SECURITIES PURCHASE AGREEMENT
Exhibit
10.1
Execution
Copy
SECURITIES
PURCHASE AGREEMENT (this “Agreement”),
dated
as of February 6, 2007, by and between DIGITAL ANGEL CORPORATION, a Delaware
corporation (the “Company”),
and
each of the entities whose names appear on the signature pages hereof. Such
entities are each referred to herein as an “Investor”
and,
collectively, as the “Investors”.
A. The
Company wishes to sell to each Investor, and each Investor wishes to purchase,
upon
the
terms and subject to the conditions set forth in this Agreement, (i) a 10.25%
Senior Secured Debenture in the form attached hereto as Exhibit
A
(a
“Debenture”
and,
collectively with the other Debentures issued hereunder, the “Debentures”)
and
(ii) a warrant in the form attached hereto as Exhibit
B
(a
“Warrant”
and,
collectively with the other Warrants issued hereunder, the “Warrants”).
The
Debentures may be repaid or redeemed upon the satisfaction of certain conditions
with shares of the Company’s common stock, $0.005 par value per share (the
“Common
Stock”).
The
shares of Common Stock with which the Debentures may be repaid or redeemed
are
referred to herein as the “Stock
Option Shares”
and
the
shares of Common Stock issuable upon exercise of the Warrants are referred
to
herein as the “Warrant
Shares”.
The
Debentures, the Stock Option Shares, the Warrants and the Warrant Shares are
collectively referred to herein as the “Securities”.
B. The
Warrants will (i) entitle the Investors to purchase an aggregate 699,600 Warrant
Shares, (ii) have an exercise price equal to $2.973, subject to adjustment
as
provided therein, and (iii) expire on the fifth (5th) anniversary of the Closing
Date, subject to extension as provided therein.
C. The
Company’s obligations under the Debentures, including without limitation its
obligation to make payments of principal thereof and interest thereon,
are
guaranteed by certain of the Company’s subsidiaries pursuant to a Subsidiary
Guarantee in the form attached hereto as Exhibit
C
(the
“Subsidiary
Guarantee”),
and
are
secured pursuant to the terms of a Security Agreement in the form attached
hereto as Exhibit
D
(the
“U.S.
Security Agreement”)
and,
with respect to Signature, the terms of an additional security agreement that
comports with the laws of the United Kingdom (the “Signature
Security Agreement”
and,
together with the U.S. Security Agreement, the “Security
Agreement”).
D. The
Company has agreed to effect the registration of the Stock Option Shares and
the
Warrant Shares for resale by the holders thereof under the Securities Act of
1933, as amended (the “Securities
Act”),
pursuant to a Registration Rights Agreement in the form attached hereto as
Exhibit
E
(the
“Registration
Rights Agreement”).
E. The
sale
of the Debentures and the Warrants by the Company to the Investors will be
effected in reliance upon the exemption from securities registration afforded
by
the provisions of Regulation D (“Regulation
D”),
as
promulgated by the Commission (as defined below) under the Securities
Act.
In
consideration of the mutual promises made herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
Company and each Investor hereby agree as follows:
1.
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PURCHASE
AND SALE OF DEBENTURES AND WARRANTS.
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1.1 Closing.
Upon
the terms and subject to the satisfaction or waiver of the conditions set forth
herein, the Company agrees to sell and each Investor agrees to purchase (i)
a
Debenture (a “Debenture”)
with a
principal amount equal to the amount set forth below such Investor’s name on the
signature pages hereof and (ii) a Warrant exercisable into the number of shares
of Common Stock set forth below such Investor’s name on the signature pages
hereof. The date on which the closing of such purchase and sale occurs (the
“Closing”)
is
hereinafter referred to as the “Closing
Date”.
The
Closing will be deemed to occur at the offices of Xxxxxx Song LLP, 000 Xxxxx
Xxxxxx, 00xx
Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000 when (A) this Agreement and the other Transaction
Documents (as defined below) have been executed and delivered by the Company
and
each Investor, (B) each of the conditions to the Closing described in this
Agreement has been satisfied or waived as specified therein and (C) payment
of
each Investor’s Purchase Price (as defined below) payable with respect to the
Debenture and Warrant being purchased by such Investor at the Closing has been
made by wire transfer of immediately available funds. At the Closing, the
Company shall deliver to each Investor duly executed instruments representing
the Debenture and Warrant purchased by such Investor at the Closing.
1.2 Certain
Definitions.
When
used herein, the following terms shall have the respective meanings
indicated:
“Additional
Debt”
means
the Bank Facility and the St. Xxxx Facility.
“Affiliate”
means,
as to any Person (the “subject
Person”),
any
other Person (a) that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under direct or indirect
common control with, the subject Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
equity of the subject Person, or (c) ten percent (10%) or more of the
voting equity of which is directly or indirectly beneficially owned or held
by
the subject Person. For the purposes of this definition, “control”
when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, through representation on such Person’s board of directors
or other management committee or group, by contract or otherwise.
“Affiliate
Transaction”
has
the
meaning specified in Section
4.5(a)
of this
Agreement.
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“Allocation
Amount”
has
the
meaning specified in Section
4.16
of this
Agreement.
“Amendment”
means
an amendment to, or an amendment and restatement of, the certificate of
incorporation, bylaws and any other applicable organizational documents of
the
Company necessary to permit the Company to issue Common Stock, and/or securities
convertible into or exercisable for shares of Common Stock, for non-cash
consideration or cash consideration less than fair market value; in each such
case, without any stockholder consent or approval.
“Bank
Facility”
means
the credit facility to be obtained by the Company from Greater Bay Business
Funding or such other similar commercial lending institution; provided
that (i)
the maximum amount of Debt that the Company is permitted to incur under such
facility shall not exceed $8,000,000; and (ii) such facility shall be secured
only by the accounts receivable of the Company and Outerlink Corporation, and
the security interest granted to the Investors under the U.S. Security Agreement
with respect to the accounts receivable of the Company and Outerlink Corporation
shall be subordinated to such security interest granted to such
bank.
“Board
of Directors”
means
the Company’s board of directors.
“Business
Day”
means
any
day
other than a Saturday, a Sunday or a day on which the Principal Market is closed
or on which banks in the City of New York are required or authorized by law
to
be closed.
“Cap
Amount”
means
19.99% of the aggregate number of shares of Common Stock outstanding immediately
prior to the Closing (subject to adjustment upon a stock split, stock dividend,
recapitalization, reorganization, reclassification or other event that
subdivides all of the outstanding shares of Common Stock).
“Closing”
and
“Closing
Date”
have
the respective meanings specified in Section
1.1
of this
Agreement.
“Commission”
means
the Securities and Exchange Commission, and any successor regulatory
agency.
“Common
Stock”
has
the
meaning specified in the recitals to this Agreement.
“Company
Subsidiaries”
means
the Subsidiaries of the Company set forth on Schedule
1.2(a) and
such
other Subsidiaries of the Company that become party to the Subsidiary Guarantee
and/or the Security Agreement.
3
“Debt”
means,
as to any Person at any time, without duplication: (a) all indebtedness,
liabilities and obligations of such Person for borrowed money; (b) all
indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of Property or services (except trade accounts payable of such
Person arising in the ordinary course of business that are (i) not past due
by
more than 90 days or (ii) being contested in good faith by such Person); (c)
all
capital lease obligations of such Person; (d) all Debt of others guaranteed
by
such Person; (e) all indebtedness, liabilities and obligations secured by a
Lien
existing on Property owned by such Person, whether or not the indebtedness,
liabilities or obligations secured thereby have been assumed by such Person
or
are non-recourse to such Person; (f) all reimbursement obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
bankers’ acceptances, surety or other bonds and similar instruments; and (g) all
liabilities and obligations of such Person to redeem or retire shares of capital
stock of such Person .
“Disclosure
Documents”
means
all SEC Documents filed with the Commission at least five (5) Business Days
prior to the Execution Date.
“Dollars”
or
“$”
means
U.S. Dollars.
“DTC”
means
The Depositary Trust Company (and any successor entity).
“Effective
Date”
has
the
meaning specified in the Registration Rights Agreement.
“Environmental
Law”
means
any federal, state, provincial, local or foreign law, statute, code or
ordinance, principle of common law, rule or regulation, as well as any Permit,
order, decree, judgment or injunction issued, promulgated, approved or entered
thereunder, relating to pollution or the protection, cleanup or restoration
of
the environment or natural resources, or to the public health or safety, or
otherwise governing the generation, use, handling, collection, treatment,
storage, transportation, recovery, recycling, discharge or disposal of hazardous
materials.
“ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended, and the
regulations and published interpretations thereunder.
“Event
of Default”
has
the
meaning specified in the Debentures.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended (or any successor act), and
the
rules and regulations promulgated thereunder (or respective successors
thereto).
“Excluded
Securities”
means
(i) the Debentures and Warrants; (ii) the Stock Option Shares, Warrant Shares
and any other securities issued upon the conversion or exercise of any other
options, warrants, convertible securities or any other agreements outstanding
as
of the Issue Date and disclosed on Schedule
3.5(i)
hereto;
(iii) shares of Common Stock issuable or issued to employees from time to time
upon the exercise of options or other awards or purchase rights granted or
to be
granted in the discretion of the Board of Directors pursuant to one or more
employee stock option plans or restricted stock plans in effect as of the Issue
Date or new plans or amendments to existing plans adopted after the Issue Date
by the independent members of the Board of Directors; and (iv) shares of Common
Stock issued in connection with any stock split, stock dividend or
recapitalization of the Company.
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“Execution
Date”
means
the date of this Agreement.
“GAAP”
means
U.S. generally accepted accounting principles, applied on a consistent basis.
Accounting principles are applied on a “consistent basis” when the accounting
principles applied in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
“Governmental
Authority”
means
any nation or government, any state, provincial or political subdivision thereof
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including, without
limitation, any stock exchange, securities market or self-regulatory
organization.
“Governmental
Requirement”
means
any law, statute, code, ordinance, order, rule, regulation, judgment, decree,
injunction, franchise, license or other directive or requirement of any federal,
state, county, municipal, parish, provincial or other Governmental Authority
or
any department, commission, board, court, agency or any other instrumentality
of
any of them.
“Intellectual
Property”
means
the collective reference to all existing rights, priorities and privileges
relating to intellectual property, whether arising under United States,
multinational or foreign laws or otherwise, including, without limitation,
(i)
all copyrights arising under the laws of the United States, any other country
or
any political subdivision thereof, whether registered or unregistered and
whether published or unpublished, all registrations and recordings thereof,
and
all applications in connection therewith, including, without limitation, all
registrations, recordings and applications in the United States Copyright
Office, (ii) all letters patent of the United States, any other country or
any
political subdivision thereof, all reissues and extensions thereof, and all
applications for letters patent of the United States or any other country and
all divisions, continuations and continuations-in-part thereof, (iii) all
trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade dress, service marks, logos, domain names
and
other source or business identifiers, and all goodwill associated therewith,
now
existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common
law
rights related thereto, (iv) all trade secrets arising under the laws of the
United States, any other country or any political subdivision thereof, (v)
all
rights to obtain any reissues, renewals or extensions of the foregoing, (vi)
all
licenses for any of the foregoing, and (vii) all causes of action for
infringement of the foregoing.
“Investment
Company Act”
has
the
meaning specified in Section
3.25
of this
Agreement.
“Investor
Party”
has
the
meaning specified in Section
4.9
of this
Agreement.
5
“Key
Employee”
has
the
meaning specified in Section
3.16
of this
Agreement.
“Lien”
means,
with respect to any Property, any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, tax lien, financing statement, pledge,
charge, or other lien, charge, easement, encumbrance, preference, priority
or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including, without limitation,
any conditional sale or other title retention agreement having substantially
the
same economic effect as any of the foregoing).
“Listing
Deadline Date”
has
the
meaning specified in Section
4.20
of this
Agreement.
“Material
Adverse Effect”
means
an effect that is material and adverse to
(i) the
consolidated business, properties, assets, operations, results of operations,
financial condition, credit worthiness or prospects of the Company and the
Company Subsidiaries taken as a whole, (ii) the ability of the Company or any
Company Subsidiary to perform its material obligations under this Agreement
or
the other Transaction Documents or (iii) the rights and benefits to which an
Investor is entitled under this Agreement or any of the other Transaction
Documents.
“Material
Contracts”
means,
as to the Company and the Company Subsidiaries, any agreement
required pursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K,
as applicable, promulgated under the Securities Act to be filed as an exhibit
to
any report,
schedule, registration statement or definitive proxy statement filed or required
to be filed by the Company with the Commission under
the
Exchange Act or any rule or regulation promulgated thereunder,
and any
and all material amendments, modifications, supplements, renewals or
restatements thereof.
“McMurdo
Transaction”
means
the contemplated acquisition of certain assets of McMurdo Limited’s marine
electronics business pursuant to the Asset Sale and Purchase Agreement, dated
December as of 14, 2006, between Signature Industries Limited and McMurdo
Limited.
“Pension
Plan”
means
an employee pension benefit plan (as defined in ERISA) maintained by the Company
for employees of the Company or any of its Affiliates.
“Permitted
Debt”
means
the following:
(a) the
Debentures;
(b) Debt
outstanding on the Execution Date and disclosed on Schedule
3.5(iv)
hereto;
(c) Subordinated
Debt;
6
(d) Debt
consisting of capitalized lease obligations and purchase money indebtedness
incurred in connection with acquisition of capital assets and obligations under
sale-leaseback or similar arrangements provided in each case that such
obligations are not secured by Liens on any assets of the Company or the Company
Subsidiaries other than the assets so leased; and
(e) the
Additional Debt.
“Permitted
Liens”
means
each of the following:
(a) Liens
in
existence on the Execution Date and disclosed on Schedule
3.5(v)
hereto;
(b) encumbrances
consisting of easements, rights-of-way, zoning restrictions or other
restrictions on the use of real Property or imperfections to title that do
not
(individually or in the aggregate) materially impair the ability of the Company
or any Company Subsidiary to use such Property in its businesses, and none
of
which is violated in any material respect by existing or proposed structures
or
land use;
(c) Liens
for
taxes, assessments or other governmental charges (including without limitation
in connection with workers’ compensation and unemployment insurance) that are
not delinquent or which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture
or
sale of the Property subject to such Liens, and for which adequate reserves
(as
determined in accordance with GAAP) have been established;
(d) Liens
of
mechanics, materialmen, warehousemen, carriers, landlords or other similar
statutory Liens securing obligations that are not yet due and are incurred
in
the ordinary course of business or which are being contested in good faith
by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the Property subject to such Liens, for which adequate
reserves (as determined in accordance with GAAP) have been established;
(e) mortgages
on real Property in existence on the Execution Date and disclosed on
Schedule
3.22
hereto,
and any replacements thereof, securing amounts not greater than the amounts
secured thereby on the Execution Date; and.
(f) Liens
on
the accounts receivable of the Company and Outerlink Corporation securing solely
the Company’s obligations under the Bank Facility.
“Person”
means
any individual, corporation, trust, association, company, partnership, joint
venture, limited liability company, joint stock company, Governmental Authority
or other entity.
7
“Principal
Market”
means
the American Stock Exchange or such other principal exchange, market or
quotation system on which the Common Stock is listed, traded or
quoted.
“Property”
means
property and/or assets of all kinds, whether real, personal or mixed, tangible
or intangible (including, without limitation, all rights relating
thereto).
“Pro
Rata Share”
means,
with respect to an Investor, the ratio determined by dividing (i) the principal
amount of the Debenture purchased hereunder by such Investor at the Closing
by
(ii) the aggregate principal amount of all Debentures purchased hereunder by
all
of the Investors at the Closing.
“Purchase
Price”
means,
with respect to Securities purchased at the Closing, the original principal
amount of the Debenture purchased at the Closing.
“Registration
Rights Agreement”
has
the
meaning specified in the recitals to this Agreement.
“Registration
Statement”
has
the
meaning specified in the Registration Rights Agreement.
“Registrable
Securities”
has
the
meaning specified in the Registration Rights Agreement.
“Regulation
D”
has
the
meaning specified in the recitals to this Agreement.
“Reserved
Amount”
has
the
meaning specified in Section
4.3
of this
Agreement.
“Restricted
Payment”
means
(a) any dividend or other distribution (whether in cash, Property or
obligations), direct or indirect, on account of (or the setting apart of money
for a sinking or other analogous fund for the benefit of) any shares of any
class of capital stock of the Company or the Company Subsidiaries now or
hereafter outstanding, except a dividend payable solely in shares of that class
of stock to all of the holders of that class; (b) any redemption, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition
for
value, direct or indirect, of any shares of any class of capital stock of the
Company or any of its Affiliates now or hereafter outstanding, except the
Securities; (c) any prepayment of principal of, premium, if any, or interest
on,
or any redemption, conversion, exchange, purchase, retirement, sinking fund
or
defeasance of, any Debt (whether upon acceleration of such Debt or otherwise)
other than the Securities (it being understood that regularly scheduled payments
of principal and interest shall not be deemed a Restricted Payment); and
(d) any loan, advance or payment to any officer, director or stockholder of
the Company or any of its Affiliates, exclusive of reasonable compensation
and
reimbursements paid to officers or directors in the ordinary course of business
or pursuant to any contract in existence on the date of this Agreement or
approved by the independent members of the Board of Directors.
8
“Rule
144”
means
Rule 144 under the Securities Act or any successor provision.
“SEC
Documents”
means
all reports, schedules, registration statements and definitive proxy statements
filed (or required to be filed) by the Company with the Commission from and
after December 31, 2005.
“Securities”
means
the Debentures, the Stock Option Shares, the Warrants and the Warrant
Shares.
“Securities
Act”
has
the
meaning specified in the recitals of this Agreement.
“Short
Sales”
means
all “short sales” as defined in Rule 200 promulgated under Regulation SHO under
the Exchange Act and all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, swaps and similar arrangements (including
on a total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers.
“Signature”
means
Signature
Industries Limited, a Company Subsidiary.
“St.
Xxxx Facility”
means
the contemplated refinancing of the Company’s St. Xxxx facility; provided
that (i)
the refinancing, including any additional Debt that the Company incurs under
such refinancing (collectively, the “Refinancing”)
shall
be supported by a proper valuation of the facility; (ii) the assets securing
the
Refinancing shall be limited to the same assets securing the existing Debt
on
the facility on the date hereof; and (iii) the Company and the Company
Subsidiaries shall be in compliance with the terms of this Agreement, including
Section
4.10(b),
after
giving effect to the Refinancing.
“Stock
Option Shares”
has
the
meaning specified in the recitals to this Agreement.
“Stockholder
Amendment Approval” means
the
affirmative vote by the holders of sixty-six and two-thirds percent of the
votes
cast (including sixty-six and two-thirds percent of the votes cast by each
class
entitled to vote as a separate class) at a meeting of the Company’s stockholders
approving the Amendment.
“Stockholder
Cap Approval” means
the
affirmative vote by the holders of a majority of the votes cast (including
a
majority of the votes cast by each class entitled to vote as a separate class)
at a meeting of the Company’s stockholders approving the issuance of Common
Stock in excess of the Cap Amount.
“Stockholder
Amendment Approval Date”
means
the first date on which (i) the Stockholder Amendment Approval has been duly
obtained and (ii) the Amendment with respect to the Company’s certificate of
incorporation has been accepted for filing by the Secretary of State of the
State of Delaware and is in full force and effect.
9
“Subordinated
Debt”
means
Debt of the Company which meets each of the following requirements:
(a) such Debt is wholly unsecured; (b) such Debt is contractually
subordinated, as to payment and liquidation, to the payment in full of the
Debentures on such terms and pursuant to written agreements in such form and
substance as are reasonably acceptable to the holders of a majority in principal
amount of the Debentures, that restrict the Company from pre-paying any amounts
in respect of the principal of such Debt (upon acceleration or otherwise) prior
to the scheduled maturity thereof, and that restrict the subordinated creditor
from commencing any judicial or other collection efforts or exercising any
other
remedies prior to the date that is ninety-one (91) days following the payment
in
full of the Debentures; and (c) such Debt does not mature prior to the date
that
is ninety-one (91) days following the latest Maturity Date (as defined in the
Debentures) of the Debentures then outstanding.
“Subsequent
Placement”
means
any issuance, sale or exchange by the Company or any Company Subsidiary at
any
time after the Closing Date, or any agreement or obligation of the Company
or
any Company Subsidiary to issue, sell or exchange, at any time after the Closing
Date, (i) any shares of common stock of the Company or any Company Subsidiary,
(ii) any other equity security of the Company or any Company Subsidiary,
including without limitation preferred stock, (iii) any other security of the
Company or any Company Subsidiary which by its terms is convertible into or
exchangeable or exercisable for any equity security of the Company or any
Company Subsidiary, (iv) any option, warrant or other right to subscribe for,
purchase or otherwise acquire any such security described in the foregoing
clauses
(i)
through
(iii),
or (v)
any debt instruments or securities, including promissory notes and convertible
debt instruments; provided,
however,
that
the term “Subsequent
Placement”
shall
not be deemed to include any issuance, sale or exchange of Excluded
Securities.
“Subsidiary”
means,
with respect to any Person, any corporation or other entity of which at least
a
majority of the outstanding shares of stock or other ownership interests having
by the terms thereof ordinary voting power to elect a majority of the board
of
directors (or Persons performing similar functions) of such corporation or
entity (regardless of whether or not at the time, in the case of a corporation,
stock of any other class or classes of such corporation shall have or might
have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more of
its
Subsidiaries or by such Person and one or more of its Subsidiaries.
“Trading
Day”
means
any day on which shares of Common Stock are purchased and sold on the Principal
Market.
“Transaction
Documents”
means
(i) this Agreement, (ii) the Debentures, (iii) the Warrants, (iv) the
Registration Rights Agreement, (v) the Security Agreement, (vi) the Subsidiary
Guarantee and (vi) all other agreements, documents and other instruments
executed and delivered by or on behalf of the Company or any of its officers
at
the Closing.
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“Transfer
Agent”
has
the
meaning specified in Section
2.5
of this
Agreement.
“U.S.
Company Subsidiaries”
means
the Company Subsidiaries that are domiciled in the United States.
“VWAP”
on
a
Trading Day means the volume weighted average price of the Common Stock for
such
Trading Day on the Principal Market as reported by Bloomberg Financial Markets
or, if Bloomberg Financial Markets is not then reporting such prices, by a
comparable reporting service of national reputation selected by the Investors
and reasonably satisfactory to the Company. If the VWAP cannot be calculated
for
the Common Stock on such Trading Day on any of the foregoing bases, then the
Company shall submit such calculation to an independent investment banking
firm
of national reputation reasonably acceptable to the Investors holding a majority
of the Registrable Securities then outstanding, and shall cause such investment
banking firm to perform such determination and notify the Company and the
Investors of the results of determination no later than two (2) Business Days
from the time such calculation was submitted to it by the Company. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, reverse stock split or other similar transaction during such
period.
1.3 Other
Definitional Provisions.
All
definitions contained in this Agreement are equally applicable to the singular
and plural forms of the terms defined. The words “hereof”, “herein” and
“hereunder” and words of similar import contained in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement.
2.
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REPRESENTATIONS
AND WARRANTIES OF EACH INVESTOR.
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Each
Investor (with respect to itself only) hereby represents and warrants to the
Company and agrees with the Company that, as of the Execution Date:
2.1 Authorization;
Enforceability.
Such
Investor is duly and validly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization as
set
forth below such Investor’s name on the signature page hereof with the requisite
corporate power and authority to purchase the Debentures and Warrants to be
purchased by it hereunder and to execute and deliver this Agreement and the
other Transaction Documents to which it is a party. This Agreement constitutes,
and upon execution and delivery thereof, each other Transaction Document to
which such Investor is a party will constitute, such Investor’s valid and
legally binding obligation, enforceable in accordance with its terms, subject
to
(i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws of general application relating to or affecting
the enforcement of creditors’ rights generally and (ii) general principles of
equity.
11
2.2 Accredited
Investor.
Such
Investor (i) is an “accredited investor” as that term is defined in Rule 501 of
Regulation D, (ii)
was
not
formed or organized for the specific purpose of making an investment in the
Company, and (iii)
is
acquiring the Securities solely for its own account and not with a present
view
to the public resale or distribution of all or any part thereof, except pursuant
to sales that are registered under, or exempt from the registration requirements
of, the Securities Act; provided,
however,
that in
making such representation, such Investor does not agree to hold the Securities
for any minimum or specific term and reserves the right to sell, transfer or
otherwise dispose of the Securities at any time in accordance with the
provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
Such
Investor can bear the economic risk of a total loss of its investment in the
Securities and has such knowledge and experience in business and financial
matters so as to enable it to understand the risks of and form an investment
decision with respect to its investment in the Securities.
2.3 Information.
The
Company has, prior to the Execution Date, provided such Investor
with information
regarding the business, operations and financial condition of the
Company and
has,
prior to the Execution Date, granted to such Investor the opportunity to ask
questions of and receive answers from representatives of the Company, its
officers, directors, employees and agents concerning the Company in order for
such Investor to make an informed decision with respect to its investment in
the
Securities. Neither such information nor any other investigation conducted
by
such Investor or any of its representatives shall modify, amend or otherwise
affect such Investor’s right to rely on the Company’s representations and
warranties contained in this Agreement.
2.4 Limitations
on Disposition.
Such
Investor acknowledges that, except as provided in the Registration Rights
Agreement, the Securities have not been and are not being registered under
the
Securities Act and may not be transferred or resold without registration under
the Securities Act or unless pursuant to an exemption therefrom.
2.5 Legend.
Such
Investor understands that the certificates representing the Securities may
bear
at issuance a restrictive legend in substantially the following
form:
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”), or any state
securities laws, and may not be offered for sale or sold unless a registration
statement under the Securities Act and applicable state securities laws shall
have become effective with respect thereto, or an exemption from registration
under the Securities Act and applicable state securities laws is available
in
connection with such offer or sale. These securities [and the securities
issuable upon exercise hereof] (i) may be pledged or hypothecated in connection
with a bona fide margin account or other financing secured by such securities
or
(ii) may be transferred or assigned to an affiliate of the holder hereof without
the necessity of an opinion of counsel or the consent of the issuer
hereof.”
Notwithstanding
the foregoing, it is agreed that, as long as (A) the resale or transfer
(including without limitation a pledge) of any of the Securities is registered
pursuant to an effective registration statement, (B) such Securities have been
sold pursuant to Rule 144, subject to receipt by the Company of customary
documentation reasonably acceptable to the Company in connection therewith,
or
(C) such Securities are eligible for resale under Rule 144(k) or any successor
provision, such Securities shall be issued without any legend or other
restrictive language and, with respect to Securities upon which such legend
is
stamped, the Company shall issue new certificates without such legend to the
holder upon request. The Company shall execute and deliver written instructions
to the transfer agent for its Common Stock (the “Transfer
Agent”)
as may
be necessary to satisfy any request by an Investor for removal of such legends
no later than the close of business on the third (3rd)
Business Day following the receipt of the request from an Investor to the extent
such legends may be removed in accordance with this Section
2.5.
12
2.6 Reliance
on Exemptions.
Such
Investor understands that the Securities are being offered and sold to it in
reliance upon specific exemptions from the registration requirements of U.S.
federal and state securities laws and that the Company is relying upon the
truth
and accuracy of the representations and warranties of such
Investor
set forth in this Section
2
in order
to determine the availability of such exemptions and the eligibility of
such
Investor
to acquire the Securities. Such Investor acknowledges that it did not purchase
the Securities based upon any advertisement in any publication of general
circulation. Such Investor is relying on the representations, acknowledgements
and agreements made by the Company in Section
3
and
elsewhere in this Agreement in making investing, trading and/or other decisions
concerning the Company’s securities.
2.7 Non-Affiliate
Status; Common Stock Ownership.
Such
Investor is not an Affiliate of the Company or of any other Investor and is
not
acting in association or concert with any other Person in regard to its purchase
of the Securities or otherwise in respect of the Company. Such Investor’s
investment in the Securities is not for the purpose of acquiring, directly
or
indirectly, control of, and it has no intent to acquire or exercise control
of,
the Company or to influence the decisions or policies of the Board of Directors.
2.8 Fees.
Such
Investor has not agreed to pay any compensation or other fee, cost or related
expenditure to any underwriter, broker, agent or other representative in
connection with the transactions contemplated hereby.
2.9 No
Conflicts.
The
execution and performance of this Agreement and the other Transaction Documents
to which it is a party do not conflict in any material respect with any
agreement to which such Investor is a party or is bound, any court order or
judgment applicable to such Investor, or the constituent documents of such
Investor.
2.10
No
Governmental Review.
Such
Investor understands that no U.S. federal or state agency or any other
Governmental Authority has passed on or made any recommendation or endorsement
of the Securities or the fairness or suitability of an investment in the
Securities nor have such authorities passed upon the
accuracy of any information provided to such Investor or made any findings
or
determinations as to the merits of the offering of the Securities.
2.11
Certain
Trading Activities.
Such
Investor has not, in violation of the securities laws, directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Investor, engaged in any transactions in the securities of the Company
(including, without limitations, any Short Sales involving the Company’s
securities) since the time that such Investor was first contacted by the Company
or Xxxxxxx Bros. L.P. regarding the investment in the Company contemplated
by
the Transaction Documents. Such Investor covenants that neither it nor any
Person acting on its behalf or pursuant to any understanding with it will engage
in any transactions in the securities of the Company (including Short Sales)
prior to the time that the transactions contemplated by this Agreement are
publicly disclosed pursuant to Section
4.1(c).
13
3.
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company hereby represents and warrants to each Investor and agrees with each
Investor that, as of the Execution Date:
3.1 Organization,
Good Standing and Qualification.
Each of
the Company and the Company Subsidiaries is
duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power
and authority to carry on its business as now conducted. Each of the Company
and
the Company Subsidiaries is duly qualified to transact business and is in good
standing in each jurisdiction in which it conducts business except where the
failure so to qualify has not had or would not reasonably be expected to have
a
Material Adverse Effect.
3.2 Authorization;
Consents.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents, to issue and sell
the
Debentures and the Warrants to the Investors in accordance with the terms hereof
and thereof, and to issue the Stock Option Shares under the Debentures and
the
Warrant Shares upon exercise of the Warrants. Each Company Subsidiary has the
requisite power and authority to enter into and perform its obligations under
the Subsidiary Guarantee and the Security Agreement. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for the authorization, execution and delivery of, and
the
performance by the Company of its obligations under, the Transaction Documents
has been taken, and no further consent or authorization of the Company, its
Board of Directors, stockholders, any Governmental Authority or any other Person
(other than (i) such approval as may be required under the Securities Act and
applicable state laws in respect of the Registration Rights Agreement, (ii)
the
listing approval from the American Stock Exchange for the issuance of the
Warrant Shares and the Stock Option Shares, (iii) the Stockholder Amendment
Approval, and (iv) if 70% of the Cap Amount is reached, the Stockholder Cap
Approval) is required (pursuant to any rule of the Principal Market or
otherwise). All
corporate action on the part of each Company Subsidiary by its officers,
directors, stockholders, members or governors necessary for the authorization,
execution and delivery of, and the performance by such Company Subsidiary of
its
obligations under the Subsidiary Guarantee and the Security Agreement has been
taken. The
Board
of Directors has determined that the sale and issuance of the Securities, and
the consummation of the other transactions contemplated hereby and by the other
Transaction Documents, are in the best interests of the Company.
3.3 Enforcement.
This
Agreement has been duly executed and delivered by the Company, and at the
Closing, each of the Company and the Company Subsidiaries will have duly
executed and delivered each of the other Transaction Documents to which such
entity is a party. This Agreement constitutes, and at the Closing, each of
the
other Transaction Documents to which the Company or any of the Company
Subsidiaries is a party will constitute, the valid and legally binding
obligations of the Company and the Company Subsidiaries, enforceable against
the
Company and the Company Subsidiaries in accordance with their respective terms,
subject to (i) applicable bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization or other similar laws of general application relating
to or affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity.
14
3.4 Disclosure
Documents; Agreements; Financial Statements; Other Information.
The
Company is subject to the reporting requirements of the Exchange Act and, except
as described on Schedule
3.4(i),
the
Company has filed with the Commission all SEC Documents that the Company was
required to file with the Commission on or after December 31, 2005. The Company
is not aware of any event occurring or expected to occur on or prior to the
Closing Date (other than the transactions effected hereby or ongoing sales
efforts that could result in a material contract) that would require the filing
of, or with respect to which the Company intends to file, a Form 8-K after
the
Closing. Each SEC Document filed on or after December 31, 2005, as of the date
of the filing thereof with the Commission (or if amended or superseded by a
filing prior to the Execution Date, then on the date of such amending or
superseding filing), complied in all material respects with the requirements
of
the Securities Act or Exchange Act, as applicable, and the rules and regulations
promulgated thereunder and, as of the date of such filing (or if amended or
superseded by a filing prior to the Execution Date, then on the date of such
filing), such SEC Document (including all exhibits and schedules thereto and
documents incorporated by reference therein) did not, contain an untrue
statement of material fact or omit 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. All documents required
to be filed as exhibits to the SEC Documents filed on or after December 31,
2005
have been filed as required. Except as set forth in the Disclosure Documents,
the Company has no liabilities, contingent or otherwise, other than liabilities
incurred in the ordinary course of business which, under GAAP, are not required
to be reflected in the financial statements included in the Disclosure Documents
and which, individually or in the aggregate, are not material to the
consolidated business or financial condition of the Company and the Company
Subsidiaries taken as a whole. As of their respective dates, the financial
statements of the Company included in the SEC Documents filed on or after
December 31, 2005 complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto. Such financial statements have been prepared
in
accordance with GAAP consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements,
to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash
flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments). The Company will prepare the financial statements
to be included in any reports, schedules, registration statements and definitive
proxy statements that the Company is required to file or files with the
Commission after the date hereof in accordance with GAAP (except in the case
of
unaudited interim statements, to the extent they may exclude footnotes or may
be
condensed or summary statements).
15
3.5 Capitalization;
Debt
Schedule.
The
capitalization of the Company, including its authorized capital stock, the
number of shares issued and outstanding, the number of shares issuable and
reserved for issuance pursuant to the Company’s stock option plans and
agreements, the number of shares issuable and reserved for issuance pursuant
to
securities (other than the Warrants) exercisable for, or convertible into or
exchangeable for any shares of Common Stock and the number of shares initially
to be reserved for issuance upon exercise of the Warrants, is set forth on
Schedule
3.5(i)
hereto.
All outstanding shares of capital stock of the Company have been, or upon
issuance will be, validly issued, fully paid and non-assessable. Except as
disclosed on Schedule
3.5(ii)
hereto,
no Subsidiary of the Company other than the Company Subsidiaries possesses
or
owns assets having a fair market value in excess of $50,000. Except as disclosed
on
Schedule 3.5(iii)
hereto,
the Company or a Company Subsidiary owns all of the capital stock of each
Company Subsidiary, which capital stock is validly issued, fully paid and
non-assessable, and no shares of the capital stock of the Company or any Company
Subsidiary are subject to preemptive rights or any other similar rights of
the
stockholders of the Company or any such Company Subsidiary or any Liens created
by or through the Company or any such Company Subsidiary. Except as disclosed
on
Schedule
3.5(i)
or as
contemplated herein, there are no outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating
to,
or securities or rights convertible into or exercisable or exchangeable for,
any
shares of capital stock of the Company or any Company Subsidiary, or
arrangements by which the Company or any Company Subsidiary is or may become
bound to issue additional shares of capital stock of the Company or any Company
Subsidiary (whether
pursuant to anti-dilution, “reset” or other similar provisions).
Schedule
3.5(iv)
identifies all Liabilities (as defined in Section
4.10(b) hereof)
of the Company and/or the Company Subsidiaries currently outstanding in excess
of $50,000 as of the date hereof, and Schedule
3.5(v) identifies
all Liens encumbering any of the assets of the Company and/or the Company
Subsidiaries as of the date hereof.
3.6 Due
Authorization; Valid Issuance.
The
Debentures are duly authorized and, when issued, sold and delivered in
accordance with the terms of this Agreement, will be duly and validly issued,
free and clear of any Liens imposed by or through the Company. The Warrants
are
duly authorized and, when issued, sold and delivered in accordance with the
terms of this Agreement, will be duly and validly issued, free and clear of
any
Liens imposed by or through the Company. The Stock Option Shares issuable under
the Debentures and the Warrant Shares issuable under the Warrants are duly
authorized and reserved for issuance. Assuming the accuracy of each Investor’s
representations contained herein, the issuance and sale of the Debentures and
Warrants under this Agreement will be effected in compliance with all applicable
Federal and state securities laws.
3.7 Form
S-3.
The
Company is eligible to register the Stock Option Shares and Warrant Shares
for
resale in a secondary offering by each Investor on a registration statement
on
Form S-3 under the Securities Act.
To the
Company’s knowledge, as
of the
date hereof and as of the Closing Date, there
exist no facts or circumstances (including without limitation any required
approvals or waivers of any circumstances that may delay or prevent the
obtaining of accountant’s consents) that could reasonably be expected to
prohibit or delay the preparation, filing or effectiveness of such registration
statement on Form S-3.
16
3.8 No
Conflict.
Neither
the Company nor any Company Subsidiary is in violation of any provisions of
its
charter, bylaws or any other governing document. Except as set forth on
Schedule
3.8,
neither
the Company nor any Company Subsidiary is in violation of or in default (and
no
event has occurred which, with notice or lapse of time or both, would constitute
a default) under any provision of any instrument or contract to which it is
a
party or by which it or any of its Property is bound, or in violation of any
provision of any Governmental Requirement applicable to the Company or any
Company Subsidiary, except for any violation or default that has not had or
would not reasonably be expected to have a Material Adverse Effect. (i) The
execution, delivery and performance of this Agreement and the other Transaction
Documents and (ii) (A) the consummation of the transactions contemplated hereby
and thereby (including without limitation, the issuance of the Debentures and
the Warrants, the reservation for issuance of the Stock Option Shares and the
Warrant Shares and, prior to the Stockholder Amendment Approval Date, the
issuance of the Warrant Shares in a manner consistent with Article 9 of the
Company’s certificate of incorporation as in effect as of the date hereof) and
(B) following the Stockholder Amendment Approval Date, the issuance of the
Stock
Option Shares and the Warrant Shares, will not result in any violation of any
provisions of the Company’s or any Company Subsidiary’s charter, bylaws or any
other governing document or in a default under any provision of any instrument
or contract to which the Company or Company Subsidiary is a party or by which
it
or any of its Property is bound, or in violation of any provision of any
Governmental Requirement applicable to the Company or Company Subsidiary or
be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract
or
an event which results in the creation of any Lien upon any assets of the
Company or of any Company Subsidiary or the triggering of any preemptive or
anti-dilution rights (including
without limitation pursuant to any “reset” or similar provisions) or
rights
of first refusal or first offer,
or
any
other rights that would allow or permit the holders of the Company’s securities
or any other Person to purchase shares of Common Stock or other securities
of
the Company or Company Subsidiary (whether
pursuant to a stockholder rights plan provision or otherwise).
3.9 Financial
Condition; Taxes; Litigation.
3.9.1 The
financial condition of each of the Company and each Company Subsidiary is,
in
all material respects, as described in the Disclosure Documents, except for
changes in the ordinary course of business and normal year-end adjustments
that
are not, in the aggregate, materially adverse to the consolidated business
or
financial condition of the Company and the Company Subsidiaries taken as a
whole. There has been no (i) material adverse change to the business,
operations, properties, financial condition, prospects or results of operations
of the Company and the Company Subsidiaries taken as a whole since the date
of
the Company’s most recent financial statements contained in the Disclosure
Documents or
(ii)
change by the Company in its accounting principles, policies and methods except
as required by changes in GAAP.
3.9.2 Each
of
the Company and the Company Subsidiaries has prepared in good faith and duly
and
timely filed all tax returns required to be filed by it and such returns are
complete and accurate in all material respects and the Company and the Company
Subsidiaries each has paid all taxes required to have been paid by it, except
for taxes which it reasonably disputes in good faith or the failure of which
to
pay has not had or would not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any Company Subsidiary has any liability with
respect to taxes that accrued on or before the date of the most recent balance
sheet of the Company included in the Disclosure Documents in excess of the
amounts accrued with respect thereto that are reflected on such balance sheet.
3.9.3 Neither
the Company nor any Company Subsidiary is the subject of any pending or, to
the
Company’s knowledge, threatened inquiry, investigation or administrative or
legal proceeding of a material nature by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction, the Commission, any
state
securities commission or other Governmental Authority.
17
3.9.4 Except
as
set forth in the Disclosure Documents (and if not set forth therein, except
as
set forth on Schedule
3.9.4),
there
is no material claim, litigation or administrative proceeding pending, or,
to
the Company’s knowledge, threatened or contemplated, against the Company or any
Company Subsidiary, or against any officer, director or employee of the Company
or any such Company Subsidiary in connection with such person’s employment
therewith. Neither the Company nor any Company Subsidiary is a party to or
subject to the provisions of, any order, writ, injunction, judgment or decree
of
any court or Government Authority which has had or would reasonably be expected
to have a Material Adverse Effect.
3.10
Acknowledgement
of Dilution.
The
Company acknowledges that the issuance of Stock Option Shares under the
Debentures and the Warrant Shares upon exercise of the Warrants may result
in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue (i) Stock Option Shares in accordance with the
terms of the Debentures in stock and (ii) Warrant Shares in accordance with
the
terms of the Warrants shall not be affected, regardless of the effect of any
such dilution. The
Company further acknowledges that, to the extent not otherwise prohibited by
the
terms of this Agreement, each Investor may enter into hedging transactions
with
respect to the Common Stock and that
such
sales or transactions may have a downward effect on the market price of the
Common Stock.
3.11
Intellectual
Property.
Except
as set forth in the Disclosure Documents (and if not set forth therein, except
as set forth on Schedule
3.11):
(a) The
Company and the Company Subsidiaries own, free and clear of claims or rights
or
any other Person, with full right to use, sell, license, sublicense, dispose
of,
and bring actions for infringement of, or, to the knowledge of the Company,
has
acquired licenses or other rights to use, all Intellectual Property necessary
for the conduct of its business as presently conducted (other than with respect
to software which is generally commercially available and not used or
incorporated into the Company’s products and open source software which may be
subject to one or more “general public” licenses). All works that are used or
incorporated into the Company’s or any of the Company Subsidiaries’ services,
products or services or products actively under development and which is
proprietary to the Company or such Company Subsidiary was developed by or for
the Company or the Company Subsidiaries by the current or former employees,
consultants or independent contractors of the Company or the Company
Subsidiaries or purchased or licensed by the Company or one or more Company
Subsidiaries.
(b) The
business of the Company and the Company Subsidiaries as presently conducted
and
the production, marketing, licensing, use and servicing of any products or
services of the Company and the Company Subsidiaries do not, to the knowledge
of
the Company, infringe or conflict with any patent, trademark, copyright, or
trade secret rights of any third parties or any other Intellectual Property
of
any third parties in any material respect. Neither the Company nor any Company
Subsidiary has received written notice from any third party asserting that
any
Intellectual Property owned or licensed by the Company or the Company
Subsidiaries, or which the Company or any Company Subsidiary otherwise has
the
right to use, is invalid or unenforceable by the Company or such Company
Subsidiary and, to the Company’s knowledge, there is no valid basis for any such
claim (whether or not pending or threatened).
18
(c) No
claim
is pending or, to the Company’s knowledge, threatened against the Company or any
Company Subsidiary nor has the Company or any Company Subsidiary received any
written notice or other written claim from any Person asserting that any of
the
Company’s or a Company Subsidiary’s present or contemplated activities infringe
or may infringe in any material respect any Intellectual Property of such
Person, and the Company is not aware of any infringement by any other Person
of
any material rights of the Company or any Company Subsidiary under any
Intellectual Property Rights.
(d) All
licenses or other agreements under which the Company or any Company Subsidiary
is granted Intellectual Property (excluding licenses to use software utilized
in
the Company’s or such Company Subsidiary’s internal operations and which is
generally commercially available) are in full force and effect and, to the
Company’s knowledge, there is no material default by any party thereto. The
Company has no reason to believe that the licensors under such licenses and
other agreements do not have and did not have all requisite power and authority
to grant the rights to the Intellectual Property purported to be granted
thereby.
(e) All
licenses or other agreements under which the Company or any Company Subsidiary
has granted rights to Intellectual Property to others (including all end-user
agreements) are in full force and effect, there has been no material default
by
the Company or any Company Subsidiary thereunder and, to the Company’s
knowledge, there is no material default of any provision thereof relating to
Intellectual Property by any other party thereto.
(f) The
Company and the Company Subsidiaries have taken all steps required in accordance
with commercially reasonable business practice to establish and preserve their
ownership in their owned Intellectual Property and to keep confidential all
material technical information developed by or belonging to the Company or
the
Company Subsidiaries which has not been patented or copyrighted. To the
Company’s knowledge, neither the Company nor any Company Subsidiary is making
any unlawful use of any Intellectual Property of any other Person, including,
without limitation, any former employer of any past or present employees of
the
Company or any Company Subsidiary. To the Company’s knowledge, neither the
Company, any Company Subsidiary nor any of their respective employees has any
agreements or arrangements with former employers of such employees relating
to
any Intellectual Property of such employers, which materially interfere or
conflict with the performance of such employee’s duties for the Company or any
Company Subsidiary or result in any former employers of such employees having
any rights in, or claims on, the Company’s or any Company Subsidiary’s
Intellectual Property. Each employee of the Company and of each Company
Subsidiary is subject to the policies regarding confidentiality and proprietary
information described in the Company’s current employee handbook, which policies
are reasonably sufficient to protect the Intellectual Property interests of
the
Company or a Company Subsidiary in inventions created by its employees. The
Company and each Company Subsidiary has obtained executed assignment agreements
from any current or former employees with respect to the development by such
employees of intellectual property that have become the subject of registered
patents or of outstanding applications for registration. The Company and each
Company Subsidiary has taken reasonable security measures to guard against
unauthorized disclosure or use of any of its Intellectual Property that is
confidential or proprietary; and the Company has no reason to believe that
any
Person (including, without limitation, any former employee or consultant of
the
Company or of any Company Subsidiary) has unauthorized possession of any of
its
Intellectual Property, or any part thereof, or that any Person has obtained
unauthorized access to any of its Intellectual Property. The Company and each
Company Subsidiary has complied in all material respects with its respective
obligations pursuant to all agreements relating to Intellectual Property rights
that are the subject of licenses granted by third parties, except for any
non-compliance that has not had or would not reasonably be expected to have
a
Material Adverse Effect.
19
3.12
Registration
Rights; Rights of Participation.
Except
as set forth on Schedule
3.12,
(A) the
Company has not granted or agreed to grant to any person or entity any rights
(including “piggy-back” registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority
which
has not been satisfied in full, or are being satisfied in full pursuant to
existing registration statements or waived on or prior to the date hereof,
and
(B) no person or entity, including, but not limited to, current or former
stockholders of the Company, underwriters, brokers, agents or other third
parties, has any right of first refusal, preemptive right, right of
participation, anti-dilutive right or any similar right to participate in,
or to
receive securities or other assets of the Company solely as a result of the
transactions contemplated by this Agreement or the other Transaction
Documents.
3.13
Solicitation;
Other Issuances of Securities.
Neither
the Company nor any Company Subsidiary or Affiliate, nor any Person acting
on
its or their behalf, (i) has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with
the
offer or sale of the Securities, (ii) has, directly or indirectly, made any
offers or sales of any security or the right to purchase any security, or
solicited any offers to buy any security or any such right, under circumstances
that would require registration of the Securities under the Securities Act
or
(iii) has issued any shares of Common Stock or shares of any series of preferred
stock or other securities or instruments convertible into, exchangeable for
or
otherwise entitling the holder thereof to acquire shares of Common Stock which
would be integrated with the sale of the Securities to such Investor or the
issuance of the Warrant Shares for purposes of the Securities Act or of
any
applicable stockholder approval provisions, including, without limitation,
under
the rules and regulations of the American Stock Exchange nor, other than as
required by the Registration Rights Agreement, will the Company or any Company
Subsidiary or Affiliate take any action or steps that would require registration
of any of the Securities under the Securities Act or cause the offering of
the
Securities to be so integrated with other offerings.
3.14
Fees.
Except
as set forth on Schedule
3.14,
the
Company is not obligated to pay any brokers, finders or financial advisory
fees
or commissions to any underwriter, broker, agent or other representative in
connection with the transactions contemplated hereby. The Company will indemnify
and hold harmless such Investor from and against any claim by any person or
entity alleging that such Investor is obligated to pay any such compensation,
fee, cost or related expenditure in connection with the transactions
contemplated hereby.
3.15
Foreign
Corrupt Practices.
Neither
the Company, any Company Subsidiary nor, to the knowledge of the Company, any
director, officer, agent, employee or other person acting on behalf of the
Company or any Company Subsidiary, has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity, (ii) made any direct or indirect unlawful payment to
any
foreign or domestic government official or employee, or (iii) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or made
any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to
any foreign or domestic government official or employee.
20
3.16
Key
Employees.
Except
as set forth on Schedule
3.16,
each of
the Company’s and each Company Subsidiary’s executive officers (as defined in
Rule 501(f) of the Securities Act) (each, a “Key
Employee”)
is
currently serving in the capacity described in the Disclosure Documents. Except
as set forth on Schedule
3.16,
the
Company has no knowledge of any fact or circumstance (including without
limitation (i) the terms of any agreement to which such person is a party or
any
litigation in which such person is or may become involved and (ii) any illness
or medical condition that could reasonably be expected to result in the
disability or incapacity of such person) that would limit or prevent any such
person from serving in such capacity on a full-time basis in the foreseeable
future, or of any intention on the part of any such person to limit or terminate
his or her employment with the Company or any Company Subsidiary. To the
knowledge of the Company, no Key Employee has borrowed money pursuant to a
currently outstanding loan that is secured by Common Stock or any right or
option to receive Common Stock.
3.17
Employee
Matters.
There
is no strike, labor dispute or union organization activities pending or, to
the
knowledge of the Company, threatened between the Company or any Company
Subsidiary and any of their employees. Other than as set forth on Schedule
3.17
or in
the Disclosure Documents, no employees of the Company or any Company Subsidiary
belong to any union or collective bargaining unit. The Company and each Company
Subsidiary has complied in all material respects with all applicable federal
and
state equal opportunity and other laws related to employment.
3.18
Environment.
Except
as
disclosed in the Disclosure Documents, the Company and the Company Subsidiaries
have no liabilities under any Environmental Law, nor, to the Company's
knowledge, do any factors exist that are reasonably likely to give rise to
any
such liability, affecting any of the properties owned or leased by the Company
or any Company Subsidiary that, individually or in the aggregate, has
had
or would reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any Company Subsidiary has
violated any Environmental Law applicable to it now or previously in effect,
other than such violations or infringements that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect.
3.19
ERISA.
Except
as described on Schedule
3.19,
the
Company does not maintain or contribute to, or have any obligation under, any
Pension Plan. The Company is in compliance in all material respects with the
presently applicable provisions of ERISA and the United States Internal Revenue
Code of 1986, as amended, with respect to each Pension Plan except in any such
case for any such matters that, individually or in the aggregate, have not
had,
and would not reasonably be expected to have, a Material Adverse
Effect.
21
3.20 Disclosure.
Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents and the information to be disclosed
by
the Company pursuant to Section
4.1(d),
the
Company confirms that neither it nor any other Person acting on its behalf
has
provided any of the Investors or their agents or counsel with any information
that it believes constitutes or might constitute material, nonpublic
information. The Company understands and confirms that the Investors will rely
on the foregoing representation and the obligations of the Company under
Section
4.1
in
effecting transactions in securities of the Company. All disclosure furnished
by
or on behalf of the Company to the Investors regarding the Company and the
Company Subsidiaries, and their respective businesses and the transactions
contemplated hereby, including the Schedules to this Agreement, is true and
correct and does not contain any untrue statement of a material fact or omit
to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
press releases disseminated by the Company during the twelve months preceding
the date of this Agreement
did not,
at the time they were issued, 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,
in
light of the circumstances under which they were made and when made, not
misleading. The Company acknowledges and agrees that no Investor makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
2.
3.21
Insurance.
The
Company maintains insurance for itself and the Company Subsidiaries in such
amounts and covering such losses and risks as are reasonably sufficient and
customary in the businesses in which the Company and the Company Subsidiaries
are engaged. As
of the
date hereof and as of the Closing Date, no
notice
of cancellation has been received for any of such policies and the Company
is in
compliance in all material respects with all of the terms and conditions
thereof. The Company has no 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 to
conduct its business as currently conducted without a significant increase
in
cost. Without limiting the generality of the foregoing, the Company maintains
Director’s and Officer’s insurance in an amount not less than $5 million for
each covered occurrence.
3.22
Property.
Except
as set forth on Schedule
3.22,
the
Company and the
Company Subsidiaries
have good and marketable title to all real and personal Property owned by them,
in each case free and clear of all Liens, except for Permitted Liens. Any
Property held under lease by the Company or the Company Subsidiaries is held
by
them under valid, subsisting and enforceable leases with such exceptions as
are
not material and do not interfere with the use made or proposed to be made
of
such Property by the Company or any Company Subsidiary. Schedule
3.22
sets
forth all real property owned by the Company and all mortgages or other liens
(other than Permitted Liens specified in paragraphs (b), (c) and (d) in the
definition thereof) encumbering such Property.
3.23
Regulatory
Permits.
The
Company and the Company Subsidiaries possess all certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses,
except
where the failure to have any such certificate,
authorization
or permit would not have a Material Adverse Effect,
and
neither the Company nor any such Company Subsidiary has received any notice
of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
22
3.24
Exchange
Act Registration; Listing.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is listed on the American Stock Exchange. The Company currently meets
the continuing eligibility requirements for listing on the American Stock
Exchange and has not received any notice from such exchange that it may not
currently satisfy such requirements or that such continued listing is in any
way
threatened. The Company has taken no action designed to, or which, to the
knowledge of the Company, may have the effect of, terminating the registration
of the Common Stock under the Exchange Act or delisting the Common Stock from
the American Stock Exchange.
3.25
Investment
Company Status.
The
Company is not, and immediately after any Closing will not be, an “investment
company”
or
an
entity “controlled”
by
an
“investment
company”
within
the meaning of the Investment Company Act of 1940, as amended (the “Investment
Company Act”),
and
shall conduct its business in a manner so that it will not become subject to
the
Investment Company Act.
3.26
Transfer
Taxes.
No
stock transfer or other taxes (other than income taxes) are required to be
paid
in connection with the issuance and sale of any of the Securities, other than
such taxes for which the Company has established appropriate reserves and
intends to pay in full on or before the Closing.
3.27
Xxxxxxxx-Xxxxx
Act; Internal Controls and Procedures.
The
Company is in material compliance with any and all applicable requirements
of
the Xxxxxxxx-Xxxxx Act of 2002, as amended, and any and all applicable rules
and
regulations promulgated by the SEC thereunder that are effective as of the
date
hereof. The Company maintains internal accounting controls, policies and
procedures, and such books and records as are reasonably designed to provide
reasonable assurance that (i)
all
transactions to which the Company or any Company Subsidiary is a party or by
which its properties are bound are effected by a duly authorized employee or
agent of the Company, supervised by and acting within the scope of the authority
granted by the Company’s senior management; (ii)
the
recorded accounting of the Company’s consolidated assets is compared with
existing assets at regular intervals; and
(iii) all
transactions to which the Company or any Company Subsidiary is a party, or
by
which its properties are bound, are recorded (and such records maintained)
in
accordance with all Government Requirements and as may be necessary or
appropriate to ensure that the financial statements of the Company are prepared
in accordance with GAAP.
3.28
Embargoed
Person.
None of
the funds or other assets of the Company or the Company Subsidiaries shall
constitute property of, or shall be beneficially owned, directly or indirectly,
by any person subject to trade restrictions under United States law, including,
but not limited to, the International Emergency Economic Powers Act,
50 U.S.C. § 1701 et seq.,
the
Trading with the Enemy Act, 50 U.S.C. App. 1 et seq.,
and any
Executive Orders or regulations promulgated under any such United States laws
(each, an “Embargoed
Person”),
with
the result that the investments evidenced by the Securities are or would be
in
violation of law. No Embargoed Person shall have any interest of any nature
whatsoever in the Company or any Company Subsidiary with the result that the
investments evidenced by the Securities are or would be in violation of law.
None of the funds or other assets of the Company or the Company Subsidiaries
shall be derived from any unlawful activity with the result that the investments
evidenced by the Securities are or would be in violation of
law.
23
3.29
Transactions
with Interested Persons.
Except
as set forth in the Disclosure Documents, no officer, director or employee
of
the Company or any Company Subsidiary is or has made any arrangements with
the
Company or any Company Subsidiary to become a party to any transaction with
the
Company or any Company Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real
or personal property to or from, or otherwise requiring payments to or from
any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
3.30
Customers
and Suppliers.
The
relationships of the Company and the Company Subsidiaries with their respective
customers and suppliers are maintained on commercially reasonable terms. Except
as set forth on Schedule
3.30
hereto,
to the Company’s knowledge, no customer or supplier of the Company or any
Company Subsidiary has any plan or intention to terminate its agreement with
the
Company or such Company Subsidiary, which termination would reasonably be
expected to have a Material Adverse Effect.
3.31
Accountants.
The
Company’s accountants, who
the
Company expects will render their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2006, are, to the Company’s knowledge, independent
accountants as required by the Securities Act.
3.32
No
Other Agreements.
The
Company has not, directly or indirectly, entered into any agreement with or
granted any right to any Investor relating to the terms or conditions of the
transactions contemplated by the Transaction Documents, except as expressly
set
forth in the Transaction Documents.
3.33
Solvency.
The
Company believes that (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing Debt; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted; and (iii) the expected cash flows of the Company
for
future periods, together with the proceeds the Company would receive upon
liquidation of its assets and the proceeds from expected debt or equity
offerings, after taking into account all anticipated uses of such amounts,
would
be sufficient to pay all Debt when such Debt is required to be paid. The Company
has no knowledge of any facts or circumstances which led it to believe that
it
will be required to file for reorganization or liquidation under bankruptcy
or
reorganization laws of any jurisdiction, and has no present intention to so
file.
4.
|
COVENANTS
OF THE COMPANY AND EACH INVESTOR.
|
4.1 Filings
and Disclosure Reports.
The
Company agrees with each Investor that the Company will:
24
(a) file
a
Form D with respect to the Securities issued at the Closing as and when required
under Regulation D and provide a copy thereof to such Investor promptly after
such filing;
(b) at
or
prior to the Closing, take such action as the Company reasonably determines
upon
the advice of counsel is necessary to qualify the Securities for sale under
applicable state or “blue-sky” laws or obtain an exemption therefrom, and shall
promptly provide evidence of any such action to such Investor at such Investor’s
request;
(c) on
or
prior to 5:00 p.m. (eastern time) on the third Business Day
following the Execution Date,
file
with the Commission a Current Report on Form 8-K disclosing the material terms
of and including as exhibits this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby; provided,
however,
that
each Investor shall have a reasonable opportunity to review and comment on
such
Form 8-K prior to the issuance or filing thereof; and provided,
further,
that if
the Company fails to file a Form 8-K disclosing the material terms of this
Agreement and the other Transaction Documents within the time frames described
herein, any Investor may issue a press release disclosing such information
without any notice to or consent by the Company. Thereafter, the Company shall
timely file any filings and notices required by the Commission or applicable
law
with respect to the transactions contemplated hereby;
(d) on
or
prior to the earlier of (i) February 16, 2007 and (ii) the date on which the
Company closes the Bank Facility, the Company shall issue a press release
relating to the Bank Facility and the transactions contemplated by this
Agreement and the other Transaction Documents;
provided,
however,
that
each Investor shall have a reasonable opportunity to review and comment on
such
press release prior to the issuance thereof; and
(e) on
or
prior to the earlier of (i) March 2, 2007 and (ii) the date that the Company
publicly releases its fiscal year 2006 results, the Company shall publicly
disclose financial results and other information such that the Investors are
no
longer in possession of material, nonpublic information that has been provided
by the Company or any other Person acting on the Company’s behalf.
4.2 Existence
and Compliance.
The
Company agrees that it will, and will cause each Company Subsidiary to, while
any Investor holds any Securities:
(a) maintain
its corporate existence in good standing;
(b) comply
with all Governmental Requirements applicable to the operation of its business,
except for instances of noncompliance that would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect;
(c) comply
with all agreements, documents and instruments binding on it or affecting its
Properties or business, including, without limitation, all Material Contracts,
except for instances of noncompliance that would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse
Effect;
25
(d) provide
each Investor with copies of all materials sent to its stockholders at the
same
time as such materials are delivered to such stockholders (provided
that
such
delivery shall be deemed effected in accordance herewith if the Company provides
the Investors with a link to the XXXXX filing containing such materials);
(e) timely
file with the Commission all reports required to be filed pursuant to the
Exchange Act and refrain from terminating its status as an issuer required
by
the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination;
(f) take
commercially reasonable steps to limit sales of Common Stock by the Company’s
Key Employees listed on Schedule
4.2(f)
during
the period beginning on the Execution Date and ending on the Effective Date,
other than pursuant to any 10b-5(1) trading plans in effect as of the Execution
Date and disclosed to each Investor in writing prior to such date;
and
(g) use
commercially reasonable efforts to maintain adequate insurance coverage
(including D&O insurance) for the Company and each Company
Subsidiary.
4.3 Reservation
of Common Stock.
The
Company shall, on the Closing Date, have authorized and reserved for issuance
to
the Investors free from any preemptive rights, and shall keep available at
all
times during which any Debentures or Warrants are outstanding, a number of
shares of Common Stock (the “Reserved
Amount”)
that,
on the Closing Date, is not less than two hundred percent (200%) of the
sum
of (i)
the
number of Stock Option Shares that would be issuable if the Debentures were
then
repaid in full in Stock Option Shares (and not in cash) plus
(ii)
the
number of Warrant Shares that would be issuable if the Warrants were then
exercised in full; in each such case, without regard to any limitation or
restriction on (x) the issuance of such Securities or (y) the exercise of any
Warrants.
The
Reserved Amount shall be allocated among the Investors in accordance with each
Investor’s Pro Rata Share. In the event that an Investor shall sell or otherwise
transfer any of such Investor’s Debentures or Warrants, each transferee shall be
allocated a pro
rata
portion
of such transferor’s Reserved Amount. Any portion of the Reserved Amount
allocated to any Investor or other Person which no longer holds any Debentures
or Warrants shall be reallocated to the remaining Investors pro
rata
based on
the number of the Registrable Securities held by such Investors at such time.
In
the event that the Reserved Amount is insufficient at any time to cover one
hundred twenty five percent (125%) of the Registrable Securities issued
or
issuable to the Investors under the Debentures and the Warrants (such number
to
be determined (x) using 92% of the VWAP or the exercise price of the Warrants,
as applicable, in effect at such time and (y) without regard to any limitation
or restriction on (1) the issuance of such Registrable Securities or (2) the
exercise of any Warrants),
the
Company shall take such action (including without limitation holding a meeting
of its stockholders) to increase the Reserved Amount to cover two hundred
percent (200%) of such Registrable Securities, such increase to be effective
not
later than the thirtieth (30th) day (or sixtieth (60th) day, in the event
stockholder approval is required for such increase) following the Company’s
receipt of written notice of such deficiency. While any Warrants are
outstanding, the Company shall not reduce the Reserved Amount without obtaining
the prior written consent of each Investor then holding a
Warrant.
26
4.4 Use
of
Proceeds.
The
Company shall use the proceeds from the sale of the Debentures and Warrants
(i)
for working capital and general corporate purposes of the Company and the
Company Subsidiaries and (ii) for the payment of a portion of the purchase
price
in connection with the McMurdo Transaction. The Company shall not use the
proceeds from the sale of the Debentures and Warrants to fund the operations
of
any Subsidiary or other Person other than a Company Subsidiary.
4.5 Transactions
with Affiliates. (a)
The
Company agrees that, during the period beginning on the Execution Date and
ending on the Termination Date, any transaction or arrangement between the
Company or any Company Subsidiary, on the one hand, and any Affiliate
of the Company or any Company Subsidiary (including, in the case of the Company,
any Company Subsidiary, and in the case of a Company Subsidiary, the Company
or
any other Company Subsidiary), or any officer, director, manager, shareholder,
member or employee of the foregoing, on
the
other hand (each, an “Affiliate
Transaction”),
shall
be effected on an arms’ length basis and shall be approved by the independent
members of board of directors of the Company or the board of directors or
equivalent thereof of the Company Subsidiary, as the case may be.
(b) In
addition to (and without limiting) the provisions of Section
4.5(a),
the
Company agrees that, during the period beginning on the Execution Date and
ending on the Termination Date, the Company shall not permit Signature to (i)
engage in any Affiliate Transaction, or (ii) dividend or make any other
distribution of its cash or other properties to any Person other than
distributions of cash to the Company that has been generated by the cash flow
of
Signature’s operations from and after the Closing Date.
4.6 Use
of
Investor Name.
Except
as may be required by applicable law and/or this Agreement, the Company shall
not use, directly or indirectly, any Investor’s name or the name of any of its
Affiliates in any advertisement, announcement, press release or other similar
communication unless it has received the prior written consent of such Investor
for the specific use contemplated or as otherwise required by applicable law
or
regulation.
4.7 Limitations
on Disposition.
No
Investor shall sell, transfer, assign or dispose of any Securities,
unless:
(a) there
is
then in effect an effective registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) such
Investor has notified the Company in writing of any such disposition, and
furnished the Company with an opinion of counsel, reasonably satisfactory to
the
Company, that such disposition will not require registration of such Securities
under the Securities Act; provided,
however,
that no
such opinion of counsel will be required (A) if the sale, transfer,
assignment or disposition is made to an Affiliate of such Investor, (B) if
the
sale, transfer, assignment or disposition is made pursuant to Rule 144 and
such Investor provides the Company with evidence reasonably satisfactory to
the
Company that the proposed transaction satisfies the requirements of Rule 144,
(C) if such
Securities are eligible for resale under Rule 144(k) or any successor
provision
or
(D) if in connection with a bona
fide
pledge
or hypothecation of any Securities under a margin arrangement with a
broker-dealer or other financial institution or the sale of any such Securities
by such broker-dealer or other financial institution following such Investor’s
default under such margin arrangement.
27
4.8 Disclosure
of Non-Public Information.
In
addition to the Company’s obligations under Section
4.1,
the
Company agrees that it will not at any time following the Execution Date
disclose material non-public information to any Investor without first obtaining
such Investor’s written consent to such disclosure.
4.9 Indemnification
of Investors.
The
Company will indemnify and hold each Investor and its directors, managers,
officers, shareholders, members, partners, employees and agents (each, an
“Investor
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Investor Party may suffer or incur as a result
of or
relating to (a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other Transaction
Documents or (b) any action instituted against an Investor, or any of them
or
their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Investor, with respect to any of the transactions contemplated
by the Transaction Documents (unless such action is based upon a breach of
such
Investor’s representation, warranties or covenants under the Transaction
Documents or any agreements or understandings such Investor may have with any
such stockholder or any violations by such Investor of state or federal
securities laws or any conduct by such Investor which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Investor Party in respect of which indemnity may be sought pursuant
to this Agreement, such Investor Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof
with
counsel of its own choosing. Any Investor Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but
the fees and expenses of such counsel shall be at the expense of such Investor
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time following such Investor Party’s written request that
it do so, to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material
conflict on any material issue between the position of the Company and the
position of such Investor Party. The Company will not be liable to any Investor
Party under this Agreement (i) for any settlement by an Investor Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to such Investor Party’s wrongful
actions or omissions, or gross negligence or to such Investor Party’s breach of
any of the representations, warranties, covenants or agreements made by such
Investor in this Agreement or in the other Transaction Documents.
4.10
Limitation
on Debt and Liens; Financial Covenants.
(a) During
the period beginning on the Execution Date and ending on the Termination Date,
the Company shall refrain, and shall ensure that each Company Subsidiary
refrains, from (A) incurring any Debt other than Permitted Debt, and (B)
granting, establishing or maintaining any Lien on any of its Property other
than
Permitted Liens.
28
(b) When
used
in this Section
4.10(b),
the
following terms shall have the respective meanings indicated:
“Accounts
Receivable”
means,
as to any Person at any time of determination, all accounts receivable of such
Person (i) not including prepaid deposits, deferred revenue and offsets, and
(ii) excluding (1) all receivables that remain unpaid for over 90 days from
the
respective invoice dates thereof, (2) if 35% or more of all receivables of
such
Person is payable by any one debtor and its Affiliates, then all receivables
payable by such debtor and its Affiliates in excess of 35% of the total amount
of all receivables of such Person; (3) all receivables payable by any Affiliate
of such Person; (4) all receivables generated as a result of pre-billing,
progress billing, retention billing, xxxx and hold accounts, ship in place
accounts, contra revenue accounts or cross-aged balances; (5) all receivables
of
a debtor and its Affiliates if 35% or more of all receivables payable by such
debtor and its Affiliates remain unpaid for over 90 days from the respective
invoice dates thereof; and (6) all receivables payable by debtors whose
principal place of business is located outside of the United States, Canada
and
the member nations of the European Union after a total of $1,000,000 of
receivables payable by such debtors have been included as “qualifying”
receivables for purposes of determining the Accounts Receivable of such
Person.
“Consolidated
Liabilities”
means,
at any time of determination, the total Liabilities of the Company and the
Company Subsidiaries at such time, without duplication.
“Consolidated
Net Tangible Assets”
means,
at any time of determination, the total Net Tangible Assets of the Company
and
the Company Subsidiaries at such time, without duplication.
“Consolidated
U.S. Liabilities”
means,
at any time of determination, the total Liabilities of the Company and the
U.S.
Company Subsidiaries at such time, without duplication.
“Consolidated
U.S. Net Tangible Assets”
means,
at any time of determination, the total Net Tangible Assets of the Company
and
the U.S. Company Subsidiaries at such time, without duplication.
“Liabilities”
means,
as to any Person at any time of determination, all Debt (including Permitted
Debt) of such Person, provided
that
with respect to any revolving credit line facility of such Person, only (x)
that
portion of such facility that has actually been drawn under such facility at
such time plus
(y)
any
additional amount that such Person is obligated to draw pursuant to the terms
of
such facility at any time on or after such time, shall be included as a
Liability of such Person.
“Net
Tangible Assets”
means,
as to any Person at any time of determination, the aggregate value of (i) all
cash and cash equivalents of such Person; (ii) all Accounts Receivable of such
Person, (iii) all inventory of such Person, valued at cost and multiplied by
0.90 and excluding the portion of all work in process inventory that is in
excess of 20% of the total inventory of such Person; and (iv) all real and
personal property and equipment of such Person net of
depreciation.
29
During
the period beginning on the Execution Date and ending on the Termination Date,
the Company shall, and shall ensure that each of the Company Subsidiaries,
comply with each of the following financial covenants:
(i)
the
Consolidated Net Tangible Assets shall at all times be equal to or exceed
$35,000,000;
(ii) the
Consolidated U.S. Net Tangible Assets shall at all times be equal to or exceed
$16,500,000;
(iii) the
Net
Tangible Assets of Signature shall at all times be equal to or exceed
$11,500,000;
(iv) the
Consolidated Liabilities shall at all times be less than
$20,000,000;
(v) the
Consolidated U.S. Liabilities shall at all times be less than $15,000,000;
and
(vi) the
Liabilities of Signature shall at all times be less than
$2,000,000.
In
furtherance of the foregoing financial covenants, the Company shall, on or
prior
to the 30th
day
following each fiscal quarter following the Closing Date (or, if such fiscal
quarter is the Company’s fourth fiscal quarter, then on or prior to the
45th
day
following such fiscal quarter), deliver to each Investor a certificate certified
by the Chief Financial Officer of the Company certifying (i) that at all times
during such fiscal quarter, the Company and the Company Subsidiaries were,
to
such officer’s knowledge, in compliance with each of the foregoing financial
covenants and (ii) the actual Net Tangible Assets and Liability amounts for
each
of the foregoing financial covenant categories as of the last day of such fiscal
quarter. Following the closing of the McMurdo Transaction, but in no case later
than six months after the Closing Date, the Company and Investors agree to
review and renegotiate the foregoing financial covenants in good faith to take
into account the then current financial condition of the Company and Company
Subsidiaries, specifically taking into account the McMurdo
Transaction.
4.11
Restricted
Payments.
During
the period beginning on the Execution Date and ending on the Termination Date,
the Company will not, and will not permit any Company Subsidiary to, make any
Restricted Payments other than Restricted Payments made by a Company Subsidiary
to the Company (provided,
that
any Restricted Payment by Signature that would be permitted under this
Section
4.11
shall be
further subject to the restrictions contained in Section
4.5(b)(ii)).
30
4.12
Disposition
of Property.
During
the period beginning on the Execution Date and ending on the Termination Date,
the
Company will not, and will not permit any Company Subsidiary to, (i)
dispose
in a single transaction or in a series of related transactions all or any part
of its Property unless (x) such disposition is in the ordinary course of
business and for fair market value (provided,
any
such disposition does not exceed $50,000 per annum), and (y) such Property
is
not material to the Company’s or any Company Subsidiary’s business, operations
or financial condition or performance or (ii) sell, assign or otherwise transfer
any equity interest in any Company Subsidiary to a Person other than the Company
or another Company Subsidiary.
4.13
Modification
of Organizational Documents.
Except
as described on Schedule
4.13 and
Section 4.17, and as may be required to comply with the listing requirements
of
the Principal Market, during the period beginning on the Execution Date and
ending on the Termination Date, the Company will not, nor will it permit any
Company Subsidiary to, consent to or implement any termination, amendment,
modification, supplement or waiver of the certificate or articles of
incorporation, articles of organization, bylaws, regulations or other
constituent documents of the Company or any such Company
Subsidiary.
4.14
Issuance
Limitation.
During
the period beginning on the Execution Date and ending on the date that is 90
days after the Effective Date, the Company shall not effect a Subsequent
Placement. During
the period beginning on the Execution Date and ending on the Termination Date,
the Company will not permit any Company Subsidiary to effect a Subsequent
Placement.
During
the period beginning on the Execution Date and ending on the Stockholder
Amendment Approval Date, the Company shall not effect a Subsequent Placement
that constitutes a Dilutive Issuance (as defined in the Warrants).
4.15
Acquisitions
and Investments.
Other
than any purchase of additional equity securities of a Company Subsidiary or
another Affiliate, during
the period beginning on the Execution Date and ending on the Termination Date,
the
Company will not, nor will it permit any Company Subsidiary to, purchase or
otherwise acquire the capital stock or other equity interests in or assets
(constituting a business unit) of, any Person or agree to do so, unless the
Company believes in good faith that the acquired business or entity will
generate positive cash flow during the twelve-month period immediately following
such acquisition.
4.16
Limitation
on Issuance of Stock Option Shares and Warrant Shares.
Each
Investor acknowledges and agrees that the aggregate number of shares of Common
Stock that may be issued by the Company pursuant to this Agreement, the
Debentures and the Warrants may not at any time exceed the Cap Amount without
the Stockholder Cap Approval and that the Company shall have no obligation
to
issue shares of Common Stock pursuant to this Agreement, the Debentures or
the
Warrants in excess of the Cap Amount unless the Stockholder Cap Approval has
been obtained. In furtherance of the limitation set forth in the immediately
preceding sentence, at any time following the Closing Date, the aggregate number
of Stock Option Shares and Warrant Shares that such Investor may receive under
such Investor’s Debenture and/or upon the exercise of such Investor’s Warrant
may not exceed the product of (A) the Cap Amount and (B) such Investor’s Pro
Rata Share (the “Allocation
Amount”).
In
the event that an Investor shall sell or otherwise transfer any of such
Investor’s Debentures or Warrants, each transferee shall be allocated a
pro
rata
portion
of such transferor’s Allocation Amount. Any portion of the Allocation Amount
allocated to any Investor or other Person which no longer holds any Debentures
or Warrants shall be reallocated to the remaining Investors pro
rata
based on
the number of the Registrable Securities held by such Investors at such
time.
31
4.17
Stockholder
Approvals.
(a) The
Company shall use its commercially reasonable efforts to obtain the Stockholder
Amendment Approval as promptly as practicable after the date hereof. In
furtherance of the foregoing, the Company shall hold a stockholders meeting
no
later than May 31, 2007. If the Stockholder Amendment Approval is not obtained
at such meeting, the Company shall continue to use its commercially reasonable
efforts to obtain the Stockholder Amendment Approval at each annual or other
stockholder meeting held by the Company until such approval has been obtained
(provided, that
the
Company shall ensure that a stockholder meeting is called at least once every
90
days until the Stockholder Amendment Approval has been obtained).
(b) The
Company shall use its commercially reasonable efforts to obtain the Stockholder
Cap Approval as promptly as practicable after the first date on which the total
number of shares of Common Stock issued
or
issuable by the Company pursuant to this Agreement, the Debentures and the
Warrants is equal to or greater than 70% of the Cap Amount. In furtherance
of
obtaining the Stockholder Cap Approval if and when such approval is required,
the Company shall use its commercially reasonable efforts to obtain the
Stockholder Cap Approval at each annual or other stockholder meeting held by
the
Company until such approval has been obtained (provided, that,
if
and when such approval is required, the Company shall ensure that a stockholder
meeting is called at least once every 90 days until the Stockholder Cap Approval
has been obtained).
4.18
Issuance
of Stock Option Shares and Warrant Shares.
The
Company shall cause all Stock Option Shares and the Warrant Shares, when issued
and delivered in accordance with the terms of the Debentures or the Warrants,
as
the case may be, to be duly and validly issued, fully paid and nonassessable,
free and clear of any Liens imposed by or through the Company.
4.19
Newly
Created Subsidiaries.
During
the period beginning on the Execution Date and ending on the Termination Date,
if
the
Company creates or acquires any new Subsidiary that owns, at the time of
creation or acquisition or any time thereafter, assets having a fair market
value in excess of $50,000, then the Company shall cause such new Subsidiary
to
become party to the Subsidiary Guarantee and Security Agreement.
4.20
Listing
on American Stock Exchange.
The
Company
shall use its commercially reasonable efforts to obtain listing approval from
the American Stock Exchange for the issuance of the Warrant Shares and Stock
Option Shares as promptly as practicable but in no event later than March 2,
2007 (the “Listing
Deadline Date”).
If
such listing approval is not obtained by the Listing Deadline Date, the term
of
the Warrant shall be extended by a number days equal to the number of days
between the Listing Deadline Date and the date on which the Company obtains
such
listing approval; provided,
that
each Investor shall have the right to pursue all other remedies provided under
the Transaction Documents.
32
4.21
Events
of Default.
Upon
the occurrence of an Event of Default, the Company shall (i) notify the
Investors of the nature of such Event of Default as soon as practicable (but
in
no event later than one Business Day after the Company becomes aware of such
Event of Default), and (ii) not later than two Business Days after delivering
such notice to the Investors, issue a press release disclosing such Event of
Default and take such other actions as may be necessary to ensure that none
of
the Investors are in the possession of material, nonpublic information as a
result of receiving such notice from the Company.
4.22
Certain
Representations.
Each
Investor shall notify the Company if, as of any date on which an Investor is
to
receive Stock Option Shares and/or Warrant Shares that are not subject to an
effective registration statement with the Commission, such Investor is unable
to
make the following representations: (i) such Investor is an “accredited
investor”, (ii) such Investor acknowledges that the Securities may not be
transferred or resold without registration under the Securities Act or unless
pursuant to an exemption therefrom, and (iii) such Investor understands that
the
Securities are being delivered to it in reliance upon specific exemptions from
the registration requirements of U.S. federal and state laws. If an Investor
delivers the notice contemplated in this Section
4.22,
the
Company shall not be obligated to deliver any Stock Option Shares or Warrant
Shares to such Investor until such Investor has provided a certificate making
the representations contained in this Section
4.22.
If an
Investor does not deliver the notice contemplated in this Section
4.22,
then
such Investor shall be deemed to have made the representations contained in
this
Section
4.22,
and the
Company shall deliver the Stock Option Shares and the Warrant Shares as and
when
due.
5.
CONDITIONS
TO CLOSING.
5.1 Conditions
to Investors’ Obligations at the Closing.
Each
Investor’s obligations to effect the Closing, including without limitation its
obligation to purchase a Debenture and Warrant at the Closing, are conditioned
upon the fulfillment (or waiver by such Investor in its sole and absolute
discretion) of each of the following events as of the Closing Date, and the
Company shall use commercially reasonable efforts to cause each of such
conditions to be satisfied:
5.1.1
|
the
representations and warranties of the Company set forth in this Agreement
and in the other Transaction Documents shall be true and correct
in all
material respects as of such date as if made on such date (except
that to
the extent that any such representation or warranty relates to a
particular date, such representation or warranty shall be true and
correct
in all material respects as of that particular date);
|
5.1.2
|
the
Company shall have complied with or performed in all material respects
all
of the agreements, obligations and conditions set forth in this Agreement
and in the other Transaction Documents that are required to be complied
with or performed by the Company on or before the Closing;
|
33
5.1.3
|
the
Company shall have delivered to such Investor a certificate, signed
by the
Chief Executive Officer and Chief Financial Officer of the Company,
certifying that the conditions specified in this Section
5.1
have been fulfilled as of the Closing, it being understood that such
Investor may rely on such certificate as though it were a representation
and warranty of the Company made
herein;
|
5.1.4
|
the
Company shall have delivered to such Investor reasonably acceptable
opinions of counsel for the Company and of counsel for the Company
Subsidiaries, dated as of the Closing Date;
|
5.1.5
|
the
Company shall have executed and delivered to such Investor the Debenture
and the Warrant being purchased by such Investor at the
Closing;
|
5.1.6
|
the
Company shall have executed and delivered to such Investor the
Registration Rights Agreement, the Security Agreement and the Subsidiary
Guarantee, each Company Subsidiary shall have executed and delivered
to
such Investor the Security Agreement and the Subsidiary Guarantee,
and
certificates evidencing the Pledged Securities (as defined in the
Security
Agreement) shall have been delivered to Imperium Advisers, LLC, as
collateral agent;
|
5.1.7
|
the
Company shall have delivered to such Investor a certificate, signed
by the
Secretary or an Assistant Secretary of the Company, attaching (i)
the
certificate of incorporation and by-laws of the Company and (ii)
resolutions passed by its Board of Directors to authorize the transactions
contemplated hereby and by the other Transaction Documents, and (iii)
resolutions passed by the respective boards of directors of the Company
Subsidiaries to authorize the transactions contemplated by the Security
Agreement and the Subsidiary Guarantee, and certifying that such
documents
are true and complete copies of the originals and have not been amended
or
superseded, it being understood that such Investor may rely on such
certificate as a representation and warranty of the Company made
herein;
|
5.1.8
|
the
Company shall have obtained the written agreement of the Key Employees
listed on Schedule
4.2(f) to
refrain from selling shares of Common Stock for the period specified
in,
and in accordance with, Section
4.2(f)
of
this Agreement;
|
5.1.9
|
there
shall have occurred no material adverse change in the Company’s
consolidated business or financial condition since the date of the
Company’s most recent financial statements contained in the Disclosure
Documents;
|
34
5.1.10
|
the
Company shall have authorized and reserved for issuance the aggregate
number of shares of Common Stock required to be authorized and reserved
under Section
4.3;
|
5.1.11
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Government Authority of competent jurisdiction that is in
effect
that restrains or prohibits the consummation of the transactions
contemplated hereby and by the other Transaction Documents;
|
5.1.12
|
the
Investors shall have completed their due diligence to their satisfaction;
|
5.1.13
|
the
Company shall have, or shall have caused Signature to, deliver to
the
Investors a written consent executed by the Royal Bank of Scotland
and the
National Westminster Bank that consents to the security interest
and Liens
being granted by Signature in favor of the Investors under the Security
Agreement; and
|
5.1.14
|
the
Company shall have paid the expenses described in Section
6.10
of
this Agreement.
|
5.2 Conditions
to Company’s Obligations at the Closing.
The
Company’s obligations to effect the Closing with an Investor are conditioned
upon the fulfillment (or waiver by the Company in its sole and absolute
discretion) of each of the following events as of the Closing Date:
5.2.1
|
the
representations and warranties of such Investor set forth in this
Agreement and in the other Transaction Documents to which it is a
party
shall be true and correct in all material respects as of such date
as if
made on such date (except that to the extent that any such representation
or warranty relates to a particular date, such representation or
warranty
shall be true and correct in all material respects as of that
date);
|
5.2.2
|
such
Investor shall have complied with or performed all of the agreements,
obligations and conditions set forth in this Agreement that are required
to be complied with or performed by such
Investor
on or before the Closing;
|
5.2.3
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Government Authority of competent jurisdiction that is in
effect
that restrains or prohibits the consummation of the transactions
contemplated hereby and by the other Transaction Documents;
|
35
5.2.4
|
such
Investor shall have executed each Transaction Document to which it
is a
party and shall have delivered the same to the
Company;
|
5.2.5
|
such
Investor shall have tendered to the Company the Purchase Price for
the
Debenture and the Warrant being purchased by it at the Closing
by wire transfer of immediately available
funds;
|
5.2.6
|
the
Company shall have obtained the requisite approval from its board
of
directors to enter into the Transaction Documents and perform its
obligations thereunder; and
|
5.2.7
|
the
Company shall have paid the fees set forth on Schedule
3.14.
|
6.
MISCELLANEOUS.
6.1 Survival;
Severability.
The
representations, warranties, covenants and indemnities made by the parties
herein and in the other Transaction Documents shall survive the Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided
that in
such case the parties shall negotiate in good faith to replace such provision
with a new provision which is not illegal, unenforceable or void, as long as
such new provision does not materially change the economic benefits of this
Agreement to the parties.
6.2 Successors
and Assigns.
The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations or liabilities under or by reason
of
this Agreement, except as expressly provided in this Agreement. An Investor
may
assign its rights and obligations hereunder in connection with any private
sale
or transfer of the Securities in accordance with the terms hereof, as long
as,
as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term “Investor” shall be deemed to refer to such
transferee as though such transferee were an original signatory hereto. The
Company may not assign its rights or obligations under this
Agreement.
6.3 No
Reliance.
Each
party acknowledges that (i) it has such knowledge in business and financial
matters as to be fully capable of evaluating this Agreement, the other
Transaction Documents and the transactions contemplated hereby and thereby,
(ii)
it is not relying on any advice or representation of any other party in
connection with entering into this Agreement, the other Transaction Documents
or
such transactions (other than the representations made in this Agreement or
the
other Transaction Documents), (iii) it has not received from any other party
any
assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into this Agreement or the other Transaction
Documents or the performance of its obligations hereunder and thereunder, and
(iv) it has consulted with its own legal, regulatory, tax, business, investment,
financial and accounting advisors to the extent that it has deemed necessary,
and has entered into this Agreement and the other Transaction Documents based
on
its own independent judgment and, if applicable, on the advice of such advisors,
and not on any view (whether written or oral) expressed by any other
party.
36
6.4 Independent
Nature of Investors’ Obligations and Rights.
The
obligations of each Investor hereunder are several and not joint with the
obligations of the other Investors hereunder, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor hereunder. The Company acknowledges and agrees that nothing contained
herein or in any other Transaction Document, and no action taken by any Investor
pursuant hereto or thereto, shall be deemed to constitute the Investors as
a
partnership, an association, a joint venture or any other kind of entity, or
a
“group” as described in Section 13(d) of the Exchange Act, or create a
presumption that the Investors are in any way acting in concert with respect
to
such obligations or the transactions contemplated by this Agreement. Each
Investor has been represented by its own separate counsel in connection with
the
transactions contemplated hereby, shall be entitled to protect and enforce
its
rights, including without limitation rights arising out of this Agreement or
the
other Transaction Documents, individually, and shall not be required to join
any
other Investor as an additional party in any proceeding for such
purpose.
6.5 Injunctive
Relief.
The
Company acknowledges and agrees that a breach by it of its obligations hereunder
will cause irreparable harm to each Investor and that the remedy or remedies
at
law for any such breach will be inadequate and agrees, in the event of any
such
breach, in addition to all other available remedies, such Investor shall be
entitled to an injunction restraining any breach and requiring immediate and
specific performance of such obligations without the necessity of showing
economic loss or the posting of any bond.
6.6 Governing
Law; Jurisdiction; Waiver of Jury Trial.
(a)
This Agreement shall be governed by and construed under the laws of the State
of
New York applicable to contracts made and to be performed entirely within the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City and County
of
New York for the adjudication of any dispute hereunder or any other Transaction
Document or in connection herewith or therewith or with any transaction
contemplated hereby or thereby, and hereby irrevocably waives, and agrees not
to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address in effect
for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
37
(b) EACH
PARTY TO THIS
AGREEMENT ACKNOWLEDGES AND AGREES THAT ANY DISPUTE OR CONTROVERSY THAT MAY
ARISE
UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH PARTY HEREBY IRREVOCABLY
AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO
THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT OR
THE
OTHER TRANSACTION DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK
TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS
SECTION
6.6(b).
6.7 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original, and all of which together shall constitute one and the
same
instrument. This Agreement may be executed and delivered by facsimile
transmission.
6.8 Headings.
The
headings used in this Agreement are used for convenience only and are not to
be
considered in construing or interpreting this Agreement.
6.9 Notices.
Any
notice, demand or request required or permitted to be given by the Company
or
the Investor pursuant to the terms of this Agreement shall be in writing and
shall be deemed delivered (i) when delivered personally or by verifiable
facsimile transmission, unless such delivery is made on a day that is not a
Business Day, in which case such delivery will be deemed to be made on the
next
succeeding Business Day, (ii) on the next Business Day after timely delivery
to
an overnight courier and (iii) on the Business Day actually received if
deposited in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:
If
to
the Company:
Digital
Angel Corporation
Suite
201
1690
South Congress
Xxxxxx
Xxxxx, Xxxxxxx 00000
Attn:
|
Xxxxx
XxXxxxx
|
Tel:
|
(000) 000-0000
|
Fax:
|
(000)
000-0000
|
with
a copy (which
shall not constitute notice) to:
Winthrop
& Weinstine, P.A.
Suite
3500
000
Xxxxx
0xx
Xxxxxx
Xxxxxxxxxxx,
Xxxxxxxxx 00000
38
Attn:
|
Xxxxxx
X. Xxxxxx
|
Tel:
|
(000)
000-0000
|
Fax:
|
(000)
000-0000
|
and
if to
any Investor, to such address for such Investor as shall appear on the signature
page hereof executed by such Investor, or as shall be designated by such
Investor in writing to the Company in accordance with this Section
6.9.
6.10
Expenses.
The
Company and each Investor shall pay all costs and expenses that it incurs in
connection with the negotiation, execution, delivery and performance of this
Agreement or the other Transaction Documents, provided,
however,
that
that the Company shall, at the Closing, pay to Imperium Advisers, LLC
(“Imperium”)
an
amount up to $65,000 in immediately available funds as reimbursement for its
out-of-pocket expenses (including without limitation legal fees and expenses)
incurred or to be incurred by it in connection with its due diligence
investigation of the Company and the negotiation, preparation, execution,
delivery and performance of this Agreement and the other Transaction
Documents.
At the
Closing, the amount due for such fees and expenses may be netted out of the
Purchase Price payable by any Investor managed by Imperium
and an invoice shall be submitted to identify the amount to be
reimbursed.
6.11
Entire
Agreement; Amendments.
This
Agreement and the other Transaction Documents constitute the entire agreement
between the parties with regard to the subject matter hereof and thereof,
superseding all prior agreements or understandings, whether written or oral,
between or among the parties. Except as expressly provided herein, neither
this
Agreement nor any term hereof may be amended except pursuant to a written
instrument executed by the Company and (i) prior to the Termination Date, by
the
holders of a majority of the aggregate principal of the Debentures then
outstanding and the holders of a majority of the aggregate number of the Warrant
Shares into which the Warrants then outstanding are exercisable (without
regard to any limitation on the exercise of the Warrants),
and
(ii) on and after the Termination Date, by the holders of a majority of the
aggregate number of the Warrant Shares into which the Warrants then outstanding
are exercisable (without
regard to any limitation on the exercise of the Warrants). Any
waiver or consent shall be effective only in the specific instance and for
the
specific purpose for which given.
[Signature
Pages to Follow]
39
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
DIGITAL
ANGEL CORPORATION
|
|||
By:
|
/s/
Xxxxx X. XxXxxxx
|
||
Name:
Xxxxx X. XxXxxxx
|
|||
Title:
President and Chief Executive Officer
|
|||
IMPERIUM
MASTER FUND, LTD.
|
|||
By:
|
Imperium
Advisers, LLC
|
||
By:
|
/s/
Xxxxxxx Xxxxxxx
|
||
Name:
Xxxxxxx Xxxxxxx
|
|||
Title:
Counsel
|
Principal
Amount of Debenture Purchased at Closing:
|
$6,000,000
|
Number
of Shares into which Warrant Exercisable:
|
699,600
|
ADDRESS:
c/o
Imperium Advisers, LLC
000
Xxxx
00xx
Xxxxxx-
00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Attn: Xxxxxxx
Xxxxxxx, Esq.
Tel:
(000) 000-0000
Fax:
(000) 000-0000