.m. on the fifth anniversary thereof, pursuant to the terms of the
warrant certificate substantially in the form of EXHIBIT B attached hereto.
2. AGREEMENT TO SELL AND PURCHASE.
(a) On the basis of the representations and warranties
contained in this Agreement, and subject to its terms and conditions, (i) on the
First Closing Date (as herein defined), the Company shall issue and sell to the
Purchaser, and the Purchaser shall purchase from the Company, Three Million
(3,000,000) Units (the "INITIAL UNITS") for a purchase price per Unit of Five
Dollars ($5.00) or an aggregate purchase price of Fifteen Million Dollars
($15,000,000) (the "FIRST CLOSING PURCHASE PRICE") and (ii) if the Purchaser
shall exercise the Additional Purchase Option (as herein defined) in accordance
with Section 2(b) hereof, then on the Second Closing Date (as herein defined),
the Company shall issue and sell to the Purchaser, and the Purchaser shall
purchase from the Company, Two Million (2,000,000) Units (the "ADDITIONAL
UNITS") (or such fewer number of Additional Units as the Purchaser in its sole
discretion shall elect pursuant to Section 2(b) below), for a purchase price per
Unit of Five Dollars ($5.00) or up to an aggregate purchase price of Ten Million
Dollars ($10,000,000) if all Two Million Units are purchased (the "SECOND
CLOSING PURCHASE PRICE"). The aggregate amount of the First Closing Purchase
Price and the Second Closing Purchase Price paid by the Purchaser pursuant to
this Agreement is hereinafter referred to as the "PURCHASE PRICE."
(b) The Purchaser shall have the right, but not the
obligation, to purchase some or all (at the Purchaser's option) of the
Additional Units on the terms set forth herein (the "ADDITIONAL PURCHASE
OPTION"). The Purchaser may exercise the Additional Purchase Option only one
time by delivering written notice of exercise to the Company at any time after
the date hereof until five (5) days prior to the First Closing Date (the
"ADDITIONAL PURCHASE EXERCISE NOTICE"). The Additional Purchase Exercise Notice
shall set forth the number of Additional Shares (as herein defined) and
Additional Warrants (as herein defined) that the Purchaser desires to purchase.
The parties agree that the closing of the Additional Purchase Option shall be
simultaneous with the First Closing Date, however, if, despite their best
efforts, the parties are unable to close the Additional Purchase Option at such
time, then the parties shall mutually agree on a closing date (not later than
seven (7) business days after the First Closing Date) on which to consummate the
purchase and sale (if necessary, the "SECOND CLOSING DATE"). Upon the
Purchaser's exercise of the Additional Purchase Option, the Company shall be
obligated to issue and sell to the Purchaser that number of Additional Units
that the Purchaser desires to purchase as set forth in the Additional Purchase
Exercise Notice delivered to the Company, at the purchase price per Unit of Five
Dollars ($5.00), up to the maximum number of Additional Units.
(c) The aggregate shares of Common Stock comprising the Units
issuable hereunder are hereinafter collectively referred to as the "SHARES," and
the Shares purchased by the Purchaser pursuant to this Agreement are hereinafter
collectively referred to as the "PURCHASED SHARES." The aggregate warrants to
purchase shares of Common Stock comprising a portion of the Units issuable
hereunder are hereinafter collectively referred to as the "WARRANTS," and the
Warrants purchased by the Purchaser pursuant to this Agreement are hereinafter
collectively referred to as the "PURCHASED WARRANTS." The shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Warrants are hereinafter
collectively referred to as the "WARRANT SHARES," and the shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Purchased Warrants are
hereinafter collectively referred to as the "PURCHASED WARRANT SHARES." The
Shares, the Warrants and the Warrant Shares are sometimes hereinafter
collectively referred to as the "SECURITIES," and the Purchased Shares, the
Purchased Warrants and the Purchased Warrant Shares are sometimes hereinafter
collectively referred to as the "PURCHASED SECURITIES." The Shares and Warrants
constituting the Additional Units are referred to herein as the "ADDITIONAL
SHARES" and the "ADDITIONAL WARRANTS."
(d) The Purchaser shall provide to the Company on or prior to
Closing a form of Schedule 13D to be filed with the Securities and Exchange
Commission (the "SEC") due to Purchaser's beneficial ownership subsequent to the
First Closing of more than five percent (5%) of the outstanding Common Stock of
the Company.
3. PAYMENT AND DELIVERY; TERMINATION.
(a) Payment for the Initial Units shall be made to the Company
by the Purchaser by wire transfer in immediately available funds in accordance
with wire instructions provided by the Company against delivery of the Initial
Units and all other documents and items required to be delivered hereunder by
the Company to the Purchaser at the First Closing (such payment and delivery
hereinafter referred to as the "FIRST CLOSING") at 10:00 a.m., Miami time, on
the date that is between two (2) and five (5) days following the date that all
of the conditions precedent set forth in Section 4 and Section 5 have been
satisfied or waived by the party to whom such performance is owed, at the
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offices of Akerman Senterfitt, One Southeast Third Avenue, 28th Floor, Miami,
Florida ("AKERMAN SENTERFITT"), or at such other time on the same or such other
date and at such other location, as shall be agreed by the Company and the
Purchaser, subject to the terms and conditions of this Agreement. The time and
date of the First Closing are hereinafter referred to as the "FIRST CLOSING
DATE."
(b) Payment for the Additional Units to be purchased by the
Purchaser hereunder shall be made to the Company by the Purchaser by wire
transfer in immediately available funds in accordance with wire instructions
provided by the Company against delivery of such Additional Units and any other
documents or items required hereunder to be delivered by the Company to the
Purchaser at the Second Closing (such payment and delivery hereinafter referred
to as the "SECOND CLOSING") on the date and at the time agreed to by the Company
and the Purchaser after receipt by the Company of the Additional Purchase
Exercise Notice, which Second Closing shall occur on the First Closing Date,
unless the parties, despite their best efforts, are unable to close on such
date, in which case the Second Closing shall occur on a mutually determined date
not later than seven (7) business days after the First Closing Date, subject to
the terms and conditions of this Agreement. The Second Closing shall occur at
the offices of Akerman Senterfitt or such other location as shall be agreed by
the Company and the Purchaser.
(c) For purposes of this Agreement, the term "CLOSING" or the
phrase "APPLICABLE CLOSING" shall refer to and mean the First Closing or the
Second Closing, as the context shall reasonably require, and the term "CLOSING
DATE" or the phrase "APPLICABLE CLOSING DATE" shall refer to and mean the First
Closing Date or the Second Closing Date, as the context shall reasonably
require.
(d) Certificates evidencing the Purchased Shares and the
Purchased Warrants purchased by the Purchaser hereunder shall be registered in
the name of the Purchaser. The certificates evidencing the Purchased Shares and
the Purchased Warrants purchased by the Purchaser hereunder shall be authorized
for issuance by the Company by written authorization to its transfer agent on
the applicable Closing Date, with any transfer taxes payable in connection with
the transfer of such Purchased Shares and the Purchased Warrants to the
Purchaser duly paid, against payment of the Purchase Price therefor.
(e) This Agreement and the transactions contemplated hereby
may be terminated by the Purchaser and the Company at any time prior to the
First Closing Date by mutual consent of the parties, or by either of the
Purchaser or the Company if the First Closing shall not have occurred by June 1,
2005.
4. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The Company's obligations
to issue the Units to the Purchaser and consummate the transactions contemplated
by this Agreement on the applicable Closing Date are subject to satisfaction of
the following conditions:
(a) The Company shall have received on the applicable Closing
Date immediately available funds in the amount of the Purchase Price for the
Units to be issued and delivered on such Closing Date;
(b) All representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
(if not qualified by materiality) or in all respects (if qualified by
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materiality) at and as of the applicable Closing with the same effect as though
such representations and warranties were made at and as of such Closing;
(c) The Purchaser shall have performed and complied in all
material respects with all the covenants and agreements required by this
Agreement to be performed or complied with by the Purchaser hereunder at or
prior to the applicable Closing;
(d) The Company shall have received from the Purchaser on the
applicable Closing Date a certificate, dated as of the applicable Closing Date
and signed by an executive officer of the Purchaser, to the effect that the
representations and warranties of the Purchaser contained in this Agreement are
true and correct in all material respects (if not qualified by materiality) or
in all respects (if qualified by materiality) at and as of the applicable
Closing with the same effect as though such representations and warranties were
made at and as of such Closing and that the Purchaser has performed and complied
in all material respects with all of the covenants and agreements required by
this Agreement to be performed or complied with by the Purchaser hereunder at or
prior to the applicable Closing;
(e) All material governmental and/or regulatory consents,
approvals, orders or authorizations necessary for the consummation of the
transactions contemplated hereby shall have been obtained, all material
governmental and/or regulatory filings and notices necessary for the
consummation of the transactions contemplated hereby shall have been made or
given, as the case may be, and all material third-party consents necessary for
the consummation of the transactions contemplated hereby shall have been
obtained;
(f) The Purchaser shall have delivered or caused to be
delivered to the Company at the applicable Closing an opinion of counsel for the
Purchaser, dated the applicable Closing Date, to the effect set forth in EXHIBIT
C ("PURCHASER'S OPINION OF COUNSEL");
(g) The shareholders of the Company shall have (i) approved
the issuance to the Purchaser of the Units and any other terms of this Agreement
if and as required by applicable law, (ii) approved expanding the Company's
Board of Directors from 5 to 7 members and (iii) approved the amendments to the
Company's Articles of Incorporation as set forth in the Articles of Amendment
attached hereto as EXHIBIT D ;
(h) All material documents, instruments and other items
required by this Agreement to be delivered by the Purchaser to the Company at or
prior to the applicable Closing shall have been delivered to the Company at or
prior to the applicable Closing.
(i) Between the date hereof and the applicable Closing Date,
there shall not have occurred any material adverse event affecting the
Purchaser.
(j) the absence of a withdrawal of the approval of the
transaction by the Company's Board of Directors where such withdrawal resulted
from the board's determination that its fiduciary duties required such
withdrawal pursuant to Section 8(n) below.
(k) the Company shall have entered into definitive employment
agreements with the designated management team under the terms and conditions
acceptable to Company on date of the First Closing Date and performance by any
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of the designated management team has not been prohibited or enjoined by a
judicial or administrative order or other agreement enforcing any
non-competition, non-solicitation or other restrictive covenant or agreement to
which any such member of the designated management team is a party.
(l) the Company shall have received Executed Employment
Agreements from Xxxxx Xxxxxxx and Xxxxxxx Xxxxxx in a form acceptable to both
the Company and the Purchaser on or before the First Closing Date.
5. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The obligations of the
Purchaser to purchase and pay for the Units and consummate the transactions
contemplated by this Agreement on the applicable Closing Date are subject to the
following conditions:
(a) All representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(if not qualified by materiality) or in all respects (if qualified by
materiality) at and as of the applicable Closing with the same effect as though
such representations and warranties were made at and as of such Closing;
(b) The Company shall have performed and complied in all
material respects with all the covenants and agreements required by this
Agreement to be performed or complied with by the Company hereunder at or prior
to the applicable Closing;
(c) The Purchaser shall have received from the Company on the
applicable Closing Date a certificate, dated as of the applicable Closing Date
and signed by an executive officer of the Company, to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct in all material respects (if not qualified by materiality) or
in all respects (if qualified by materiality) at and as of the applicable
Closing with the same effect as though such representations and warranties were
made at and as of such Closing and that the Company has performed and complied
in all material respects with all of the covenants and agreements required by
this Agreement to be performed or complied with by the Company hereunder at or
prior to the applicable Closing;
(d) All material governmental and/or regulatory consents,
approvals, orders or authorizations necessary for the consummation of the
transactions contemplated hereby shall have been obtained, all material
governmental and/or regulatory filings and notices necessary for the
consummation of the transactions contemplated hereby shall have been made or
given, as the case may be, and all material third-party consents necessary for
the consummation of the transactions contemplated hereby shall have been
obtained;
(e) The Company shall have authorized for issuance by written
authorization to its transfer agent at the applicable Closing duly executed
certificates representing the Purchased Shares to be delivered at such Closing
registered in the name of the Purchaser;
(f) The Company shall have executed and delivered to the
Purchaser at the applicable Closing warrant certificates for the Purchased
Warrants to be delivered at such Closing in the respective forms set forth in
Exhibits A and B hereto registered in the name of the Purchaser;
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(g) The Company shall have delivered or caused to be delivered
to the Purchaser at the time of execution of this Agreement the Voting Agreement
in the form attached hereto as EXHIBIT E (the "VOTING AGREEMENT") duly executed
by Xxxxxxx Xxxxxx;
(h) The Company shall have delivered or caused to be delivered
to the Purchaser at the First Closing an opinion of counsel for the Company,
dated the applicable Closing Date, to the effect set forth in EXHIBIT F
("COMPANY'S OPINION OF COUNSEL");
(i) The shareholders of the Company shall have approved the
purchase by the Purchaser of the Units and any other terms of this Agreement, if
and as required by applicable law. The shareholders of the Company and shall
have also approved expanding the Company's Board of Directors from five (5) to
seven (7) directors; and the Company's Board of Directors shall have appointed
Xxxxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx and two additional designees by the
Purchaser to the Company's Board of Directors and appropriate documentation of
such approval shall have been presented to Purchaser's counsel;
(j) All actions required to be taken by the Company under
Section 607.0902 of the Florida Business Corporation Act necessary to cause the
acquisition by the Purchaser of the Securities pursuant to this Agreement to not
constitute a "control-share acquisition" as defined therein shall have been
taken and appropriate documentation of such approval shall have been presented
to Purchaser's counsel;
(k) The Company shall have provided to the Purchaser a true
and correct copy, certified by the Company's secretary, of the resolutions of
the Company's Board of Directors approving this Agreement and the transactions
contemplated hereby; and the Company's shareholders shall have approved, and the
Company shall have caused to be filed and effective with the Florida Secretary
of State, the amendments to the Company's Articles of Incorporation set forth on
EXHIBIT D attached hereto;
(l) Between the date hereof and the applicable Closing Date,
(i) there shall not have occurred any material adverse event affecting the
Company or any of its subsidiaries or any of their respective businesses,
operations, financial conditions, assets or liabilities (contingent or
otherwise) and (ii) the Company shall not have restated or announced its
intention to restate any portion of its financial statements as included in any
filing with the SEC or in any press release or other form of media;
(m) All material documents, instruments and other items
required by this Agreement to be delivered by the Company to the Purchaser at or
prior to the applicable Closing shall have been delivered to the Purchaser at or
prior to the applicable Closing.
(n) The Company shall have entered into definitive employment
agreements with the designated management team under the terms and conditions
acceptable to the Purchaser on the date of the First Closing Date and
performance by any of the designated management team has not been prohibited or
enjoined by a judicial or administrative order or other agreement enforcing any
non-competition, non-solicitation or other restrictive covenant or agreement to
which any such member of the designated management team is a party.
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(o) The Company shall make any public announcement regarding
the Purchaser's involvement, the designated management team, or the capital
raise, subject to the Purchaser's discretion, except that the Company may make
such disclosures which it believes in good faith to be required by law or by the
terms of any listing agreement with or the requirements of a securities
exchange.
(p) The Purchaser shall have received Executed Employment
Agreements from Xxxxx Xxxxxxx and Xxxxxxx Xxxxxx in a form acceptable to both
the Purchaser and the Company on or before the Closing Date.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company represents and warrants to, and covenants with, the Purchaser that:
(a) The Company has on a timely basis filed all forms, reports
and documents required to be filed by it with the SEC since October 1, 2001.
Except to the extent available on the SEC's web site through the Electronic Data
Gathering, Analysis and Retrieval System ("XXXXX") two (2) days prior to the
date of this Agreement, SCHEDULE 6(A) lists, or the Company has delivered to the
Purchaser copies in the form filed with the SEC of, (i) the Company's Annual
Reports on Form 10-KSB for each fiscal year of the Company beginning since
October 1, 2001, (ii) the Company's Quarterly Reports on Form 10-QSB for each of
the first three fiscal quarters in each of the fiscal years of the Company
referred to in clause (i) above, (iii) all proxy statements relating to the
Company's meetings of shareholders (whether annual or special) held, and all
information statements relating to shareholder consents since the beginning of
the first fiscal year referred to in clause (i) above, (iv) all certifications
and statements required by (x) the SEC's Order dated June 27, 2002 pursuant to
Section 21(a)(1) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") (File No. 4-460), (y) Rule 13a-14 or 15d-14 under the Exchange
Act or (z) 18 U.S.C. ss.1350 (Section 906 of the Xxxxxxxx-Xxxxx Act of 2002
("SOX")) with respect to any report referred to in clause (i), (ii) or (iii)
above, (v) all other forms, reports, registration statements and other documents
(other than preliminary materials if the corresponding definitive materials have
been provided to the Purchaser pursuant to this Section 6(a)) filed by the
Company with the SEC since the beginning of the first fiscal year referred to in
clause (i) above (the forms, reports, registration statements and other
documents referred to in clauses (i), (ii), (iii), (iv) and (v) above are,
collectively, referred to as the "COMPANY SEC DOCUMENTS"), and (vi) all comment
letters received by the Company from the Staff of the SEC since October 1, 2001
and all responses to such comment letters by or on behalf of the Company. To the
date of the Second Closing Date, the Company SEC Documents (x) were or will be
prepared, in all material respects, in accordance with the requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and the Exchange Act,
as the case may be, and the rules and regulations thereunder and (y) did not at
the time they were filed with the SEC, or will not at the time they are filed
with the SEC, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. No subsidiary of the Company is or has been required to
file any form, report, registration statement or other document with the SEC.
The Company maintains disclosure controls and procedures required by Rule 13a-15
or 15d-15 under the Exchange Act; and such controls and procedures are effective
to provide reasonable assurance that all material information concerning the
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Company and its subsidiaries is made known on a timely basis to the individuals
responsible for the preparation of the Company's filings with the SEC and other
public disclosure documents. Except as set forth on SCHEDULE 6(A), to the
Company's knowledge, except as otherwise disclosed in the Company SEC Documents,
each director and executive officer of the Company has filed with the SEC on a
timely basis all statements required by Section 16(a) of the Exchange Act and
the rules and regulations thereunder since October 1, 2001. As used in this
Section 6(a), the term "FILE" shall be broadly construed to include any manner
in which a document or information is furnished, supplied or otherwise made
available to the SEC.
(b) Except as otherwise disclosed in the Company SEC
Documents, the financial statements of the Company and its subsidiaries included
in the Company SEC Documents (including the related notes) complied as to form,
as of their respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto (including, without limitation, Regulation S-X),
have been prepared in accordance with generally accepted accounting principles
in the United States ("GAAP") (except, in the case of unaudited statements, to
the extent permitted by Regulation S-X for Quarterly Reports on Form 10-QSB)
applied on a consistent basis during the periods and at the dates involved
(except as may be indicated in the notes thereto) and fairly present, in all
material respects, the consolidated financial condition of the Company and its
subsidiaries at the dates thereof and the consolidated results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to notes or the absence thereof and normal year-end audit
adjustments that were not, or with respect to any such financial statements
contained in any Company SEC Documents to be filed subsequent to the date hereof
are not reasonably expected to be, material in amount or effect). Except (A) as
reflected in the Company's audited balance sheet at September 30, 2003 or
liabilities described in any notes thereto (or liabilities for which neither
accrual nor footnote disclosure is required pursuant to GAAP), (B) for
liabilities incurred in the ordinary course of business since September 30, 2003
consistent with past practice or in connection with this Agreement or the
transactions contemplated hereby, (C) otherwise disclosed in the Company SEC
Documents, or (D) otherwise set forth in SCHEDULE 6(B) hereto, to the knowledge
of the Company, neither the Company nor any of its subsidiaries has any material
liabilities or obligations of any nature. The Company has been in compliance
with all rules and regulations promulgated in response to SOX with respect to
non-audit services performed by BSS & S, certified public accountants since the
date of the enactment of such rules and regulations.
(c) The Company (i) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, (ii) has the corporate power and authority to own, lease, use
and operate its properties and to conduct its business as currently conducted
and as described in the Company SEC Documents and (iii) is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership, leasing, use or operation of its
property requires such qualification, except in connection with the
representation in clause (iii) where the failure to be so qualified as a foreign
corporation would not have a material adverse effect on the Securities, the
assets, liabilities, business, properties, operations, financial condition or
results of operations of the Company and/or its subsidiaries, the transactions
contemplated hereby or by the agreements or instruments to be entered into in
8
connection herewith or the authority or the ability of the Company to perform
its obligations under this Agreement, the Warrants or the other agreements or
instruments to be entered into in connection herewith (a "MATERIAL ADVERSE
EFFECT").
(d) Except as set forth in SCHEDULE 6(D), the Company SEC
Documents set forth the name of each subsidiary of the Company or other entity
in which the Company owns, directly or indirectly, any equity or debt interest
or any form of proprietary interest, or any obligation, right or option to
acquire any such interest, and the jurisdiction of its formation. Each
subsidiary of the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own, lease, use and
operate its properties and to conduct its business as currently conducted and
described in the Company SEC Documents and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its business or its ownership, leasing, use or operation of property requires
such qualification, except where the failure to be so qualified would not have a
Material Adverse Effect. Except as set forth in SCHEDULE 6(D), all of the issued
shares of capital stock of each subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances, equities or
claims.
(e) Each of this Agreement, the Warrants, and the other
agreements and documents executed and/or delivered by the Company in connection
herewith has been duly authorized, executed and delivered by, and is a valid and
binding agreement of, the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting creditors' rights generally and
general principles of equity. The Company has all requisite corporate power and
authority to enter into and perform this Agreement, the Warrants, and the other
agreements and documents executed and/or delivered by the Company in connection
herewith and to consummate the transactions contemplated hereby and thereby and
to issue the Securities, in accordance with the terms hereof and thereof.
(f) The authorized capital stock of each of the Company and
its subsidiaries conforms as to legal matters to the description thereof
contained in the Company SEC Documents. As of the date of this Agreement, the
authorized capital stock of the Company consists only of 2,000,000 shares of
Preferred Stock of which no shares are issued and outstanding, 25,000,000 shares
of Common Stock of which 4,006,620 shares are issued and outstanding, 145,950
shares are reserved for issuance pursuant to the Company's stock option plans,
and no shares are reserved for issuance pursuant to securities (other than the
Warrants) exercisable for, or convertible into or exchangeable for shares of
Common Stock. All outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company or any of its subsidiaries are subject to preemptive rights
or any other similar rights of the shareholders of the Company or any of its
subsidiaries or any liens or encumbrances imposed through the actions or failure
to act of the Company or any of its subsidiaries. Except as disclosed in
SCHEDULE 6(F) hereto, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever that have been granted by the Company relating to, or securities or
rights convertible into or exchangeable for any shares of capital stock of the
9
Company or any of its subsidiaries, or arrangements by which the Company or any
of its subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except as provided in Section 9 hereof) and (iii) 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) that will be triggered by
the issuance of the Securities.
(g) The Shares and the Warrants have been duly authorized and,
when issued and delivered in accordance with the terms of this Agreement, will
be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances with respect to the issue thereof and will not be
subject to any preemptive or similar rights, except as provided for in this
Agreement. The Warrant Shares are duly authorized and reserved for issuance,
and, when issued upon exercise of or otherwise pursuant to the Warrants in
accordance with the terms thereof, will be, except with respect to the
"broker-assisted exercises" provided for in the Warrant during the time period
between exercise of the Warrants and payment by the broker of the exercise price
to the Company (the "BROKER ASSISTED EXERCISE EXCEPTION") which Warrant Shares
upon payment to the Company of the exercise price in full will be, validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances with respect to the issue thereof and will not be subject to
any preemptive rights or other similar rights, except as provided for in this
Agreement.
(h) Except as set forth in SCHEDULE 6(H) attached hereto and
except for the Broker Assisted Exercise Exception, the execution, delivery and
performance of this Agreement and the Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Shares and the Warrants and
the issuance and reservation for issuance of the Warrant Shares) will not (i)
conflict with or result in a violation of any provision of the Articles of
Incorporation or By-laws of the Company or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company or any of its subsidiaries is a party, except for such
violations, conflicts, breaches or defaults under agreements, licenses and
instruments which would not cause a Material Adverse Effect or (iii) to the
knowledge of the Company, result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and regulations of any self-regulatory organizations to which the
Company or any of its subsidiaries or their securities are subject) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries is bound or affected, except for those
violations of law which would not cause a Material Adverse Effect. Neither the
Company nor any of its subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and, to the knowledge
of the Company, neither the Company nor any of its subsidiaries is in default
10
(and no event has occurred which with notice or lapse of time or both could put
the Company or any of its subsidiaries in default) under, and neither the
Company nor any of its subsidiaries has taken any action or failed to take any
action that would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party or by which any property or
assets of the Company or any of its subsidiaries is bound or affected, except
for such violations, conflicts, breaches or defaults under agreements, licenses
and instruments which would not cause a Material Adverse Effect. To the
knowledge of the Company, the businesses of the Company and its subsidiaries are
not being conducted in violation of any law, ordinance or regulation of any
governmental entity, except to the extent that the failure to so conduct such
businesses does not and will not have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws and by the rules and regulations of
the American Stock Exchange National Market ("AMERICAN STOCK EXCHANGE"), to the
knowledge of the Company, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency, regulatory agency, or self regulatory organization or stock
market or third party in order for it to execute, deliver or perform any of its
obligations under this Agreement, or the Warrants in accordance with the terms
hereof or thereof or to issue and sell the Securities in accordance with the
terms hereof, except for those consents the failure of which to obtain would not
have a Material Adverse Effect. All consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected or will be obtained or
effected on or prior to the First Closing Date and will be in full force and
effect as of the Second Closing Date. To the knowledge of the Company, the
Company is not in violation of the listing requirements of the American Stock
Exchange applicable to continued listings.
(i) Except as set forth on SCHEDULE 6(I) attached hereto,
there has not occurred any material adverse change, or any development involving
a prospective material adverse change, in the condition, financial or otherwise,
or in the earnings, business or operations of the Company and/or any of its
subsidiaries, taken as a whole, since June 30, 2004.
(j) Except as set forth on SCHEDULE 6(J), there are no legal
or governmental proceedings pending or, to the knowledge of the Company,
threatened, to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is subject
other than proceedings accurately described in the Company SEC Documents or set
forth on SCHEDULE 6(J).
(k) Except as set forth in SCHEDULE 6(K) attached hereto or
the Company SEC Documents, and except where such has not had and could not
reasonably be expected to have a Material Adverse Effect, on the Company or, any
of its subsidiaries to the knowledge of the Company, the Company and each of its
subsidiaries (i) have obtained all applicable permits, licenses and other
authorizations, including the Company Permits (as herein defined), which are
required to be obtained under all applicable federal, state or local laws or any
applicable regulation, code, plan, order, decree, judgment, notice or demand
letter issued, entered, promulgated or approved thereunder relating to pollution
or protection of the environment ("ENVIRONMENTAL LAWS"), including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic material or wastes, including petroleum, into
ambient air, surface water, ground water or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes, including petroleum, by the Company or any of its
subsidiaries (or their respective agents); (ii) are in compliance with all
Environmental Laws and all terms and conditions of such required permits,
licenses and authorizations, and also are in compliance with all other
applicable limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in applicable
11
Environmental Laws; (iii) as of the date hereof, are not aware of nor have
received notice of any uncured past or present violations of Environmental Laws
or any event, condition, circumstance, activity, practice, incident, action or
plan which is reasonably likely to interfere with or prevent continued
compliance with Environmental Laws or which could give rise to any material
capital expenditure or common law or statutory liability, or otherwise form the
basis of any claim, action, suit or proceeding against the Company or any of its
subsidiaries under any Environmental Law or otherwise based on or resulting from
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, handling, emission, discharge or release into the environment of any
pollutant, contaminant, or hazardous or toxic material or waste, including
petroleum; (iv) have taken all actions necessary under applicable Environmental
Laws to register any products or materials required to be registered by the
Company or any of its subsidiaries (or any of their respective agents)
thereunder and (v) none of the Company nor any of its subsidiaries has entered
into any agreement to undertake or pay for any response action of any kind or
nature or to pay any damages (including punitive damages), costs, fines or
penalties associated with any release or threatened release of any pollutant,
contaminant or hazardous or toxic material or waste, including petroleum, at any
location.
(l) The Company and its subsidiaries own or possess all
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business now
operated by them, and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing.
(m) To the knowledge of the Company, the Company is not, and
after giving effect to the offering and sale of the Securities and the
application of the proceeds thereof will not be, required to register as an
"INVESTMENT COMPANY" as such term is defined in the Investment Company Act of
1940, as amended.
(n) Except as set forth on SCHEDULE 6(N), neither the Company
nor any affiliate (as defined in Rule 501(b) of Regulation D under the
Securities Act, an "AFFILIATE") of the Company has, directly, or through any
agent, (i) sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of, any security (as defined in the Securities Act) which
is or will be integrated with the offer or sale of the Securities in a manner
that would require the registration under the Securities Act of the Securities
or (ii) offered, solicited offers to buy or sold the Securities by any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act; and neither
the Company nor any Affiliate of the Company will engage in any of the actions
described in clauses (i) and (ii) of this paragraph.
12
(o) Subject to the accuracy of the Purchaser's representations
herein, and upon the advice of the Company's legal counsel, to the knowledge of
the Company, it is not necessary in connection with the offer, sale and delivery
of the Securities to the Purchaser in the manner contemplated by this Agreement
to register the Securities under the Securities Act.
(p) The Company shall comply with all requirements of the
American Stock Exchange with respect to the issuance of the Purchased Securities
and the listing of the Purchased Shares or the Purchased Warrant Shares and any
securities issued as a dividend thereon or in replacement thereof or otherwise
with respect thereto (collectively, the "COMMON SHARES") on the American Stock
Exchange.
(q) The Company has not taken and will not, in violation of
applicable law, take any action designed to or that might reasonably be expected
to cause or result in stabilization or manipulation of the price of the Common
Stock.
(r) The Company is eligible to file with the SEC a
registration statement on Form S-3 for purposes of registering the resale of the
Common Shares.
(s) Except as set forth in Section 9 hereof, no shareholder of
the Company has any right (which has not been waived) to require the Company to
register the sale of any shares owned by such shareholder under the Securities
Act in the Registration Statement (as defined in Section 9(a)) to be filed by
the Company on behalf of the Purchaser.
(t) Except in respect of any pest control business identified
by the Purchaser in accordance with Section 8(b) hereof, the Company is not in
discussions and has not reached any understanding, whether or not in writing,
regarding potential terms with respect to any transaction that would constitute
a business combination under Regulation S-X 11-01(a), where the business to be
acquired would constitute a significant subsidiary as defined in Rule 1-02(w) at
the 10% level.
(u) Except as otherwise disclosed in the Company SEC
Documents, the Company and each of its subsidiaries has made or filed, or
properly filed for an extension with respect to, all federal, state and foreign
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. Except as otherwise disclosed in the Company SEC Documents or on SCHEDULE
6(U), there are no unpaid taxes in any material amount claimed to be due to the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. Except as otherwise disclosed in the Company SEC
Documents, neither the Company nor any of its subsidiaries has executed a waiver
with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax.
13
(v) Except as otherwise disclosed in the Company SEC
Documents, except for arm's length transactions pursuant to which the Company or
any of its subsidiaries makes payments in the ordinary course of business upon
terms no less favorable than the Company or any of its subsidiaries could obtain
from third parties, each of which is set forth in the Company SEC Documents,
other than the grant of stock options and warrants disclosed on SCHEDULE 6(F)
and other than the employment agreements and retirement agreements disclosed on
SCHEDULE 6(F), none of the officers, directors, or employees of the Company or
any of its subsidiaries is presently a party to any transaction with the Company
or any of its subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(w) All information relating to or concerning the Company or
any of its subsidiaries set forth in this Agreement is true and correct in all
material respects as of the date hereof and the Company has not omitted to state
any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.
(x) The Company acknowledges that the Purchaser is acting
solely in its capacity of arm's length purchaser with respect to this Agreement
and the transactions contemplated hereby. The Company further represents to the
Purchaser that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation by the Company and its
representatives.
(y) The Company and each of its subsidiaries are in possession
of all franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders necessary to
own, lease and operate its properties and to carry on its business as it is now
being conducted (collectively, the "COMPANY PERMITS"), except where the failure
to so possess such Company Permits would not have a Material Adverse Effect, and
there is no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits. Neither the
Company nor any of its subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for such conflicts, defaults or
violations which would not have a Material Adverse Effect.
(z) To the knowledge of the Company, and except as set forth
on SCHEDULE 6(Z), each of the Company and its subsidiaries has good and
marketable title in fee simple to all real property owned by it, free and clear
of all liens, encumbrances and defects except (i) liens for real estate taxes
not yet due and payable and (ii) recorded easements, covenants, and other
restrictions of record which do not impair the current use, occupancy or value
of the property subject thereto. Any real property and facilities held under
lease by the Company and/or its subsidiaries are held by them under valid,
subsisting and enforceable leases.
14
(aa) The Company and its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its subsidiaries are engaged. Neither the
Company nor any such subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a comparable cost.
(bb) Except as set forth in SCHEDULE 6(BB) hereof, neither the
Company nor any of its subsidiaries, nor, to the knowledge of the Company, any
director, officer, agent, employee or other person acting on behalf of the
Company or any of its subsidiaries has, in the course of his actions for, or on
behalf of, the Company or any of its subsidiaries, used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
(cc) The Company (both before and after giving effect to the
transactions contemplated by this Agreement) and, except as set forth in
SCHEDULE 6(CC), each of its subsidiaries is solvent (I.E., its assets have a
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company or, except as set forth in SCHEDULE 6(CC), any of its
subsidiaries would not have the ability to, nor does it intend to take any
action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end.
(dd) Except as disclosed on SCHEDULE 6(DD), the Company has
not, since the enactment of SOX, extended credit, arranged for the extension of
credit, or renewed an extension of credit, in the form of a personal loan to or
for any director or executive officer (or equivalent thereof) of the Company.
The Company SEC Documents identify any loan or extension of credit maintained by
the Company to which the second sentence of Section 13(k) (1) of the Exchange
Act applies. Each of the Company, its directors and its senior financial
officers has consulted with the Company's independent auditors and with the
Company's outside counsel with respect to, and (to the extent applicable to the
Company) is familiar in all material respects with all of the requirements of,
SOX. The Company is in compliance with the provisions of SOX applicable to it as
of the date hereof and has implemented such programs and has taken reasonable
steps, upon the advice of the Company's independent auditors and outside
counsel, respectively, to ensure the Company's future compliance (not later than
the relevant statutory and regulatory deadlines therefor) with all provisions of
SOX which shall become applicable to the Company after the date hereof.
(ee) Except as disclosed on SCHEDULE 6(EE), no duties,
liabilities or obligations of the Company, vest, accelerate or become due and
owing as a result of the Company's concluding the transactions contemplated by
this Agreement including, without limitation, loan payments to affiliates,
15
salary continuation payments, employment benefits, or any other Company duties,
liabilities or obligations whether owed to shareholders, employees, affiliates
or unrelated third parties.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.
The Purchaser represents and warrants to, and covenants with,
the Company as follows:
(a) The Purchaser is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D under the Securities Act.
(b) The Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Purchased
Shares and the Purchased Warrants which have been requested by them. The
Purchaser is acquiring the Purchased Shares and the Purchased Warrants for its
own account for investment only and with no present intention of distributing
any of the Purchased Shares and the Purchased Warrants or any arrangement or
understanding with any other persons regarding the distribution of the Purchased
Shares and the Purchased Warrants, other than as contemplated in Section 9 of
this Agreement or pursuant to sales registered or exempted from registration
under the Securities Act; PROVIDED, HOWEVER, that by making the representations
herein, the Purchaser does not agree to hold any of the Purchased Securities for
any minimum or other specific term and reserves the right to dispose of the
Purchased Securities at any time in accordance with applicable law and the
provisions of this Agreement.
(c) The Purchaser will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of (or solicit offers to buy,
purchase or otherwise acquire or take a pledge of) any of the Purchased
Securities, except in compliance with the Securities Act and the applicable
rules and regulations of the SEC thereunder. Notwithstanding the foregoing or
anything else contained herein to the contrary, nothing herein shall restrict
the Securities from being pledged as collateral in connection with a BONA FIDE
margin account or other lending arrangement provided such pledge is effected in
compliance with applicable law.
(d) The Purchaser will not make any sale of the Common Shares
without complying with the provisions of this Agreement and without causing the
prospectus delivery requirement, if any, under the Securities Act to be
satisfied, and the Purchaser acknowledges that the certificates evidencing the
Warrants and, until such time as the Common Shares have been registered under
the Securities Act as contemplated by Section 9 hereof or otherwise may be sold
pursuant to Rule 144 under the Securities Act ("RULE 144") without any
restriction as to the number of securities as of a particular date that can then
be immediately sold, the Common Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for the Common Shares):
The securities represented by this certificate have been
acquired directly or indirectly from the Company without being
registered under the Securities Act of 1933, as amended (the
16
"Act"), or any other applicable securities laws, and are
restricted securities as that term is defined under Rule 144
promulgated under the Act. These securities may not be sold,
pledged, transferred, distributed or otherwise disposed of in
any manner ("Transfer") unless they are registered under the
Act and any other applicable securities laws, or unless the
request for Transfer is accompanied by a favorable opinion of
counsel, reasonably satisfactory to the Company, stating that
the Transfer will not result in a violation of the Act or any
other applicable securities laws.
The Company shall cause the legend set forth above to be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped if (a) such Security is sold under an effective registration
statement filed under the Securities Act or (b) such holder provides the Company
with reasonable assurances that such Security can be sold without any
restriction as to the number of securities as of a particular date that can then
be immediately sold.
(e) The Purchaser acknowledges that it has had the opportunity
to obtain additional information beyond the Company SEC Documents in order to
verify the information contained in the Company SEC Documents and to evaluate
the risks of an investment in the Securities.
(f) The Purchaser acknowledges that it has had the opportunity
to ask questions of and receive answers from qualified representatives of the
Company concerning the terms and conditions of this Agreement and of the
Securities to be issued hereunder, as well as the information contained in the
Company SEC Documents.
(g) The Purchaser acknowledges that it is a sophisticated
investor familiar with the type of risks inherent in the acquisition of
securities such as the Securities and that, by reason of its knowledge and
experience in financial and business matters in general, and investments of this
type in particular, and the knowledge and experience in financial and business
matters of its representatives and agents, it is capable of evaluating the
merits and risks of an investment by it in the Securities.
(h) The Purchaser is able to bear the economic risk of an
investment in the Securities, including, without limiting the generality of the
foregoing, the risk of losing part or all of its investment in the Securities
and its probable inability to sell or transfer the Securities for an indefinite
period of time.
(i) The Purchaser recognizes that investment in the Securities
involves substantial risks. The Purchaser further recognizes that no Federal or
State agencies have passed upon this offering of the Securities or made any
findings or determination as to the fairness of this investment.
(j) The Purchaser is not purchasing the Securities as a result
of or subsequent to any general advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio or presented at any seminar.
17
(k) The Purchaser acknowledges that its attention has been
specifically called to, and that its representatives or agents have read, the
Company SEC Documents, drafts of the preliminary proxy statement to be filed
with the SEC in connection with the transaction contemplated hereby, all
documents referred to and incorporated therein and any other material received
by the Purchaser from the Company and fully understands the risk involved in the
investment.
(l) None of the information supplied by the Purchaser in
writing to the Company expressly for inclusion or incorporation by reference in
the proxy statement used in connection with the solicitation of proxies at its
Joint Annual and Special Meeting (the "SPECIAL MEETING") held to seek approval
of transactions contemplated herein shall, at the time it is filed with the SEC,
at the time it is first mailed to the Company's shareholders or at the time of
the Special Meeting, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(m) The Purchaser has been duly formed and is validly existing
as a limited partnership in good standing under the laws of the jurisdiction of
its formation, has the requisite power and authority to own, lease, use and
operate its properties and to conduct its business as currently conducted and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership, leasing, use or operation
of its property requires such qualification.
(n) Each of this Agreement, the Voting Agreement and the other
agreements and documents executed and/or delivered by the Purchaser in
connection herewith has been duly authorized, executed and delivered by, and is
a valid and binding agreement of, the Purchaser, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws of general application affecting creditors' rights
generally and general principles of equity. The Purchaser has all requisite
power and authority to enter into and perform this Agreement, the Voting
Agreement and the other agreements and documents executed and/or delivered by
the Purchaser in connection herewith and to consummate the transactions
contemplated hereby and thereby.
(o) Except as set forth in SCHEDULE 7(O) attached hereto, the
execution, delivery and performance of this Agreement and any other agreements
executed and delivered by the Purchaser, if any, and the consummation by the
Purchaser of the transactions contemplated hereby and thereby will not (i)
conflict with or result in a violation of any provision of the charter or
organizational documents of the Purchaser, or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Purchaser is a party, except for such violations, conflicts,
breaches or defaults under agreements, licenses and instruments which would not
cause a Material Adverse Effect or (iii) to the knowledge of the Purchaser,
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
18
Purchaser or by which any property or asset of the Purchaser is bound or
affected, except for those violations of law which would not cause a Material
Adverse Effect. The Purchaser is not in violation of any of its organizational
documents. To the knowledge of the Purchaser, the business of the Purchaser is
not being conducted in violation of any law, ordinance or regulation of any
governmental entity, except to the extent that the failure to so conduct such
business does not and will not have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws and by the rules and regulations of
the American Stock Exchange, to the knowledge of the Purchaser, the Purchaser is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court, governmental agency, regulatory agency,
or self regulatory organization or stock market or third party in order for it
to execute, deliver or perform any of its obligations under this Agreement or
any other agreements executed and delivered by the Purchaser, if any, in
accordance with the terms hereof or thereof, except for those consents the
failure of which to obtain would not have a Material Adverse Effect. All
consents, authorizations, orders, filings and registrations which the Purchaser
is required to obtain pursuant to the preceding sentence have been obtained or
effected or will be obtained or effected on or prior to the applicable Closing
Date.
(p) Purchaser or any affiliate thereof shall not engage in any
trading of the Company's securities in violation of federal and state securities
laws.
(q) The Purchaser acknowledges that the Company has relied on
the representations contained herein in making its determination that a
statutory basis for exemption from the requirements of Section 5 of the
Securities Act currently exists.
8. ADDITIONAL COVENANTS OF THE COMPANY AND/OR THE PURCHASER.
(a) The Company shall use the proceeds from the sale to the
Purchaser of the Units and from the exercise of the Warrants solely in
furtherance of, and solely to effect and implement, the Proposed Strategies (as
herein defined), including any expenditures that may be reasonably incidental to
the furtherance of such Proposed Strategies (e.g., payment of employee salaries
pursuant to Section 8(e) hereof and any and all costs and expenses of
implementing the Proposed Strategies). Specifically, the Company shall use such
proceeds to invest in one or more pest control businesses identified by or
presented to the Company in one or more transactions if approved by the
Company's Board of Directors, consistent with the provisions of Section 8(b)
hereof. Notwithstanding anything stated herein to the contrary, the Company
shall not be liable for breach of the covenants in this Section 8 for not
pursuing and implementing the Proposed Strategies in connection with a
transaction that has not been approved by any member of the Company's Board of
Directors that was designated by Purchaser.
(b) The Company shall adopt, diligently pursue and implement
the following strategies and objectives (the "PROPOSED STRATEGIES"): (i) The
Company shall diversify and expand its business and operations into the pest
control services sector by investing in one or more pest control service
businesses in one or more transactions that will in the future be approved by
the Company's Board of Directors; (ii) The Company shall support and facilitate
the potential acquisitions for the Company of pest control businesses in the
United States and/or its territories from which the Company may grow organically
and through acquisitions; (iii) The Company shall finance the growth of its Pest
19
Control Division by accessing the equity and debt capital markets when
conditions in such markets are such that the Board of Directors believe
accessing capital through them is in the Company's best interests; and (iv) The
Company shall cause the initial platform acquisition(s) to be financed with a
combination of equity and debt; and the Company shall use and dedicate
$1,000,000 of its cash (from sources other than the proceeds arising from the
sale to the Purchaser of the Units and from the exercise of the Warrants)
together with the Purchase Price paid to the Company hereunder to fund
acquisitions of one or more pest control businesses in one or more transactions
that have been approved by the Company's Board of Directors and otherwise in
furtherance of the Proposed Strategies. The Company agrees to support and
conclude transactions in furtherance of the Proposed Strategies. The Company
shall actively and diligently pursue the reasonable implementation of the
Proposed Strategies and shall support and facilitate such reasonable
implementation. The provisions of Section 8(a) and this Section 8(b) are a
material inducement to Purchaser entering into this Agreement and purchasing any
Securities. The foregoing obligations of the Company shall be effective only
after the First Closing Date and shall be subject, in their entirety, to the
fiduciary duties the Board of Directors owes to the shareholders of the Company
and shall not be construed to obligate the Board of Directors to approve and
pursue any action without an independent determination by the Board of Directors
that such action is in the best interests of the Company and its shareholders;
and, notwithstanding anything stated herein to the contrary, if, at any time the
Board of Directors of the Company determines in good faith, based upon the
opinion of independent legal counsel (who may be the Company's regularly engaged
independent counsel), that it is required by its fiduciary duties to the
Company's shareholders under applicable law to refuse or delay to pursue any
action that purports to further the Proposed Strategies, the Company may refuse
or delay to pursue any action that purports to further the Proposed Strategies,
including the investigation, negotiation or consummation of any potential
acquisitions or offerings. Nothing stated herein shall preclude the Company and
its subsidiaries from continuing the Company's present operations and pursuing
the Company's traditional and other businesses as identified and described in
the Company SEC Documents.
(c) The Company shall pay or reimburse Purchaser all
reasonable, necessary and documented fees and expenses incurred by Purchaser in
connection with the transactions contemplated by this Agreement and in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and/or any term sheets and the other agreements
and documents to be executed and/or delivered in connection herewith, including,
without limitation, investment banking, legal, accounting, attorneys',
consultants' and other professional fees; provided that the Company shall have
no obligation to pay the Purchaser's professional fees or other expenses
incurred by it in connection with the transactions contemplated hereby if the
Purchaser fails to exercise its commercially reasonable efforts to conclude the
purchase by it of the Initial Units (as a result of which failure the First
Closing does not occur) except where such failure is due to the failure of the
Company to act reasonably and in good faith in which event the Company shall be
so obligated to pay such fees and expenses. After the Closing Date, expenses of
the new division will be paid by the new division and/or from the proceeds of
the sale of the Common Stock.
(d) The Company shall appoint Xxxxxxx X. Xxxxxx and Xxxxx X.
Xxxxxxx, and two additional Purchaser designees to its Board of Directors as of
20
the First Closing Date and, the Company shall provide indemnification for such
individuals to the same extent that it shall provide such benefits to the other
members of the Board of Directors.
(e) The Company shall engage designated management (from three
to five executives) as of the First Closing Date to serve as members of the
Company's management team with the power and authority to oversee and manage the
Pest Control Division of the Company, on mutually agreeable terms to be
determined by the parties; provided that, the anticipated compensation payable
by the Company to such persons will be in the form of $1,000,000 in aggregate
annual salary, plus, following such engagement, options to purchase Five Hundred
Thousand (500,000) shares of the Company's Common Stock at an exercise price of
Five Dollars ($5.00) per share, and participation in the Company's stock option
plan subsequent to the First Closing Date, as approved by the Company's Board of
Directors. The designated management team will assume positions as Chief
Executive Officer, President and Executive Vice President of the Company or such
other titles as determined by the Purchaser.
(f) It is anticipated that the Company will engage in a
management services agreement with an affiliate of the Purchaser, in the Form
attached hereto as EXHIBIT G, with a management fee in year one of an amount
equal to 1/16 times the aggregate Purchase Price paid by the Purchaser.
Following the first year and thereafter, the management fee will be equal to 1%
of the gross revenues from operations of the Company, excluding any revenues
received by the Company from the: (i) Non-Core Assets of the Company (as
hereinafter defined) and; (ii) core assets of the Company, which for purposes of
this Agreement shall mean those assets used in the design, manufacture and sale
of high frequency single sideband communications equipment and integrated
systems (the "Core Assets"). Pursuant to the management services agreement, the
Purchaser will provide the Company strategy related, investment banking,
investor relations and certain administrative, financing, tax, and legal
services.
(g) Each of the Company and the Purchaser shall deliver or
cause to be delivered to the other at the applicable Closing any and all
certificates, documents, instruments and other items required by this Agreement
to be delivered by such party at or prior to such Closing duly executed by such
party as and to the extent required.
(h) The Company shall use its best commercially reasonable
efforts to timely satisfy each of the conditions described in Section 4 of this
Agreement. The Purchaser shall use its best commercially reasonable efforts to
timely satisfy each of the conditions described in Section 5 of this Agreement.
(i) During the period from the date of this Agreement to the
First Closing Date, the Company shall permit the Purchaser (subject to prior
notice and consent by the Company management) and their representatives to have
reasonable access to the directors, officers, employees, agents, assets and
properties of the Company and each of its subsidiaries and all relevant books,
records and documents of or relating to the Company and each of its subsidiaries
and each of their respective businesses and assets during normal business hours
and will furnish to the Purchaser such information, financial records and other
documents relating to the Company and each of its subsidiaries and their
respective business and assets as the Purchaser may reasonably request. Without
21
limiting the foregoing, the Company shall permit the Purchaser's officers to
meet with the officers of the Company and its subsidiaries responsible for its
financial statements, the internal controls of the Company and its subsidiaries
and the disclosure controls and procedures of the Company and its subsidiaries
to discuss such matters as the Purchaser may deem reasonably necessary or
appropriate for the Purchaser to satisfy its obligations under Sections 302 and
906 of SOX and any rules and regulations relating thereto. Access to such
information by the Purchaser shall be effected through the granting of access by
the Company to the Purchaser and shall be governed by Purchaser's
confidentiality obligations set forth in that certain Confidentiality Agreement,
dated September__, 2004 by and between the Company and Purchaser.
(j) The Company agrees at its expense to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Purchaser promptly after such filing. The Company shall at its
expense, on or before each Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Purchaser at each such Closing under applicable securities or "blue sky" laws of
the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Purchaser on or prior to each such Closing Date. Purchaser shall provide the
Company reasonably advance notice of all States in which Purchaser shall be
distributing the Securities to allow the Company time to prepare such filings.
(k) The Company shall at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the maximum number of shares issuable upon exercise of or
otherwise pursuant to the Warrants and issuance of the Warrant Shares in
connection therewith. The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon exercise of or otherwise pursuant to the
Warrants without the consent of the Purchaser. If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the maximum
number of Warrant Shares issued and issuable upon exercise of or otherwise
pursuant to the Warrants (based on the exercise price of the Warrants in effect
from time to time), the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to authorize
additional shares to meet the Company's obligations under this Section, in the
case of an insufficient number of authorized shares, and using its best efforts
to obtain shareholder approval of an increase in such authorized number of
shares.
(l) The Company shall use its best efforts to promptly secure
the listing of the Common Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, as long as the Purchaser
owns any of the Common Shares or other Securities, shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all Common
Shares. The Company will use its best efforts to obtain, as long as the
Purchaser owns any of the Common Shares or other Securities, and maintain, the
listing and trading of the Common Stock on the American Stock Exchange, and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the American Stock Exchange to the
extent, and on such other exchanges upon which, shares of the Company's Common
Stock are then listed.
22
(m) The Company shall call and hold the Special Meeting of its
shareholders as promptly as practicable for the purpose of voting upon the
approval of this Agreement and the transactions contemplated hereby. The Company
shall comply with all requirements of applicable law applicable to such meeting.
The Company shall use its commercially reasonable efforts to solicit from its
shareholders proxies in favor of approval of this Agreement and the transactions
contemplated hereby, and shall take all other action necessary or advisable to
obtain the vote or consent of the shareholders required by applicable law to
obtain such approvals; provided that nothing stated herein shall obligate the
Company to hire a third party proxy solicitation firm.
(n) If, at any time the Board of Directors of the Company
determines in good faith, based upon the opinion of independent legal counsel
(who may be the Company's regularly engaged independent counsel), that it is so
required by its fiduciary duties to the Company's shareholders under applicable
law, the Company may, in response to an unsolicited Superior Proposal (as
hereinafter defined) which does not violate the non-solicitation provisions of
Section 8(p) below, (x) furnish information with respect to the Company to the
person making such unsolicited Superior Proposal pursuant to a confidentiality
agreement in substantially the same form as the confidentiality agreement
executed by the Company and Purchaser, and (y) participate in discussions or
negotiations regarding such Superior Proposal. Following its receipt of the
Superior Proposal, in the event that the Board of Directors determines in good
faith, based upon the opinion of independent legal counsel (who may be the
Company's regularly engaged independent counsel), that it is required by its
fiduciary duties to the Company's shareholders under applicable law, the Board
of Directors may withdraw its approval of the transactions contemplated herein.
For purposes of this Agreement, a "SUPERIOR PROPOSAL" means any bona fide
proposal, made by a third party to acquire one hundred percent (100%) or more of
the shares of the Company's Common Stock, whether by acquisition of stock,
merger or otherwise, then outstanding, the consideration for which may consist
of cash or securities of such third party, on terms which the Board of Directors
of the Company determines in its good faith judgment to be more favorable to the
Company's shareholders than the terms of the transactions contemplated
hereunder. The Company acknowledges that (i) historically its stock price has
been lower than the price at which it is trading as of the date of this
Agreement, (ii) the Company would not have the opportunity to enter into the
pest control business as contemplated herein without the input and expertise
provided by Purchaser and designated management team whose employment by the
Company was facilitated by the Purchaser and (iii) as a consequence of the
foregoing, in analyzing whether any proposal constitutes a "Superior Proposal"
the Company shall (A) take into consideration what the market price of such
price would be absent the participation by Purchaser and designated management
team in the Company's operations and the Company's public announcement of such
participation and (B) make a determination whether it is in the best interests
of the Company's shareholders and whether the Company has the capability and
desire to enter into another industry other than the pest control industry. In
addition, any such alternative proposal must be deemed by the Company's board of
directors to benefit the shareholders of the Company. The Company shall not be
prohibited from taking and disclosing to its shareholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to the Company's shareholders concerning a Superior Proposal if,
23
in the good faith judgment of the Board of Directors of the Company, after
consultation with independent legal counsel (who may be the Company's regularly
engaged independent counsel), failure so to disclose would be a violation of its
fiduciary duties to the Company's shareholders under applicable law.
(o) The Company covenants and agrees that, except as
contemplated by or disclosed in this Agreement, unless the Purchaser shall have
consented in writing (such consent not to be unreasonably withheld) neither the
Company nor any of its subsidiaries shall, between the date of this Agreement
and the Second Closing Date, directly or indirectly do or propose or agree to do
any of the following without the prior written consent of the Purchaser, which
consent shall not be unreasonably withheld:
(i) amend or otherwise change its Articles of
Incorporation or By-laws or equivalent organizational documents;
(ii) declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(iii) reclassify, combine, split, subdivide or
redeem, purchase or otherwise acquire, directly or indirectly, any of
its capital stock;
(iv) take any action other than in the ordinary
course of business and in a manner consistent with past practice with
respect to accounting policies or procedures;
(v) enter into any agreement, arrangement or
understanding with any Affiliate of the Company (except as set forth in
SCHEDULE 8(O) or as permitted by the Company's Code of Ethical Conduct,
SOX, the rules and regulations of the SEC promulgated thereunder, or
applicable American Stock Exchange rules and regulations); or
(vi) agree, in writing or otherwise, to take any of
the foregoing actions or any action that would make any representation
or warranty in this Agreement made by the Company untrue or incorrect.
(p) Except as set forth on SCHEDULE 8(P), until the Closing
Date, the Company agrees that it shall not, and shall cause its officers,
directors, shareholders, agents, employees or affiliates, not to (i) solicit,
encourage, consider or accept any offers from any other party to acquire all or
any portion of the assets of or any interest in the Company, (ii) participate in
any discussions or negotiations with any other party concerning the sale of all
or any portion of the assets of or any interest in the Company, (iii) provide
any non-public information about the Company to any person related to a
potential sale of any assets of or interests in the Company, or (iv) otherwise
cooperate in any way with, assist, facilitate or encourage any effort by any
other person seeking to acquire all or any portion of the assets of or any
interest in the Company, except in the situation where, pursuant to SECTION
8(N), the Board of Directors has determined, in good faith, that its fiduciary
duties require it to respond to an unsolicited Superior Proposal. The Company
shall promptly advise Purchaser in writing of any such inquiry or proposal which
they may receive, including the terms of the proposal and identity of the
inquirer or offeror.
24
(q) The Company hereby covenants and agrees with the Purchaser
that the Company shall not consummate any transaction or enter into any form of
agreement with designated management team or any affiliate thereof without the
prior written consent of the Purchaser.
(r) It is the intention of the Company to divest the non-core
assets of the Company (the "NON-CORE ASSETS") acquired in connection with the
purchase of Percipia, Inc. and its wholly-owned subsidiary Percipia Networks,
Inc. and the purchase of the assets of Telecom FM (collectively, the
"DIVESTITURE"). Such assets are currently held in separate wholly-owned
subsidiaries of the Company. The Company will use its best efforts, to enter
into a definitive agreement to divest of such subsidiaries or assets as soon as
practicable after the date hereof at a price equal to the price paid by the
Company for such assets plus the amount of any intercompany debt incurred and
advances in connection with the purchase by the Company of such assets, in
exchange for shares of a company, the shares of which are publicly traded
("NEWCO"). Upon consummation of the Divestiture the Board of Directors shall
distribute the consideration received to the Company's shareholders in the
manner and at the time that the Board of Directors shall determine; it being
understood that the Purchaser shall not receive through such distribution more
than 33% of the total stock consideration paid to the Company , provided,
HOWEVER in the event Purchaser would have been entitled to additional stock
consideration but for this provision, Purchaser shall be entitled to some other
acceptable consideration so that Purchaser as compared to the other Company
shareholders receives consideration of comparable value.
(s) Purchaser shall cause the Purchased Shares to be voted to
elect the two nominees of Xxxxxxx Xxxxxx to the Company's Board of Directors for
the year 2006.
9. SHELF REGISTRATION. The Company shall:
(a) Prepare and file or cause to be prepared and filed with
the SEC, as soon as practicable, but in any event by the date that is sixty (60)
days after the last applicable Closing Date, a registration statement (the
"REGISTRATION STATEMENT") registering the resale from time to time by the
Purchaser of all of its Common Shares. The Registration Statement shall be on
Form S-3 or another appropriate form permitting registration of the Common
Shares for resale by the Purchaser from time to time through the automated
quotation system of the American Stock Exchange or the facilities of a national
securities exchange on which the Common Stock is then traded, or if not then
traded on a national securities exchange then on any securities exchange or
quotation system on which the Common Stock is then listed or on the OTC Bulletin
Board, or in privately-negotiated transactions. The Company shall use its
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as is practicable but in any
event by the date that is the earlier of sixty (60) days after the date the
Registration Statement is filed or one hundred twenty (120) days after the last
applicable Closing Date.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective for a period at least
equal to the later of (i) the second anniversary of the date on which the
Registration Statement is declared effective under the Securities Act or (ii)
the date on which all Common Shares may be resold by all the Purchaser pursuant
to Rule 144 without any restriction as to the number of securities as of a
25
particular date that can then be immediately sold (such period, the
"EFFECTIVENESS PERIOD"); cause the related Prospectus (as herein defined) to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and use its best efforts to comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
securities covered by such Registration Statement during the Effectiveness
Period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement as so amended or such
Prospectus as so supplemented.
(c) As promptly as practicable give notice to the Purchaser
(i) when any Prospectus, Prospectus supplement, or the Registration Statement or
a post-effective amendment to the Registration Statement has been filed with the
SEC and, with respect to a Registration Statement or any post-effective
amendment, when the same has been declared effective.
(d) Use reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement or the
lifting of any suspension of the qualification (or exemption from qualification)
of any of the Common Shares for sale in any jurisdiction in which they have been
qualified for sale, in either case at the earliest possible moment, and provide
prompt notice to the Purchaser of the withdrawal of any such order.
(e) During the Effectiveness Period, deliver to the Purchaser
in connection with any sale by the Purchaser of Common Shares pursuant to the
Registration Statement, without charge, as many copies of the Prospectus or
Prospectuses relating to such Common Shares (including each preliminary
prospectus) and any amendment or supplement thereto as the Purchaser may
reasonably request.
(f) File documents required of the Company for customary Blue
Sky clearance in states specified in writing by the Purchaser to the extent
required by applicable law; provided that the Company will not be required to
(i) qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to qualify but for this
Agreement or (ii) take any action that would subject it to general service of
process in suits or to taxation in any such jurisdiction where it is not then so
subject.
(g) Bear all fees and expenses incurred in connection with the
performance by the Company of its obligations under this Section 9 whether or
not the Registration Statement is declared effective.
(h) Not allow any shareholders other than the Purchaser to
include their shares in the Registration Statement; except that it shall allow
the registration statement to include certain unregistered Common Stock,
including certain shares of Common Stock held by Xxxxxxx Xxxxxx up to an amount
equal to the number of Purchased Shares, 190,000 shares of Common Stock issued
in connection with the acquisition of Percipia, Inc. and 60,000 shares of Common
Stock issuable pursuant to certain options issued to directors; provided that in
the event the managing underwriter, if any, advises the Company, in writing,
that in its reasonable opinion the number of shares proposed to be included in
the Registration Statement exceeds the number that reasonably can be included
26
for any reason, then the Company will include in the Registration Statement to
the extent of the number which the managing underwriter advises the Company can
be included, the following shares in the following order and priority: (1)
first, the Common Shares of the Purchaser, the shares of Common Stock held by
Xxxxxxx Xxxxxx, the 190,000 shares of Common Stock issued in connection with the
acquisition of Percipia, Inc. and the 60,000 shares of Common Stock issuable
pursuant to certain options issued to directors included on the Registration
Statement on a pro-rata basis based upon the proportion of each shareholder's
ownership relative to the aggregate number of shares owned by Purchaser and (2)
second, other securities of the Company, if permitted. Notwithstanding anything
stated to the contrary, the Company's obligations under this Section 9 shall
terminate as to the Purchaser, any assign or any other party granted rights
under this Section 9 at such time as all of such party's Securities and Common
Shares can be sold under Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately sold.
10. INTENTIONALLY LEFT BLANK
11. TRANSFER OF SHARES AFTER REGISTRATION; SUSPENSION; OBLIGATIONS OF
PURCHASER.
(a) Subject to the effectiveness of the Registration Statement
and the rules and regulations promulgated by the SEC, the Purchased Securities
shall be freely transferable. Subject to its compliance with applicable rules
and regulations of the SEC, the Purchaser may assign the Purchased Securities
prior to the effectiveness of the Registration Statement and such assignment
shall not reduce or release the Company from its obligation to register such
securities.
(b) The Company shall, as promptly as practicable, give notice
to the Purchaser (i) of any request, following the effectiveness of the
Registration Statement under the Securities Act, by the SEC or any other federal
or state governmental authority for amendments or supplements to the
Registration Statement or related Prospectus or for additional information, (ii)
of the issuance by the SEC or any other federal or state governmental authority
of any stop order suspending the effectiveness of the Registration Statement or
the initiation or threatening of any proceedings for that purpose, (iii) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Common Shares for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, (iv) of the occurrence of a Material Event (as defined in Section
11(c)) and (v) of the determination by the Company that a post-effective
amendment to a Registration Statement will be filed with the SEC, which notice
may, as required pursuant to paragraph 11(c), state that it constitutes a
Deferral Notice, in which event the provisions of Section 11(c) shall apply.
(c) The Company shall, upon (A) the issuance by the SEC of a
stop order suspending the effectiveness of the Registration Statement or the
initiation of proceedings with respect to the Registration Statement under
Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or
the existence of any fact (a "MATERIAL EVENT") as a result of which the
Registration Statement shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
27
make the statements therein not misleading, or the related Prospectus shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, or
(C) the occurrence or existence of any pending corporate development
constituting a Material Event that, in the reasonable discretion of the
Company's Board of Directors, makes it appropriate to suspend the availability
of the Registration Statement and the related Prospectus, (i) in the case of
clause (B) above, subject to the next sentence, as promptly as practicable
prepare and file, if necessary pursuant to applicable law, a post-effective
amendment to such Registration Statement or a supplement to the related
Prospectus or any document incorporated therein by reference or file any other
required document that would be incorporated by reference into such Registration
Statement and Prospectus so that such Registration Statement does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and such Prospectus does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, as thereafter delivered to the
Purchaser of the Common Shares being sold thereunder, and, in the case of a
post-effective amendment to the Registration Statement, subject to the next
sentence, use its reasonable best efforts to cause it to be declared effective
as promptly as is practicable, and (ii) give notice to the Purchaser that the
availability of the Registration Statement is suspended (a "DEFERRAL NOTICE")
and, upon receipt of any Deferral Notice, the Purchaser agree not to sell any
Common Shares pursuant to the Registration Statement until the Purchaser's
receipt of copies of the supplemented or amended Prospectus provided for in
clause (i) above, or until it is advised in writing by the Company that the
Prospectus may be used, and has received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference
in such Prospectus. The Company will use all reasonable best efforts to ensure
that the use of the Prospectus may be resumed (x) in the case of clause (A) and
(B) above, as promptly as is practicable, and (y) in the case of clause (C)
above, as soon as, in the reasonable judgment of the Company's Board of
Directors, public disclosure of such Material Event would not be materially
prejudicial to the interests of the Company or, if necessary to avoid
unreasonable burden or expense to the Company, as soon as practicable
thereafter. The Company shall be entitled to exercise its right under this
Section 11(c) to suspend the availability of the Registration Statement or any
Prospectus no more than two (2) times in any twelve-month period, and any such
period during which the availability of the Registration Statement and any
Prospectus is suspended (the "DEFERRAL PERIOD") shall not exceed forty-five (45)
days. The Company shall use all commercially reasonable best efforts to limit
the duration and number of any Deferral Periods. Purchaser hereby expressly
acknowledges its obligation to keep confidential all nonpublic information about
the Company, including all nonpublic information set forth in such notice. The
Effectiveness Period automatically shall be extended for a period of time equal
in duration to the duration of all Deferral Periods in the aggregate. It shall
be a condition precedent to the obligations of the Company to complete the
registration pursuant to Section 9 that the Purchaser shall furnish to the
Company such information regarding itself, Securities held by it, any assign,
Securities held by any assign and the intended method of disposition of the
Securities held by it or any assign as shall be reasonably required to effect
the registration of such Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.
28
(d) As promptly as practicable after becoming aware of such
event, the Purchaser shall notify the Company of the occurrence of any event, as
a result of which the prospectus included in the registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
12. INDEMNITY AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each of
the Purchaser and each person, if any, who controls the Purchaser within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act and the Purchaser's respective officers, directors, general partners and
managers, as the case may be (collectively, "PURCHASER INDEMNITEES") from and
against any and all losses, claims, damages, liabilities and expenses
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim)
(collectively, the "LOSSES") in each case to the extent, but only to the extent
(i) caused by any untrue statement of a material fact contained in the
Registration Statement or the prospectus included in the Registration Statement,
as amended or supplemented by any amendment or prospectus supplement, including
post-effective amendments, and all material incorporated by reference in such
prospectus (the "PROSPECTUS") or in any amendment or supplement thereto or in
any preliminary prospectus, or caused by any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which it was made not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission based upon information relating to the
Purchaser or its assigns furnished to the Company in writing by the Purchaser or
assign expressly for use therein or (ii) caused by, arising from or related to
the breach of any representation, warranty, covenant or agreement made by the
Company in or pursuant to this Agreement or any document delivered by the
Company in connection herewith. The aggregate Losses incurred by the Purchaser
Indemnitees in respect of which they are entitled to indemnification pursuant to
this Section 12(a) are hereinafter referred to as "PURCHASER INDEMNIFIABLE
LOSSES." Notwithstanding anything to the contrary in this Agreement, the Company
shall have no obligation to indemnify the Purchaser Indemnitees pursuant to this
Section 12(a): (1) unless the aggregate amount of Purchaser Indemnifiable Losses
exceeds $100,000 and then only for the amount of Purchaser Indemnifiable Losses
in excess of $100,000; or (2) for any amounts by which the aggregate amount of
Purchaser Indemnifiable Losses exceeds $15,000,000; PROVIDED THAT,
notwithstanding the foregoing, the foregoing provisions of this sentence shall
not apply to the Company's obligations to pay the Purchaser's expenses pursuant
to Section 8(c) hereof, and the Company shall be liable for the full amount of
the Purchaser's reimbursable expenses under Section 8(c) hereof pursuant to the
terms of such section.
(b) The Purchaser agrees to indemnify and hold harmless the
Company, its directors and its officers and each person, if any, who controls
the Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act (collectively, "COMPANY INDEMNITEES"), from and
against any and all Losses, insofar as such Losses are (i) caused by any untrue
statement of a material fact contained in the Registration Statement or the
Prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or caused by any omission to state therein a material fact required
29
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or omission was made in reliance upon and in conformity with information
relating to the Purchaser furnished in writing by the Purchaser to the Company
expressly for use in the Registration Statement or Prospectus or (ii) caused by,
arising from or related to the breach of any representation, warranty, covenant
or agreement made by the Purchaser in or pursuant to this Agreement or any
document delivered by the Purchaser in connection herewith. The aggregate Losses
incurred by the Company Indemnitees in respect of which they are entitled to
indemnification pursuant to this Section 12(b) are hereinafter referred to as
"COMPANY INDEMNIFIABLE LOSSES." Notwithstanding anything to the contrary in this
Agreement, the Purchaser shall have no obligation to indemnify the Company
Indemnitees pursuant to this Section 12(b): (1) unless the aggregate amount of
Company Indemnifiable Losses exceeds $100,000 and then only for the amount of
Company Indemnifiable Losses in excess of $100,000; or (2) for any amounts by
which the aggregate amount of Company Indemnifiable Losses exceeds $15,000,000.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person or entity in respect of
which indemnity may be sought pursuant to Section 12(a) or 12(b), such person or
entity (the "INDEMNIFIED PARTY") shall promptly notify the person or entity
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all indemnified parties,
and that all such fees and expenses shall be reimbursed reasonably promptly
after incurred. The indemnifying party shall not be liable for any settlement of
any proceeding affected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss,
liability or expense by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement (i) includes
an unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding and (ii) does not include a
statement as to or an admission of fault, culpability, criminal liability or a
failure to act by or on behalf of any indemnified party.
30
(d) To the extent that the indemnification provided for under
Section 12(a)(i) or 12(b)(i) is unavailable to an indemnified party or is
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party or parties on the other hand or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and of the indemnified party or parties on the other
hand in connection with the statements or omissions or other matters that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
shall be deemed to be equal to the total net proceeds from the sale pursuant to
this Agreement (before deducting expenses) of the Purchased Securities to which
such losses, claims, damages or liabilities relate. The relative benefits
received by the Purchaser shall be deemed to be equal to the value of Purchased
Securities that are registered under the Securities Act. The relative fault of
the Purchaser on the one hand and the Company on the other hand shall be
determined by reference to, among other things, whether the untrue statement of
a material fact or the omission to state a material fact, or the inaccurate
representation or warranty relates to information supplied by the Purchaser or
by the Company and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 12(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding this Section 12(d), the Purchaser shall not be required to
contribute any amount in excess of the amount by which the net amount received
by the Purchaser from the sale of the Purchased Securities to which such loss
relates exceeds the amount of any damages that such indemnifying party has
otherwise been required to pay by reason of such untrue statement or omission.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) The remedies provided for in this Section 12 are meant to
be exclusive and shall limit the rights or remedies which may otherwise be
available to any indemnified party at law or equity.
(f) The indemnity and contribution provisions contained in
this Section 12 and the representations, warranties and other statements of the
Company and the Purchaser contained in this Agreement shall survive the
execution of this Agreement through the second anniversary of the last
applicable Closing and shall remain operative and in full force and effect
regardless of (i) any investigation made by or on behalf of the Purchaser or any
31
assign, or the Purchaser's or any assign's officers or directors, or any person
controlling the Purchaser or any assign, or the Company, or the Company's
officers or directors or any person controlling the Company and (ii) the sale of
any Purchased Securities by the Purchaser.
13. RELIANCE ON REPRESENTATIONS. Notwithstanding any knowledge of facts
determined or determinable by the Purchaser or the Company by investigation,
each party shall have the right to fully rely on the representations,
warranties, covenants and agreements of the other party hereto contained in this
Agreement or in any other documents or papers delivered in connection herewith.
Each representation, warranty, covenant and agreement of the parties set forth
in this Agreement is independent of each other representation, warranty,
covenant and agreement. Each representation and warranty made by any party in
this Agreement shall survive each Closing through the second anniversary
thereof.
14. TERMINATION OF CONDITIONS AND OBLIGATIONS. The conditions precedent
imposed by this Agreement upon the transferability of the Common Shares shall
cease and terminate as to any particular number of the Shares (and any legend on
the Common Shares will be removed by the Company) at such time as such Common
Shares have been effectively registered under the Securities Act and sold or
otherwise disposed of in accordance with the intended method of disposition set
forth in the Registration Statement covering such Common Shares, or at such time
as an opinion of counsel satisfactory to the Company shall have been rendered to
the effect that (i) such conditions are not necessary in order to comply with
the Securities Act or (ii) such Common Shares may be sold pursuant to Rule 144.
15. INFORMATION AVAILABLE. So long as the Registration Statement is
effective covering the resale of securities owned by the Purchaser, except to
the extent such may be obtained on XXXXX or otherwise obtained off the internet,
the Company will furnish to the Purchaser:
(a) as soon as practicable after it is available (but in the
case of the Company's Annual Report to Shareholders, within 120 days of each
fiscal year of the Company), one copy of:
(i) its Annual Report to Shareholders (which Annual
Report shall contain financial statements audited in accordance with
generally accepted accounting principles by a national firm of
certified public accountants);
(ii) if not included in substance in the Annual
Report to Shareholders, its Annual Report on Form 10-KSB;
(iii) its Quarterly Reports on Form 10-QSB;
(iv) any Current Reports on Form 8-K; and
(v) a full copy of the particular Registration
Statement covering the securities owned by Purchaser;
32
(b) upon the reasonable request of the Purchaser, an adequate
number of copies of the Prospectus to supply to any other party requiring such
Prospectus; and
(c) within one (1) day after release, copies of all press
releases issued by the Company or any of its subsidiaries and contemporaneously
with the making available or giving to the shareholders of the Company, copies
of any notices or other information the Company makes available or gives to such
shareholders.
16. NO BROKERS. Each of the parties to this Agreement hereby represents
that, on the basis of any actions and agreements by it, there are no brokers or
finders entitled to compensation in connection with the offer or sale of the
Securities to the Purchaser. The parties hereto expressly acknowledge the
Company is paying certain fees to ________________for certain financial advisory
services being provided by __________________ in connection with the
transactions contemplated hereunder. The parties hereto expressly agree and
acknowledge ________________'s role is not that of a broker or finder.
17. RULE 144.
(a) The Company covenants that, if at any time before the end
of the Effectiveness Period the Company is not subject to the reporting
requirements of the Exchange Act, it will cooperate with the Purchaser and take
such further reasonable action as the Purchaser may request in writing
(including, without limitation, making such reasonable representations as the
Purchaser may request), all to the extent reasonably required from time to time
to enable the Purchaser to sell Securities or Common Shares without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 and Rule 144A under the Securities Act and customarily taken in
connection with sales pursuant to such exemptions. Upon the reasonable written
request of the Purchaser, the Company shall deliver to the Purchaser a written
statement as to whether it has complied with such reporting requirements, unless
such a statement has been included in the Company's most recent report filed
pursuant to Section 13 or Section 15(d) of the Exchange Act; provided that the
Company may reasonably decline to deliver such written statement if Purchaser
has made more than six (6) such written requests in any year and such written
requests have resulted in a significant disruption of the Company's business.
(b) The Company shall file the reports required to be filed by
it under the Exchange Act and shall comply with all other requirements set forth
in the instructions to Form S-3 in order to allow the Company to be eligible to
file registration statements on Form S-3.
18. NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, by telecopier, by
courier guaranteeing overnight delivery or by first-class mail and shall be
deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if
made by telecopier, (iii) one (1) business day after being deposited with such
courier, if made by overnight courier or (iv) on the third day after deposit in
the mail, if made by first-class mail, to the parties as follows:
33
(a) if to the Purchaser, to:
Coconut Palm Capital Investors II, Ltd.
000 Xxxxx Xxxxxxx Xxxxxxx
Xxxxxx Xxxxx
Xxxx Xxxxx, Xxxxxxx 00000
With a copy to:
Hunton & Xxxxxxxx
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Attn: Xxxxxx Xxxxxxx
(b) if to the Company, to:
Sunair Electronics, Inc.
0000 X.X. 0xx Xxxxxx
Xx. Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxx, President
With a copy to:
Akerman Senterfitt
Xxx Xxxxxxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxx, Xxxxxxx 00000
Attn: Xxxxx Xxxxxxxx, Esq.
or to such other address as such person or entity may have furnished to the
other persons or entities identified in this Section 18 in writing in accordance
herewith.
19. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction, it being intended that all of the rights and privileges of the
parties shall be enforceable to the fullest extent permitted by law.
20. MODIFICATION; AMENDMENT. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented unless pursuant to an instrument in writing signed by the Company
and the Purchaser.
21. ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
34
with respect to the subject matter contained herein. Except as provided in this
Agreement, there are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein, with respect to such matters.
This Agreement supersedes all prior agreements and undertakings among the
parties with respect to such matters. No party hereto shall have any rights,
duties or obligations other than those specifically set forth in this Agreement.
22. COUNTERPARTS. This Agreement may be signed in any number of
original or facsimile counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
23. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Florida.
24. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
[SIGNATURE PAGE FOLLOWS]
35
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COCONUT PALM CAPITAL INVESTORS II, LTD.
By: /s/ XXXXXXX X. XXXXXX
------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President
SUNAIR ELECTRONICS, INC.
By: /s/ XXXXX X. XXXXXXX
------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: President
36
LIST OF EXHIBITS AND INDEX OF SCHEDULES TO PURCHASE AGREEMENT
Exhibit A Form of First Tranche Warrant
Exhibit B Form of Second Tranche Warrant
Exhibit C Purchaser's Opinion of Counsel
Exhibit D Articles of Amendment to the Company's Articles of Incorporation
Exhibit E Voting Agreement
Exhibit F Company's Opinion of Counsel
Exhibit G Management Services Agreement
Schedule 6(a) Company SEC Documents
Schedule 6(b) Other Material Liabilities or Obligations of Company
Schedule 6(d) Company Subsidiaries
Schedule 6(f) Company Convertible Securities, Registration Rights and Other Agreements
Schedule 6(h) Company Conflicts
Schedule 6(i) Company Material Adverse Changes
Schedule 6(j) Company Litigation
Schedule 6(k) Company Permits
Schedule 6(n) Company Securities Offerings
Schedule 6(u) Company Tax Matters
Schedule 6(z) Company Real Property
Schedule 6(bb) Company Corrupt Acts
Schedule 6(cc) Company Liquidity
Schedule 6(dd) Company Loans
Schedule 6(ee) Company Liabilities and Obligations Upon Closing
Schedule 7(o) Purchaser Conflicts
Schedule 8(o) Company Affiliate Agreements
Schedule 8(p) Company Solicitations
37
