EXHIBIT 99
ASSOCIATED AUTOMOTIVE GROUP INCORPORATED
SECURITIES PURCHASE AGREEMENT
May 3, 2002
TABLE OF CONTENTS
Page
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1. AGREEMENT TO SELL AND PURCHASE...........................................................................1
2. FEES AND WARRANT.........................................................................................1
3. CLOSING, DELIVERY AND PAYMENT............................................................................2
3.1 Closing.........................................................................................2
3.2 Delivery........................................................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................2
4.1 Organization, Good Standing and Qualification...................................................2
4.2 Subsidiaries....................................................................................3
4.3 Capitalization; Voting Rights...................................................................3
4.4 Authorization; Binding Obligations..............................................................4
4.5 Liabilities.....................................................................................4
4.6 Agreements; Action..............................................................................4
4.7 Obligations to Related Parties..................................................................5
4.8 Changes.........................................................................................5
4.9 Title to Properties and Assets; Liens, Etc......................................................6
4.10 Intellectual Property...........................................................................6
4.11 Compliance with Other Instruments...............................................................7
4.12 Litigation......................................................................................7
4.13 Tax Returns and Payments........................................................................7
4.14 Employees.......................................................................................8
4.15 Registration Rights and Voting Rights...........................................................8
4.16 Compliance with Laws; Permits...................................................................8
4.17 Environmental and Safety Laws...................................................................9
4.18 Valid Offering..................................................................................9
4.19 Full Disclosure.................................................................................9
4.20 Insurance.......................................................................................9
4.21 SEC Reports.....................................................................................9
4.22 No Market Manipulation.........................................................................10
4.23 Listing........................................................................................10
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4.24 Stop Transfer..................................................................................10
4.25 Dilution.......................................................................................10
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................................................10
5.1 Requisite Power and Authority..................................................................10
5.2 Investment Representations.....................................................................11
5.3 Purchaser Bears Economic Risk..................................................................11
5.4 Acquisition for Own Account....................................................................11
5.5 Purchaser Can Protect Its Interest.............................................................11
5.6 Accredited Investor............................................................................11
5.7 Legends........................................................................................11
5.8 No Shorting....................................................................................12
6. COVENANTS OF THE COMPANY................................................................................12
6.1 Stop-Orders....................................................................................12
6.2 Listing........................................................................................13
6.3 Market Regulations.............................................................................13
6.4 Reporting Requirements.........................................................................13
6.5 Use of Funds...................................................................................13
6.6 Access to Facilities...........................................................................13
6.7 Taxes..........................................................................................13
6.8 Insurance......................................................................................14
6.9 Intellectual Property..........................................................................14
6.10 Properties.....................................................................................14
6.11 Confidentiality................................................................................14
6.12 Required Approvals.............................................................................14
6.13 Reissuance of Securities.......................................................................15
6.14 Opinion........................................................................................15
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION.......................................15
7.1 Company Indemnification........................................................................15
7.2 Purchaser's Indemnification....................................................................15
7.3 Procedures.....................................................................................15
8. CONVERSION OF CONVERTIBLE NOTE..........................................................................16
8.1 Mechanics of Conversion........................................................................16
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8.2 Mandatory Redemption...........................................................................17
8.3 Maximum Conversion.............................................................................17
8.4 Injunction - Posting of Bond...................................................................18
8.5 Buy-In.........................................................................................18
8.6 Optional Redemption............................................................................18
8.7 Nasdaq Approval................................................................................19
9. REGISTRATION RIGHTS.....................................................................................19
9.1 Registration Rights Granted....................................................................19
9.2 Registration Procedures........................................................................20
9.3 Provision of Documents.........................................................................21
9.4 Non-Registration Events........................................................................22
9.5 Expenses.......................................................................................22
9.6 Indemnification and Contribution...............................................................23
10. INTENTIONALLY OMITTED...................................................................................25
11. SECURITY INTEREST.......................................................................................25
12. MISCELLANEOUS...........................................................................................25
12.1 Governing Law..................................................................................25
12.2 Survival.......................................................................................25
12.3 Successors and Assigns.........................................................................25
12.4 Entire Agreement...............................................................................25
12.5 Severability...................................................................................25
12.6 Amendment and Waiver...........................................................................26
12.7 Delays or Omissions............................................................................26
12.8 Notices........................................................................................26
12.9 Attorneys' Fees................................................................................26
12.10 Titles and Subtitles...........................................................................26
12.11 Counterparts...................................................................................27
12.12 Broker's Fees..................................................................................27
12.13 Indemnification................................................................................27
12.14 Construction...................................................................................27
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ASSOCIATED AUTOMOTIVE GROUP INCORPORATED
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 3, 2002, by and among Associated Automotive Group
Incorporated, a Florida corporation (the "Company"), and Laurus Master Fund,
Ltd. a Cayman Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale of a 9% Convertible Note
in an aggregate principal amount of $500,000 (the "Note"), convertible into
shares of the Company's Class A common stock, $0.0001 par value per share (the
"Common Stock");
WHEREAS, the Company wishes to issue a warrant (the "Warrant") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant on the
terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of $500,000 convertible in
accordance with the terms thereof into shares of the Company's Common Stock. The
Note purchased on the Closing Date shall be known as the "Offering." The form of
Note is annexed hereto as Exhibit A. The Note will have a Maturity Date (as
defined in the Note) one year from the date of issuance. Collectively, the Note
and Warrant (as defined in Section 2) and Common Stock issuable in payment of
the Note upon conversion of the Note and upon exercise of the Warrant are
referred to as the "Securities."
2. FEES AND WARRANT.
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase 65,000 shares of Common Stock in connection with the Offering (the
"Warrant") pursuant to Section 1 hereof. The Warrant must be delivered on the
Closing Date. A form of Warrant is annexed hereto as Exhibit B. The per share
"Purchase Price" of Common Stock as defined in the Warrant shall be equal to
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$3.30, subject to adjustment as described therein. All the representations,
covenants, warranties, undertakings, and indemnification, and other rights made
or granted to or for the benefit of the Purchaser by the Company are hereby also
made and granted in respect of the Warrant and shares of the Company's Common
Stock issuable upon exercise of the Warrant (the "Warrant Shares").
(b) The Company shall reimburse the Purchaser for its reasonable legal
fees for services rendered to the Purchaser in preparation of this Agreement and
the Related Agreements, and expenses in connection with the Purchaser's due
diligence review of the Company and relevant matters. Amounts required to be
paid hereunder will be paid at the Closing and shall not exceed $18,000.
(c) The Company will pay a cash fee in the amount of six percent (6%)
of the aggregate gross purchase price to be paid to the Company from the sale of
Note in the Offering (the "Fund Management Fee") to Laurus Capital Management,
L.L.C., a Delaware limited liability company. The Fund Management Fee must be
paid on the Closing Date. The aforementioned Fund Management Fee and legal fees
will be payable at the Closing out of funds held pursuant to a Funds Escrow
Agreement to be entered into by the Company, Purchaser and an Escrow Agent.
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), which closing is
comprised of Purchaser's purchase of Note in the aggregate principal amount of
$500,000, shall take place on the date hereof, at the offices of Xxxxxx X.
Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at
such other time or place as the Company and Purchaser may mutually agree (such
date is hereinafter referred to as the "Closing Date").
3.2 Delivery. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser a Note in the form attached as
Exhibit A representing the principal amount of $500,000 and a Common Stock
Purchase Warrant in the form attached as Exhibit B in the Purchaser's name
representing 65,000 Warrant Shares and the Purchaser will deliver to the Company
$500,000, less fees and expenses by certified funds or wire transfer made
payable to the order of the Company, cancellation of indebtedness or any
combination of the foregoing.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as
of the date of this Agreement as set forth below.
4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida. The Company has the corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, the Warrant to be issued in connection with this Agreement, the Funds
Escrow Agreement, the Security Agreement and all other agreements referred to
herein (collectively, the "Related Agreements"), to issue and sell the Note and
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the shares of Common Stock issuable upon conversion of the Note (the "Conversion
Shares"), to issue and sell the Warrant and the Warrant Shares, and to carry out
the provisions of this Agreement and the Related Agreements and to carry on its
business as presently conducted. The Company is duly qualified and is authorized
to do business and is in good standing as a foreign corporation in all
jurisdictions in which the nature of its activities and of its properties (both
owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business.
4.2 Subsidiaries. Except as disclosed on Schedule 4.2, the Company
does not own or control any equity security or other interest of any other
corporation, limited partnership or other business entity. If any entity is
listed on Schedule 4.2 and the Company owns a controlling interest in such
entity, each of the representations and warranties set forth in this Section 4
are being hereby restated with respect to such entity (modified as appropriate
to the nature of such entity.)
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, immediately
prior to the Closing, consists of (i) 80,000,000 shares of Class A Common Stock,
par value $0.0001 per share, 12,202,822 shares of which are issued and
outstanding as of Xxxxx 0, 0000, (xx) 2,000,000 shares of Class B Common Stock
par value $0.0001 per share, none of which are issued and outstanding, and (iii)
5,000,000 shares of Preferred Stock, par value $0.01 per share, none of which
are issued and outstanding.
(b) Other than (i) the shares reserved for issuance under the
Company's stock option plans; (ii) shares which may be granted pursuant to this
Agreement and the Related Agreements, (iii) shares reserved for issuance under
outstanding options and warrants not under company plans, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements, or arrangements
or agreements of any kind for the purchase or acquisition from the Company of
any of its securities. Neither the offer, issuance or sale of any of the Note or
Warrant, or the issuance of any of the Conversion Shares or Warrant Shares, nor
the consummation of any transaction contemplated hereby will result in a change
in the price or number of any securities of the Company outstanding, under
anti-dilution or other similar provisions contained in or affecting any such
securities.
(c) All issued and outstanding shares of the Company's Common
Stock (i) have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Class A Common Stock are as stated in the Certificate of
Incorporation (the "Charter"). The Conversion Shares and Warrant Shares have
been duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Company's Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
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restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
(e) No stock plan, stock purchase, stock option or other
agreement or understanding between the Company and any holder of any equity
securities or rights to purchase equity securities provides for acceleration or
other changes in the vesting provisions or other terms of such agreement or
understanding as the result of any merger, consolidated sale of stock or assets,
change in control or any other transaction(s) by the Company, including the
transactions contemplated hereunder.
4.4 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder at the Closing and the authorization,
sale, issuance and delivery of the Securities pursuant hereto and the Related
Agreements has been taken or will be taken prior to the Closing except for any
blue sky , NASDAQ or similar filings required after the Closing. The Agreement
and the Related Agreements, when executed and delivered, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights, and (b) general principles of equity that restrict the
availability of equitable remedies. The sale of the Note and the subsequent
conversion of the Note into Conversion Shares are not and will not be subject to
any preemptive rights or rights of first refusal that have not been properly
waived or complied with. The sale of the Warrant and the subsequent exercise of
the Warrant for Warrant Shares are not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with. The Note and the Warrant, when executed and delivered in accordance with
the terms of this Agreement, will be valid and binding obligations of the
Company, enforceable in accordance with their respective terms.
4.5 Liabilities. Except as set forth in the Company's financial
statements or its reports filed with the Securities and Exchange Commission
("SEC Reports"), the Company has no material liabilities and, to the best of its
knowledge, knows of no material contingent liabilities, except liabilities
incurred in the ordinary course of business.
4.6 Agreements; Action.
(a) Except as set forth in the Company's financial statements or
its SEC Reports, there are no agreements, understandings, instruments,
contracts, judgments, orders, writs or decrees to which the Company is a party
or to its knowledge by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to, the Company in excess of $50,000
(other than obligations of, or payments to, the Company arising from purchase or
sale agreements entered into in the ordinary course of business), or (ii) the
transfer or license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than licenses arising from the purchase of
"off the shelf" or other standard products), or (iii) provisions restricting the
development, manufacture or distribution of the Company's products or services,
or (iv) indemnification by the Company with respect to infringements of
proprietary rights.
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(b) Since December 31, 2001, the Company has not (i) declared or
paid any dividends, or authorized or made any distribution upon or with respect
to any class or series of its capital stock, (ii) except as set forth in the
Company's financial statements or its SEC Reports, incurred any indebtedness for
money borrowed or any other liabilities individually in excess of $50,000 or, in
the case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments and contracts
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. There are no obligations of the
Company to executive officers or directors of the Company other than (a) for
payment of salary for services rendered, (b) reimbursement for reasonable
expenses incurred on behalf of the Company, (c) for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of the Company) and (d) obligations listed in the Company's financial
statements. None of the executive officers or directors of the Company, or any
members of their immediate families, are indebted to the Company. Except as
described above, none of the officers, directors are indebted to the Company or
have any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than 1%
of such company) which may compete with the Company. Except as described above,
no executive officer or director is, directly or indirectly, interested in any
material contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. The
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
4.8 Changes. Since January 31, 2002, there has not been:
(a) Any change in the assets, liabilities, financial condition,
or operations of the Company, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or is
reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any executive officer, key
employee or group of employees of the Company;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
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(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to any
executive officer or director of the Company, other than advances made in the
ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any executive officer or director, except in the ordinary course
of business;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for amounts and for liabilities incurred
in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights or, trade secrets;
(l) Any change in any material agreement to which the Company is
a party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition or operations of the Company.
4.9 Title to Properties and Assets; Liens, Etc. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, and other proprietary rights and processes necessary for its business
6
as now conducted and to the Company's knowledge as presently proposed to be
conducted (the "Intellectual Property"), without any known infringement of the
rights of others. There are no outstanding options, licenses or agreements of
any kind relating to the foregoing proprietary rights, nor is the Company bound
by or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products.
(b) The Company has not received any communications alleging
that the Company has violated any of the patents, trademarks, service marks,
trade names, copyrights or trade secrets of any other person or entity, nor is
the Company aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been rightfully assigned to
the Company.
4.11 Compliance with Other Instruments. The Company is not in
violation or default of any term of the Charter or Bylaws, or of any provision
of any mortgage, indenture, contract, agreement, instrument or contract to which
it is party or by which it is bound or of any judgment, decree, order or writ
the violation of which would have a material adverse effect on the Company. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements, and the issuance and sale of Securities pursuant hereto,
will not, with or without the passage of time or giving of notice, result in any
such material violation, or be in conflict with or constitute a default under
any such term or provision, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
or the suspension, revocation, impairment, forfeiture or nonrenewal of any
permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.
4.12 Litigation. There is no action, suit, proceeding or to the
Company's knowledge investigation pending or, to the Company's knowledge,
currently threatened against the Company that questions the validity of this
Agreement or the Related Agreements or the right of the Company to enter into
any of such agreements, or to consummate the transactions contemplated hereby or
thereby, or which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality which would have a material adverse effect on the Company.
4.13 Tax Returns and Payments. Since December 31, 2001, the Company
has filed all tax returns (federal, state and local) required to be filed by it.
All taxes shown to be due and payable on such returns, any assessments imposed,
and to the Company's knowledge all other taxes due and payable by the Company on
or before the Closing, have been paid or will be paid prior to the time they
become delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
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state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
4.14 Employees. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. Except
as set forth on Schedule 4.14, the Company is not a party to or bound by any
currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no key
employee of the Company, is in violation of any material term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The Company, to
its knowledge, is not aware that any of its key employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company.
The Company has not received any notice alleging that any such violation has
occurred. No key employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any executive
officer, key employee or group of employees intends to terminate his, her or
their employment with the Company, nor does the Company have a present intention
to terminate the employment of any officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15, the Company is presently not under any obligation, and has not
granted any rights, to register any of the Company's presently outstanding
securities or any of its securities that may hereafter be issued. To the
Company's knowledge, no stockholder of the Company has entered into any
agreement with respect to the voting of equity securities of the Company.
4.16 Compliance with Laws; Permits. To its knowledge, the Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which violation would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of this
Agreement and the issuance of any of the Securities, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing, as will be filed in a timely manner. The Company has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or financial
condition of the Company.
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4.17 Environmental and Safety Laws. The Company is not in violation
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, except the violation of
which would not have a material adverse effect, no material expenditures are or
will be required in order to comply with any such existing statute, law or
regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean (a)
materials which are listed or otherwise defined as "hazardous" or "toxic" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or (b)
any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Securities to any person or persons so as
to bring the sale of such Securities by the Company within the registration
provisions of the Securities Act or any state securities laws.
4.19 Full Disclosure. Neither this Agreement, the exhibits and
schedules hereto, the Related Agreements nor any other document delivered by the
Company to Purchaser in connection herewith or therewith or with the
transactions contemplated hereby or thereby, knowingly contains any untrue
statement of a material fact nor omit to state a material fact necessary in
order to make the statements contained herein or therein in light of the
circumstances then made not misleading. To the Company's knowledge, there are no
facts which (individually or in the aggregate) materially adversely affect the
business, assets, liabilities, financial condition, or operations of the Company
that have not been set forth in the Agreement, the exhibits and schedules
hereto, the Related Agreements or in other documents delivered to Purchaser or
its attorneys or agents in connection herewith.
4.20 Insurance. The Company has general commercial, product
liability, fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
4.21 SEC Reports. The Company has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange Act.
The Company has furnished the Purchaser with copies of (i) its Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2001, and (ii) its Proxy
Statement dated December 3, 2001 . Each SEC Report was in substantial compliance
with the requirements of its respective form and none of the SEC Reports, nor
the financial statements (and the notes thereto) included in the SEC Reports, as
9
of their respective dates, contained any untrue statement of a material fact or
omitted 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.
4.22 No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.
4.23 Listing. The Company's Common Stock is listed for trading on
the Nasdaq SmallCap Market and satisfies all requirements for the continuation
of such listing. The Company has not received any notice that its Common Stock
will be delisted from the Nasdaq SmallCap Market or that the Common Stock does
not meet all requirements for the continuation of such listing.
4.24 Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of any of the Securities at such
time as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
4.25 Dilution. The number of shares of Common Stock issuable upon
conversion of the Note and exercise of the Warrant may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
conversion or exercise of such securities. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The Board
of Directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the shares of Common
Stock upon conversion of the Note and exercise of the Warrant is binding upon
the Company and enforceable regardless of the dilution such issuance may have on
the ownership interests of other shareholders of the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company
with respect to itself or himself as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 Requisite Power and Authority. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
10
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) as limited by
general principles of equity that restrict the availability of equitable
remedies.
5.2 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement.
5.3 Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment until the Securities are registered pursuant to the Securities
Act, or an exemption from registration is available.
5.4 Acquisition for Own Account. Purchaser is acquiring the Note for
Purchaser's own account for investment only, and not with a view towards their
distribution.
5.5 Purchaser Can Protect Its Interest. Purchaser represents that by
reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement.
5.6 Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.7 Legends.
(a) The Note shall bear the following legend until the Note and
Conversion Shares are covered by an effective registration statement filed with
the SEC:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR, IF APPLICABLE, STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ASSOCIATED AUTOMOTIVE GROUP
INCORPORATED THAT SUCH REGISTRATION IS NOT REQUIRED."
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(b) The Conversion Shares and the Warrant Shares shall bear a
legend which shall be in substantially the following form until such shares are
covered by an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ASSOCIATED AUTOMOTIVE GROUP
INCORPORATED THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ASSOCIATED AUTOMOTIVE GROUP INCORPORATED THAT SUCH
REGISTRATION IS NOT REQUIRED."
5.8 No Shorting. The Purchaser will not and will not cause any
person or entity to engage in "short sales" of the Company's Common Stock.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
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6.2 Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant upon the Principal Market upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain such listing so long as any other shares of Common Stock shall be so
listed. The Company will use its reasonable best efforts to maintain the listing
of its Common Stock on a Principal Market, and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers ("NASD") and such exchanges,
as applicable. The Company will provide the Purchaser copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 Reporting Requirements. The Company will use its reasonable best
efforts to timely file with the SEC 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; provided,
however, that the Company shall not be prohibited from engaging in a merger
transaction.
6.5 Use of Funds. The Company agrees that it will use the proceeds
of the sale of the Note and Warrant for general corporate purposes only, in the
ordinary course of its business and consistent with past practice and, without
limiting the generality of the foregoing, shall not use such proceeds to make a
loan to any employee, officer, director or stockholder of the Company, to repay
any loan or other obligation of the Company or to repurchase or pay a dividend
on shares of Common Stock or other securities of the Company (in any such case,
regardless of whether such loan or payment was authorized by the Company's Board
of Directors prior to the date hereof), other than any such repurchase or
payment explicitly required, permitted or contemplated by the terms of this
Agreement or the other Related Agreements.
6.6 Access to Facilities. The Company will permit any
representatives designated by the Purchaser (or any transferee of the
Purchaser), so long as such person holds any Securities upon reasonable notice
and during normal business hours, at such person's expense and accompanied by a
representative of the Company, to (a) visit and inspect any of the properties of
the Company, (b) examine the corporate and financial records of the Company
(unless such examination is not permitted by federal, state or local law or by
contract) and make copies thereof or extracts therefrom and (c) discuss the
affairs, finances and accounts of any such corporations with the directors,
officers and independent accountants of the Company.
6.7 Taxes. The Company will promptly pay and discharge, or cause to
be paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
13
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 Insurance. The Company will keep its assets which are of an
insurable character insured against loss or damage by fire, explosion and other
risks customarily insured against by companies in the Company's line of
business, insurance against other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated and to the extent available on commercially
reasonable terms.
6.9 Intellectual Property. The Company shall use its reasonable best
efforts to maintain in full force and effect its corporate existence, rights and
franchises and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct of its
business.
6.10 Properties. The Company will use its reasonable best efforts to
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could
reasonably be expected to have a material adverse effect.
6.11 Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement.
6.12 Required Approvals. For so long as at least 20% of the
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not:
(a) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's right to perform the
provisions of this Agreement or any of the agreements contemplated thereby;
(b) consent to or implement any termination, amendment,
modification, supplement or waiver of the certificate or articles of
incorporation, bylaws, regulations or other constitutional documents of the
Company or any subsidiary; provided, however, that such documents may be amended
or modified if and to the extent that such amendment or modification is not
substantive or material and could not be adverse to the Company or the
Purchaser; or
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(c) materially alter or change the business of the Company.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act and provided the Purchaser complies with the
applicable prospectus delivery requirements and the registration statement is in
full force and effect. The Company agrees to cooperate with the Purchaser in
connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested representations from the selling Purchaser
and broker, if any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion reasonably acceptable to the Purchaser from the Company's
legal counsel in the form annexed hereto as Exhibit D. The Company will provide,
at the Company's expense, such other legal opinions in the future as are
reasonably necessary for the conversion of the Note and exercise of the Warrant.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any material breach or default in performance by Company of
any covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.3 Procedures. The procedures and limitations set forth in Section
9.6 shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.
15
8. CONVERSION OF CONVERTIBLE NOTE.
Subject to the provisions of Article III of the Note, the following
provisions shall apply:
8.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Conversion Shares and the Conversion Shares
are included in an effective registration statement or are otherwise exempt from
registration when sold: (i) Upon the conversion of the Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel) to assure that the Company's transfer
agent shall issue stock certificates in the name of the Purchaser (or its
nominee) and in such denominations to be specified representing the number of
Conversion Shares issuable upon such conversion; and (ii) The Company warrants
that no instructions other than these instructions have been or will be given to
the transfer agent of the Company's Common Stock and that the Conversion Shares
issued will be unlegended, free-trading, and freely transferable, and will not
contain a legend restricting the resale or transferability of the Conversion
Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted to the
Company (the "Notice of Conversion"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a certificate or certificates,
as the case may be, representing the Conversion Shares or until the Note has
been fully satisfied. Each date on which a Notice of Conversion is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a "Conversion Date" provided any notice received after 4:00 p.m. shall be
deemed to have been received on the next business day. The Company will or will
cause the transfer agent to transmit the Company's Common Stock certificates
representing the shares issuable upon conversion of the Note (and a certificate
representing the balance of the Note not so converted, if requested by
Purchaser) to the Purchaser for receipt by such Purchaser within three business
days after receipt by the Company of the Notice of Conversion (the "Delivery
Date"). In lieu of delivering physical certificates, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the Holder, the Company
shall use commercially reasonably efforts to cause its transfer agent to
electronically transmit such shares to the Holder by crediting the account of
the Holder's prime broker with DTC through its Deposit Withdrawal Agent
Commission system.
(c) The Company understands that a delay in the delivery of the
Conversion Shares in the form required pursuant to Section 8 hereof, or the
Mandatory Redemption Payment described in Section 8.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as defined in Section 8.2)
could result in economic loss to the Purchaser. As compensation to the Purchaser
for such loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the Conversion Shares in the form required pursuant to Section 8
hereof upon conversion of the Note or late payment of the Mandatory Redemption
Payment, in the amount of $100 per business day after the Delivery Date or
Mandatory Redemption Payment Date, as the case may be, for each $10,000 Note
16
principal being converted or redeemed. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the
Purchaser, in the event that the Company fails for any reason, other than a
result of the acts or inaction of the Purchaser to effect delivery of the
Conversion Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Purchaser will be entitled to revoke all or part of
the relevant Notice of Conversion or rescind all or part of the notice of
Mandatory Redemption by delivery of a notice to such effect to the Company
whereupon the Company and the Purchaser shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that late payment charges described above shall be payable through the date
notice of revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus refunded to
the Company.
8.2 Mandatory Redemption. In the event the Company is unable to
issue Conversion Shares on a Delivery Date or at any time when a Note is
convertible, for any reason, other than a result of the acts or inaction of the
Purchaser, then at the Purchaser's election, the Company must pay to the
Purchaser five (5) business days after request by the Purchaser or on the
Delivery Date (if requested by the Purchaser) a sum of money determined by
multiplying the principal of the Note required to be converted pursuant to the
Notice of Conversion and not so converted (or otherwise not convertible, as
applicable) by 130%, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Purchaser on the same date as the Conversion Shares are
otherwise deliverable or within five (5) business days after request, whichever
is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory
Redemption Payment, the corresponding Note principal and interest will be deemed
paid and no longer outstanding.
8.3 Maximum Conversion. The Purchaser shall not be entitled to
convert on a Conversion Date that amount of a Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Purchaser on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Note with respect to which the determination of this proviso
is being made on a Conversion Date, which would result in beneficial ownership
by the Purchaser of more than 4.99% of the outstanding shares of Common Stock of
the Company on such Conversion Date. For the purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. Subject to the foregoing, a Purchaser shall not be limited to
aggregate conversions of only 4.99%. A Purchaser may void the conversion
limitation described in this Section 8.3 upon 75 days prior notice to the
17
Company. Upon an Event of Default under the Note, the conversion limitation in
this Section 8.3 shall automatically become null and void.
8.4 Injunction - Posting of Bond. In the event a Purchaser shall
elect to convert a Note or part thereof, the Company may not refuse conversion
for any reason, unless an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of such Purchaser
in the amount of 130% of the amount of the Note, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Purchaser to the extent it obtains judgment.
8.5 Buy-In. In addition to any other rights available to the
Purchaser, if after receipt of a valid Notice of Conversion, the Company fails
to deliver to the Purchaser Conversion Shares within 5 business days of the
Delivery Date and if after giving written notice to the Company the Purchaser
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Purchaser of the Common Stock which
the Purchaser anticipated receiving upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Purchaser (in addition to any remedies
available to or elected by such Purchaser) the amount by which (A) the
Purchaser's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note, for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Purchaser purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
Note principal and/or interest, the Company shall be required to pay the
Purchaser $1,000, plus interest. The Purchaser shall provide the Company written
notice indicating the amounts payable to the Purchaser in respect of the Buy-In.
8.6 Optional Redemption. The Company will have the option of
redeeming any outstanding Note ("Optional Redemption") by paying to the
Purchaser 105% of the principal amount of the Note together with accrued but
unpaid interest thereon as long as the current market price is below the Fixed
Conversion Price and any and all other sums due, accrued or payable to the
Purchaser arising under this Agreement, Note or any other document delivered
herewith ("Redemption Amount") outstanding on the day notice of redemption
("Notice of Redemption) is given to a Purchaser ("Redemption Date"). A Notice of
Redemption may not be given in connection with any portion of Note for which
notice of conversion has been given by the Purchaser at any time before receipt
of a Notice of Redemption. The Purchaser may elect within five (5) business days
after receipt of a Notice of Redemption to give the Company Notice of Conversion
in connection with some or all of the Note principal and interest which was the
subject of the Notice of Redemption. A Notice of Redemption must be accompanied
by a certificate signed by the chief executive officer or chief financial
officer of the Company stating that the Company has on deposit and segregated
ready funds equal to the Redemption Amount. The Redemption Amount must be paid
in good funds to the Purchaser no later than the seventh (7th) business day
after the Redemption Date ("Optional Redemption Payment Date"). In the event the
18
Company fails to pay the Redemption Amount by the Optional Redemption Payment
Date, then the Redemption Notice will be null and void and the Company will
thereafter have no further right to effect an Optional Redemption, and at the
Purchaser's election, the Redemption Amount will be deemed a Mandatory
Redemption Payment and the Optional Redemption Payment Date will be deemed a
Mandatory Redemption Payment Date. Such failure will also be deemed an Event of
Default under the Note. Any Notice of Redemption must be given to all holders of
Note issued in connection with the Offering, in proportion to their holdings of
Note principal on a Redemption Date. A Notice of Redemption may be given by the
Company, provided (i) no Event of Default, as described in the Note shall have
occurred or be continuing; and (ii) the Conversion Shares issuable upon
conversion of the full outstanding Note principal are included for unrestricted
resale in a registration statement effective as of the Redemption Date. Note
proceeds may not be used to effect an Optional Redemption.
8.7 NASDAQ Approval. The Company and the Purchaser agree that until
the Company either obtains shareholder approval, which it shall not be obligated
to obtain, of the issuance of the Securities, or an exemption from NASDAQ's
corporate governance rules as they may apply to the Securities, and an opinion
of counsel reasonably acceptable to the Purchaser that NASDAQ's corporate
governance rules do not conflict with nor may result in a delisting of the
Company's common stock from the Nasdaq SmallCap Market (the "Approval") upon the
conversion of the Note, the Purchaser shall not receive upon conversion of the
Note more than the number of common shares greater than 19.99% of the shares of
Company's common stock outstanding on the Closing Date.
9. REGISTRATION RIGHTS.
9.1 Registration Rights Granted. The Company hereby grants the
following registration rights to the Purchaser.
(a) For a period commencing 90 days after the Closing Date, but
not later than four (4) years after the Closing Date (the "Request Date"), the
Company, upon a written request ("Request for Registration") therefore from the
Purchaser (the Conversion Shares and Warrant Shares issued or issuable upon
conversion of the Note or exercise of the Warrant issued hereunder, being, the
"Registrable Securities"), shall prepare and file with the SEC a registration
statement under the Securities Act covering the Registrable Securities which are
the subject of such request, unless the Company has given the Purchaser a Notice
of Registration and/or such Registrable Securities are the subject of an
effective registration statement. As a condition precedent to the Company's
preparation and filing of a registration statement, the Purchaser shall promptly
provide the Company with all such information as the Company reasonably
requests. The obligation of the Company under this Section 9.1 shall be limited
to two registration statements.
(b) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own account or
for the account of other security holders or both, except with respect to
registration statements on Forms X-0, X-0 or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise subject to an effective registration
statement, the Company will give the Purchaser written notice ("Notice of
Registration") to cause such Registrable Securities to be included with the
19
securities to be covered by the registration statement proposed to be filed by
the Company. In the event that any registration pursuant to this Section 9.1(b)
shall be, in whole or in part, an underwritten public offering of Common Stock
of the Company, the number of shares of Registrable Securities to be included in
such an underwriting may be reduced by the managing underwriter if and to the
extent that the Company and the underwriter shall reasonably be of the opinion
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the Company shall notify
the Purchaser in writing of any such reduction. Notwithstanding the forgoing
provisions, or Section 9.1(a) hereof, the Company may withdraw or delay or
suffer a delay of any registration statement referred to in Section 9.1(a) or
(b) without thereby incurring any liability to the Purchaser, so long as the
registration provisions are otherwise complied with by the Company.
(c) If, a Request for Registration is received by the Company
pursuant to Section 9.1(a) and the Company determines to proceed with the
preparation and filing of a registration statement under the Securities Act,
such Request for Registration shall be deemed to have been given pursuant to
Section 9.1(b) rather than Section 9.1(a), and the rights of the Purchaser
pursuant to such Request for Registration shall be governed by Section 9.1(b).
(d) The Company shall use its reasonable commercial efforts to
file a Form S-3 registration statement (or such other form that it is eligible
to use) in order to register the Registrable Securities for resale and
distribution under the Securities Act with the SEC within 30 days of the Closing
Date (the "Filing Date"), and use its reasonable commercial efforts to cause
such registration statement to be declared effective within 90 days of the
Filing Date (the "Effective Date"). The Company will register not less than a
number of shares of Common Stock in the aforedescribed registration statement
that is equal to the Warrant Shares and 200% of the Conversion Shares issuable
at the Conversion Prices set forth in the Warrant and Note, respectively, that
would be in effect on the Closing Date or the date of filing of such
registration statement (employing the conversion price which would result in the
greater number of Shares), assuming the conversion of 100% of the Note which are
then outstanding or issuable hereunder, and at least one share of common stock
for each common share issuable upon exercise of the Warrant which are then
outstanding or issuable hereunder (employing the Conversion Price that would
result in the greater number of shares). The Registrable Securities shall be
reserved and set aside exclusively for the benefit of the Purchaser and the
holders of the Warrant, as the case may be, and not issued, employed or reserved
for anyone other than the Purchaser and the holders of the Warrant. Such
registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities.
9.2 Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of the Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
20
contemplated thereby (determined as herein provided), and promptly provide to
the Purchaser copies of all filings and SEC letters of comment;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the later of: (i) six months after the latest exercise period of the
Warrant; (ii) twelve months after the Maturity Date of the Note and comply with
the provisions of the Securities Act with respect to the disposition of all of
the Registrable Securities covered by such registration statement in accordance
with the Purchaser's intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Purchaser, and to each underwriter if any,
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as the Purchaser reasonably may
request to facilitate the public sale or disposition of the securities covered
by such registration statement;
(d) use its reasonable best efforts to register or qualify the
Purchaser's Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of such jurisdictions as the Purchaser and in
the case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately notify the Purchaser and each underwriter under
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing; and
(g) make available for inspection by the Purchaser, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Purchaser
or underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
9.3 Provision of Documents.
(a) In connection with each registration hereunder, the
Purchaser will furnish to the Company in writing such information and
21
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws. In connection with each registration
pursuant to Section 9 covering an underwritten public offering, the Company and
the Purchaser agree to enter into a written agreement with the managing
underwriter in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature.
9.4 Non-Registration Events. The Company and the Purchaser agree
that the Purchaser will suffer damages if any registration statement required
under Section 9.1(a) above is not filed within 30 days after written request by
the holder and not declared effective by the SEC within 90 days after such
request, and maintained in the manner and within the time periods contemplated
by Section 9 hereof, and it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, if (i) the Registration Statement
described in Section 9.1(a) is not filed within 30 days of such written request,
or is not declared effective by the SEC on or prior to the date that is 90 days
after such request, or (ii) the registration statement on Form S-3 or such other
form as described in Section 9.1(d) is not filed on or before the Filing Date or
not declared effective on or before the sooner of the Effective Date, or within
five days of receipt by the Company of a communication from the SEC that the
registration statement described in Section 9.1(d) will not be reviewed, or
(iii) any registration statement described in Section 9.1(a) or (d) is filed and
declared effective but shall thereafter cease to be effective (without being
succeeded immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate per
year but not more than 20 consecutive calendar days (defined as a period of 365
days commencing on the date the Registration Statement is declared effective)
(each such event referred to in this Section 9.4 is referred to herein as a
"Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to two percent (2%) per
month or part thereof during the pendency of such Non-Registration Event of the
principal of the Note issued in connection with the Offering, then owned of
record by such holder or issuable as of or subsequent to the occurrence of such
Non-Registration Event. Payments to be made pursuant to this Section shall be
due and payable immediately upon demand in immediately available funds. In the
event a Mandatory Redemption Payment is demanded from the Company by the holder
pursuant to Section 8.2 of this Agreement, then the Liquidated Damages described
in this Section 9.4 shall no longer accrue on the portion of the purchase price
underlying the Mandatory Redemption Payment, from and after the date the holder
receives the Mandatory Redemption Payment. It shall be deemed a Non-Registration
Event to the extent that all the Common Stock included in the Registrable
Securities and underlying the Securities is not included in an effective
registration statement as of and after the Effective Date at the conversion
prices in effect from and after the Effective Date.
9.5 Expenses. All expenses incurred by the Company in complying with
Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars,
22
fees of, and disbursements incurred by, one counsel for the Purchaser whose fees
shall not exceed $30,000, and costs of insurance are called "Registration
Expenses". All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities, including any fees and disbursements of any
special counsel to the Purchaser beyond those included in Registration Expenses,
are called "Selling Expenses."
The Company will pay all Registration Expenses. All Selling
Expenses in connection with each registration statement under Section 9 shall be
borne by the Purchaser.
9.6 Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 9, the Company will indemnify and
hold harmless the Purchaser, and its officers, directors and each other person,
if any, who controls the Purchaser within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Purchaser, or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the Securities Act
pursuant to Section 9, or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstance when made
not misleading, and will reimburse the Purchaser, and each such person for any
reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any the
Purchaser or any such person in writing specifically for use in any such
document.
(b) In the event of a registration of the Registrable Securities
under the Securities Act pursuant to Section 9, the Purchaser will indemnify and
hold harmless the Company, and its officers, directors and each other person, if
any, who controls the Company within the meaning of the Securities Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the Securities Act
pursuant to Section 9, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such person for any reasonable legal or
other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, however, that the
Purchaser will be liable in any such case if and only to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
23
conformity with information furnished in writing to the Company by the Purchaser
specifically for use in any such document.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 9.6(c) if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Securities Act in any case in which
either (i) the Purchaser, or any controlling person of the Purchaser, makes a
claim for indemnification pursuant to this Section 9.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9.6 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Purchaser or controlling person of the Purchaser in circumstances
for which indemnification is provided under this Section 9.6; then, and in each
such case, the Company and the Purchaser will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Purchaser is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (A) the Purchaser will not
be required to contribute any amount in excess of the public offering price of
all such securities offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
24
10. INTENTIONALLY OMITTED.
11. SECURITY INTEREST. As a condition of Closing, the Company will
grant to the Purchaser a security interest in certain assets of the Company
pursuant to a Security Agreement. The Company will also execute all such
documents reasonably necessary to memorialize and further protect the security
interest described above.
12. MISCELLANEOUS.
12.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
12.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
12.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.
12.4 Entire Agreement. This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
12.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
25
12.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the holders
of the Securities under the Agreement may be waived only with the written
consent of such holders of Securities. The rights of the holder of a Note may be
waived only with the written consent of the holder of such Note.
12.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
12.8 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof with a copy to Xxxx X.
Xxxxxxxxx, Esq., Atlas Xxxxxxxx, P.A., Suite 1700, 000 Xxxx Xxx Xxxx Xxxxxxxxx,
Xxxx Xxxxxxxxxx, Xxxxxxx 00000, facsimile number (000) 000-0000 and to the
Purchaser at the address set forth on the signature page hereto for such
Purchaser, with a copy in the case of the Purchaser to Xxxxxx X. Xxxxxx, Esq.,
000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000, facsimile number (212)
541-4434, or at such other address as the Company or the Purchaser may designate
by ten days advance written notice to the other parties hereto.
12.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
12.10 Titles and Subtitles. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
26
12.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
12.12 Broker's Fees. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein, except as specified herein with respect to
the Purchaser. Each party hereto further agrees to indemnify each other party
for any claims, losses or expenses incurred by such other party as a result of
the representation in this Section 12.12 being untrue.
12.13 Indemnification. The Company shall indemnify the Purchaser for
any losses or expenses incurred by the Purchaser in connection with any claims
brought against the Purchaser by any third party (including any other
stockholder of the Company) as a result of the transactions contemplated by this
Agreement, other than for a breach of representation or warranty made by the
Purchaser herein.
12.14 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
27
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
ASSOCIATED AUTOMOTIVE LAURUS MASTER FUND, LTD.
GROUP INCORPORATED
By:____________________________
By:______________________________ Name:__________________________
Name:____________________________ Address: c/o Ironshore Corporate Services Ltd.
Title:___________________________ X.X. Xxx 0000 X.X., Xxxxxxxxxx Xxxxx, Xxxxx
Address: Church Street
2600 South Federal Highway Grand Cayman, Cayman Islands
Xxxxxx Xxxxx, Xxxxxxx 00000
28
LIST OF EXHIBITS
Form of Offering Convertible Note Exhibit A
Form of Warrant Exhibit B
Form of Opinion Exhibit C
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
Form of warrant
B-1
EXHIBIT C
FORM OF OPINION
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Florida and has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted.
2. The Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Agreement and Related
Agreements. All corporate action on the part of the Company, its officers and
directors necessary for (i) the authorization of the Agreement and Related
Agreements, and the performance of all obligations of the Company thereunder at
the Closing, and (ii) the authorization, sale, issuance and delivery of the
Securities pursuant to the Agreement and the Related Agreements has been taken.
The Conversion Shares and the Warrant Shares, when issued pursuant to and in
accordance with the terms of the Agreement and upon delivery, shall be validly
issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement,
the Note or the Related Agreements by the Company and the consummation of the
transactions contemplated by any thereof, will not, with or without the giving
of notice or the passage of time or both:
(a) Violate the provisions of the Charter or bylaws
of the Company; or
(b) To the best of such counsel's knowledge, violate
any judgment, decree, order or award of any court binding upon
the Company.
4. The Agreement and Related Agreements constitute and the
Note, upon their issuance will constitute, valid and legally binding obligations
of the Company, and are enforceable against the Company in accordance with their
respective terms.
5. The sale of the Note and the subsequent conversion of the
Note into Conversion Shares are not to such counsel's knowledge subject to any
preemptive rights or, to such counsel's knowledge, rights of first refusal that
have not been properly waived or complied with. The sale of the Warrant and the
subsequent exercise of the Warrant for Warrant Shares are not to such counsel's
knowledge subject to any preemptive rights or, to such counsel's knowledge,
rights of first refusal that have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties
of the Purchasers contained in the Agreement, the offer, sale and issuance of
the Securities will be exempt from the registration requirements of the
Securities Act, and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
7. To such counsel's knowledge, there is no action, suit,
proceeding or investigation pending currently threatened against the Company
that questions the validity of the Agreement or the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated thereby, or which might result, either individually or
in the aggregate, in any material adverse change in the assets, condition or
affairs of the Company, or any change in the current equity ownership of the
Company.
C-1
