SECURITIES PURCHASE AGREEMENT
Exhibit
99.1
Execution
Copy
SECURITIES
PURCHASE AGREEMENT (this “Agreement”),
dated as of December 5, 2006, by and between ZAP, a California corporation
(the
“Company”),
and each of the entities whose names appear on the signature pages hereof.
Such
entities are each referred to herein as an “Investor”
and, collectively, as the “Investors”.
A. The
Company wishes to sell to each Investor, and each Investor wishes to purchase,
upon
the terms and subject to the conditions set forth in this Agreement, (i) a
8%
Senior Convertible Note in the form attached hereto as Exhibit
A
(a “Note”
and, collectively with the other Notes issued hereunder, the “Notes”)
and (ii) a warrant in the form of Exhibit
B
hereto (a “Warrant”
and, collectively with the other warrants issued hereunder, the “Warrants”).
The Notes will be convertible under certain conditions into shares of the
Company’s common stock, no par value (the “Common
Stock”).
The
shares of Common Stock into which the Notes are convertible are referred to
herein as the “Conversion
Shares”
and the shares of Common Stock into which the Warrants are exercisable are
referred to herein as the “Warrant
Shares”.
The Notes, the Conversion Shares, the Warrants and the Warrant Shares are
collectively referred to herein as the “Securities”.
B. Each
Warrant will (i) entitle an Investor to purchase a number of Warrant Shares
equal to thirty percent (30%) of the number of Conversion Shares that would
be
issuable upon conversion of the Note purchased by such Investor at the Closing
(as defined below), at the Conversion Price (as defined below) in effect on
the
date of such Closing and without regard to any restrictions on such conversion,
(ii) have an exercise price equal to one dollar and ten cents ($1.10), subject
to adjustment as provided therein, and (iii) expire on the fifth (5th)
anniversary of the Closing Date.
C. The
Company has agreed to effect the registration of the Conversion Shares and
the
Warrant Shares for resale by the holders thereof under the Securities Act of
1933, as amended (the “Securities
Act”),
pursuant to a Registration Rights Agreement in the form attached hereto as
Exhibit
C
(the “Registration
Rights Agreement”).
D. The
sale of the Notes and the Warrants by the Company to the Investors will be
effected in reliance upon the exemption from securities registration afforded
by
the provisions of Regulation D (“Regulation
D”),
as promulgated by the Commission (as defined below) under the Securities
Act.
In
consideration of the mutual promises made herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
Company and each Investor hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
1.1 Closing.
Upon the terms and subject to the satisfaction or waiver of the conditions
set
forth herein, the Company agrees to sell and each Investor agrees to purchase
(i) a Note (a “Note”)
with a principal amount equal to the amount set forth below such Investor’s name
on the signature pages hereof and (ii) a Warrant exercisable into the number
of
shares of Common Stock set forth below such Investor’s name on the signature
pages hereof. The date on which the closing of such purchase and sale occurs
(the “Closing”)
is hereinafter referred to as the “Closing
Date”.
The Closing will be deemed to occur at the offices of Xxxxxx Song LLP, 000
Xxxxx
Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 when (A) this Agreement and the other
Transaction Documents (as defined below) have been executed and delivered by
the
Company and each Investor, (B) each of the conditions to the Closing described
in this Agreement has been satisfied or waived as specified therein and (C)
payment of each Investor’s Purchase Price (as defined below) payable with
respect to the Note and Warrant being purchased by such Investor at the Closing
has been made by wire transfer of immediately available funds (provided,
that the aggregate amount of the Purchase Price paid by all of the Investors
is
not less than $1,500,000 and the total number of Investors is not greater than
six (6)). At the Closing, the Company shall deliver to each Investor duly
executed instruments representing the Note and Warrant purchased by such
Investor at the Closing.
1.2
Certain
Definitions.
When used herein, the following terms shall have the respective meanings
indicated:
“Affiliate”
means, as to any Person (the “subject
Person”),
any other Person (a) that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under direct or indirect
common control with, the subject Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
equity of the subject Person, or (c) ten percent (10%) or more of the
voting equity of which is directly or indirectly beneficially owned or held
by
the subject Person. For the purposes of this definition, “control”
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, through representation on such Person’s board of
directors or other management committee or group, by contract or otherwise.
“Board
of Directors”
means the Company’s board of directors.
“Business
Day”
means any
day other than a Saturday, a Sunday or a day on which the Principal Market
is
closed or on which banks in the City of New York are required or authorized
by
law to be closed.
“Closing”
and “Closing
Date”
have the respective meanings specified in Section
1.1
of this Agreement.
“Commission”
means the Securities and Exchange Commission, and any successor regulatory
agency.
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“Common
Stock”
has the meaning specified in the recitals to this Agreement.
“Conversion
Shares”
has the meaning specified in the recitals of this Agreement.
“Debt”
means, as to any Person at any time: (a) all indebtedness, liabilities and
obligations of such Person for borrowed money; (b) all indebtedness, liabilities
and obligations of such Person to pay the deferred purchase price of Property
or
services, except trade accounts payable of such Person arising in the ordinary
course of business that are not past due by more than 90 days; (c) all capital
lease obligations of such Person; (d) all Debt of others guaranteed by such
Person; (e) all indebtedness, liabilities and obligations secured by a Lien
(other than a Permitted Lien) existing on Property owned by such Person, whether
or not the indebtedness, liabilities or obligations secured thereby have been
assumed by such Person or are non-recourse to such Person; (f) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers’ acceptances, surety or other bonds and similar
instruments; and (g) all liabilities and obligations of such Person to redeem
or
retire shares of capital stock of such Person (other than the Company’s
obligation to redeem the Securities under the circumstances specified therein).
“Disclosure
Documents”
means all SEC Documents filed with the Commission at least five (5) Business
Days prior to the Execution Date.
“DTC”
means The Depositary Trust Company (and any successor entity).
“Effective
Date”
has the meaning specified in the Registration Rights Agreement.
“Environmental
Law”
means any federal, state, provincial, local or foreign law, statute, code or
ordinance, principle of common law, rule or regulation, as well as any Permit,
order, decree, judgment or injunction issued, promulgated, approved or entered
thereunder, relating to pollution or the protection, cleanup or restoration
of
the environment or natural resources, or to the public health or safety, or
otherwise governing the generation, use, handling, collection, treatment,
storage, transportation, recovery, recycling, discharge or disposal of hazardous
materials.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and
the
regulations and published interpretations thereunder.
“Event
of Default”
has the meaning specified in the Notes.
"Exchange"
has the meaning specified in Section 4.16 of this
Agreement.
“Exchange
Act”
means the Securities Exchange Act of 1934, as amended (or any successor act),
and the rules and regulations thereunder (or respective successors
thereto).
"Exchange
Closing Date," "Exchange Documents," "Exchange Election Notice," "Exchange
Notice," and "Exchange Securities" have
the respective meanings specified in Section 4.16 of
this Agreement.
“Execution
Date”
means the date of this Agreement.
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“GAAP”
means generally accepted accounting principles, applied on a consistent basis,
as set forth in (i) opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements of the Financial
Accounting Standards Board and (iii) interpretations of the Commission and
the
staff of the Commission. Accounting principles are applied on a “consistent
basis” when the accounting principles applied in a current period are comparable
in all material respects to those accounting principles applied in a preceding
period.
“Governmental
Authority”
means any nation or government, any state, provincial or political subdivision
thereof and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government, including, without
limitation, any stock exchange, securities market or self-regulatory
organization.
“Governmental
Requirement”
means any law, statute, code, ordinance, order, rule, regulation, judgment,
decree, injunction, franchise, license or other directive or requirement of
any
federal, state, county, municipal, parish, provincial or other Governmental
Authority or any department, commission, board, court, agency or any other
instrumentality of any of them.
“Intellectual
Property”
means any U.S. or foreign patents, patent rights, patent applications,
trademarks, trade names, service marks, brand names, logos and other trade
designations (including unregistered names and marks), trademark and service
xxxx registrations and applications, copyrights and copyright registrations
and
applications, inventions, invention disclosures, protected formulae,
formulations, processes, methods, trade secrets, computer software, computer
programs and source codes, manufacturing research and similar technical
information, engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
“Investment
Company Act”
has the meaning specified in Section
3.25
of this Agreement.
“Investor
Party”
has the meaning specified in Section
4.10
of this Agreement.
“Key
Employee”
has the meaning specified in Section
3.16
of this Agreement.
“Lien”
means, with respect to any Property, any mortgage, pledge, hypothecation,
assignment, deposit arrangement, security interest, tax lien, financing
statement, pledge, charge, or other lien, charge, easement, encumbrance,
preference, priority or other security agreement or preferential arrangement
of
any kind or nature whatsoever on or with respect to such Property (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the
foregoing).
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“Material
Adverse Effect”
means an effect that is material and adverse to
(i) the consolidated business, properties, assets, operations, results of
operations, financial condition, credit worthiness or prospects of the Company
and the Company Subsidiaries taken as a whole, (ii) the ability of the Company
to perform its obligations under this Agreement or the other Transaction
Documents or (iii) the rights and benefits to which an Investor is entitled
under this Agreement, the Notes and the other Transaction
Documents.
“Material
Contracts”
means, as to the Company and the Company Subsidiaries, any agreement
required pursuant to Item 601 of Regulation S-B or Item 601 of Regulation
S-K,
as applicable, promulgated under the Securities Act to be filed as an exhibit
to
any report,
schedule, registration statement or definitive proxy statement filed or required
to be filed by the Company with the Commission under
the Exchange Act or any rule or regulation promulgated thereunder,
and any and all amendments, modifications, supplements, renewals or restatements
thereof.
“NASD”
means the National Association of Securities Dealers, Inc.
“Obligations”
means any and all indebtedness, liabilities and obligations of the Company
to the Investor evidenced by and/or arising pursuant to this Agreement to pay
amounts due on the Notes or to make other cash payments, now existing or
hereafter arising, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several or joint and several,
including, without limitation, the obligations of the Company to repay principal
of the Notes, to pay interest on the Notes (including, without limitation,
interest accruing after any bankruptcy, insolvency, reorganization or other
similar filing) and to pay all fees, indemnities, costs and expenses (including
attorneys’ fees) provided for in this Agreement or the Notes.
“Pension
Plan”
means an employee benefit plan (as defined in ERISA) maintained by the Company
for employees of the Company or any of its Affiliates.
“Permitted
Debt”
means the following:
(a) the
Notes;
(b) Debt
outstanding on the Execution Date and disclosed on Schedule
3.5
hereto;
(c) Subordinated
Debt;
(d) Debt
consisting of capitalized lease obligations and purchase money indebtedness
incurred in connection with acquisition of capital assets and obligations under
sale-leaseback or similar arrangements provided in each case that such
obligations are not secured by Liens on any assets of the Company or its
Subsidiaries other than the assets so leased; and
(e) Debt
obtained from banking or other financial institutions engaged primarily in
the
business of lending transactions, provided
that (i) such Debt shall not be
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convertible
into any capital stock or other equity securities of the Company or its
Subsidiaries, and (ii) no warrants or other equity securities of the Company
or
any of its Subsidiaries shall be issued in connection with obtaining such
Debt.
“Permitted
Liens”
means each of the following:
(a) Liens
in existence on the Execution Date and disclosed on Schedule
3.5
hereto;
(b) Liens
on (and limited solely to) assets acquired through purchase money indebtedness
to secure such purchase money indebtedness (and no other Debt);
(c) Liens
to secure any Debt described in clause
(e) of
the definition of “Permitted
Debt”;
(d) encumbrances
consisting of easements, rights-of-way, zoning restrictions or other
restrictions on the use of real Property or imperfections to title that do
not
(individually or in the aggregate) materially impair the ability of the Company
or any of its Subsidiaries to use such Property in its businesses, and none
of
which is violated in any material respect by existing or proposed structures
or
land use;
(e) Liens
for taxes, assessments or other governmental charges (including without
limitation in connection with workers’ compensation and unemployment insurance)
that are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the Property subject to such Liens, and for which adequate
reserves (as determined in accordance with GAAP) have been established;
(f) Liens
of mechanics, materialmen, warehousemen, carriers, landlords or other similar
statutory Liens securing obligations that are not yet due and are incurred
in
the ordinary course of business or which are being contested in good faith
by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the Property subject to such Liens, for which adequate
reserves (as determined in accordance with GAAP) have been established;
and
(g) mortgages
on real Property in existence on the Execution Date and disclosed on
Schedule
3.22
hereto, and any replacements thereof, securing amounts not greater than the
amounts secured thereby on the Execution Date.
“Person”
means any individual, corporation, trust, association, company, partnership,
joint venture, limited liability company, joint stock company, Governmental
Authority or other entity.
“Principal
Market”
means the principal exchange, market or quotation system on which the Common
Stock is listed, traded or quoted.
6
“Property”
means property and/or assets of all kinds, whether real, personal or mixed,
tangible or intangible (including, without limitation, all rights relating
thereto).
“Pro
Rata Share”
means, with respect to an Investor, the ratio determined by dividing (i) the
principal amount of the Note or Notes purchased hereunder by such Investor
at
the Closing by (ii) the aggregate principal amount of the Notes purchased
hereunder by all of the Investors at the Closing.
“Purchase
Price”
means, with respect to Securities purchased at the Closing, the original
principal amount of the Note purchased at the Closing.
“Registration
Rights Agreement”
has the meaning specified in the recitals to this Agreement.
“Registration
Statement”
has the meaning specified in the Registration Rights Agreement.
“Registrable
Securities”
has the meaning specified in the Registration Rights Agreement.
“Regulation
D”
has the meaning specified in the recitals to this Agreement.
“Reserved
Amount”
has the meaning specified in Section
4.3
of this Agreement.
“Restricted
Payment”
means (a) any dividend or other distribution (whether in cash, Property or
obligations), direct or indirect, on account of (or the setting apart of money
for a sinking or other analogous fund for the benefit of) any shares of any
class of capital stock of the Company or its Subsidiaries now or hereafter
outstanding, except a dividend payable solely in shares of that class of stock
to all of the holders of that class; (b) any redemption, exchange, retirement,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any shares of any class of capital stock of the Company or
any
of its Affiliates now or hereafter outstanding, except the Securities;
(c) any prepayment of principal of, premium, if any, or interest on, or any
redemption, conversion, exchange, purchase, retirement, sinking fund or
defeasance of, any Debt (whether upon acceleration of such Debt or otherwise)
other than the Securities; and (d) any loan, advance or payment to any
officer, director or stockholder of the Company or any of its Affiliates,
exclusive of reasonable compensation and reimbursements paid to officers or
directors in the ordinary course of business.
“Rule
144”
means Rule 144 under the Securities Act or any successor provision.
“SEC
Documents”
means all reports, schedules, registration statements and definitive proxy
statements filed by the Company with the Commission.
7
“Securities”
means the Notes, the Conversion Shares, the Warrants and the Warrant
Shares.
“Securities
Act”
has the meaning specified in the recitals of this Agreement.
“Subordinated
Debt”
means Debt of the Company which meets each of the following requirements:
(a) such Debt is wholly unsecured; (b) such Debt is contractually
subordinated, as to payment and liquidation, to the payment in full of the
Notes
on such terms and pursuant to written agreements in such form and substance
as
are reasonably acceptable to the holders of a majority in principal amount
of
the Notes, that restrict the Company from pre-paying any amounts in respect
of
the principal of such Debt (upon acceleration or otherwise) prior to the
scheduled maturity thereof, and that restrict the subordinated creditor from
commencing any judicial or other collection efforts or exercising any other
remedies prior to the date that is ninety-one (91) days following the payment
in
full of the Notes; and (c) such Debt does not mature prior to the date that
is
ninety-one (91) days following the latest Maturity Date (as defined in the
Notes) of the Notes then outstanding.
“Subsequent
Placement”
means any issuance, sale or exchange by the Company or any Subsidiary of
the
Company at any time after the Closing Date, or any agreement or obligation
of
the Company or any Subsidiary of the Company to issue, sell or exchange,
at any
time after the Closing Date, (i) any shares of common stock of the Company
or
any Subsidiary of the Company, (ii) any other equity security of the Company
or
any Subsidiary of the Company, including without limitation preferred stock,
(iii) any other security of the Company or any Subsidiary of the Company
which
by its terms is convertible into or exchangeable or exercisable for any equity
security of the Company or any Subsidiary of the Company, (iv) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any
such
security described in the foregoing clauses
(i)
through (iii),
or (v) any debt instruments or securities, including promissory notes and
convertible debt instruments; provided,
however,
that the term “Subsequent
Placement”
shall not be deemed to include any issuance, sale or exchange of Excluded
Securities (as defined in the Notes).
“Subsidiary”
means, with respect to any Person, any corporation or other entity of which
at
least a majority of the outstanding shares of stock or other ownership interests
having by the terms thereof ordinary voting power to elect a majority of the
board of directors (or Persons performing similar functions) of such corporation
or entity (regardless of whether or not at the time, in the case of a
corporation, stock of any other class or classes of such corporation shall
have
or might have voting power by reason of the happening of any contingency) is
at
the time directly or indirectly owned or controlled by such Person or one or
more of its Subsidiaries or by such Person and one or more of its
Subsidiaries.
“Termination
Date”
means the first date on which there are no Notes outstanding.
“Trading
Day”
means any day on which shares of Common Stock are purchased and sold on the
Principal Market.
“Transaction
Documents”
means (i) this Agreement, (ii) the Notes, (iii) the Warrants, (iv) the
Registration Rights Agreement, and (v) all other agreements, documents and
other
instruments executed and delivered by or on behalf of the Company or any of
its
officers at the Closing.
“Transfer
Agent”
has the meaning specified in Section
2.5
of this Agreement.
“Variable
Rate Security”
means any security that is convertible into, exchangeable for or that requires
the Company to issue shares of Common Stock at a conversion,
exercise or exchange ratio
or
price that
varies with
the market price of the Common Stock.
“VWAP”
on a Trading Day means the volume weighted average price of the Common Stock
for
such Trading Day on the Principal Market as reported by Bloomberg Financial
Markets or, if Bloomberg Financial Markets is not then reporting such prices,
by
a comparable
8
reporting
service of national reputation selected by the Investors and reasonably
satisfactory to the Company. If the VWAP cannot be calculated for the Common
Stock on such Trading Day on any of the foregoing bases, then the Company shall
submit such calculation to an independent investment banking firm of national
reputation reasonably acceptable to each Investor, and shall cause such
investment banking firm to perform such determination and notify the Company
and
each Investor of the results of determination no later than two (2) Business
Days from the time such calculation was submitted to it by the Company. All
such
determinations shall be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
1.3 Other
Definitional Provisions.
All definitions contained in this Agreement are equally applicable to the
singular and plural forms of the terms defined. The words “hereof”, “herein” and
“hereunder” and words of similar import contained in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement.
2. REPRESENTATIONS
AND WARRANTIES OF EACH INVESTOR.
Each
Investor (with respect to itself only) hereby represents and warrants to the
Company and agrees with the Company that, as of the Execution Date:
2.1 Authorization;
Enforceability.
Such Investor is duly and validly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
as set forth below such Investor’s name on the signature page hereof with the
requisite corporate power and authority to purchase the Notes and Warrants
to be
purchased by it hereunder and to execute and deliver this Agreement and the
other Transaction Documents to which it is a party. This Agreement constitutes,
and upon execution and delivery thereof, each other Transaction Document to
which such Investor is a party will constitute, such Investor’s valid and
legally binding obligation, enforceable in accordance with its terms, subject
to
(i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws of general application relating to or affecting
the enforcement of creditors’ rights generally and (ii) general principles of
equity.
2.2 Accredited
Investor.
Such Investor (i) is an “accredited investor” as that term is defined in Rule
501 of Regulation D, (ii)
was
not formed or organized for the specific purpose of making an investment in
the
Company, and (iii)
is acquiring the Securities solely for its own account and not with a present
view to the public resale or distribution of all or any part thereof, except
pursuant to sales that are registered under, or exempt from the registration
requirements of, the Securities Act and/or sales registered under the Securities
Act; provided,
however,
that in making such representation, such Investor does not agree to hold the
Securities for any minimum or specific term and reserves the right to sell,
transfer or otherwise dispose of the Securities at any time in accordance with
the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
Such Investor can bear the economic risk of a total loss of its investment
in
the Securities and has such knowledge and experience in business and financial
matters so as to enable it to understand the risks of and form an investment
decision with respect to its investment in the Securities.
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2.3 Information.
The Company has, prior to the Execution Date, provided such Investor
with information
regarding the business, operations and financial condition of the
Company and
has, prior to the Execution Date, granted to such Investor the opportunity
to
ask questions of and receive answers from representatives of the Company, its
officers, directors, employees and agents concerning the Company in order for
such Investor to make an informed decision with respect to its investment in
the
Securities. Neither such information nor any other investigation conducted
by
such Investor or any of its representatives shall modify, amend or otherwise
affect such Investor’s right to rely on the Company’s representations and
warranties contained in this Agreement.
2.4 Limitations
on Disposition.
Such Investor acknowledges that, except as provided in the Registration Rights
Agreement, the Securities have not been and are not being registered under
the
Securities Act and may not be transferred or resold without registration under
the Securities Act or unless pursuant to an exemption therefrom.
2.5 Legend.
Such Investor understands that the certificates representing the Securities
may
bear at issuance a restrictive legend in substantially the following
form:
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”), or any state
securities laws, and may not be offered for sale or sold unless a registration
statement under the Securities Act and applicable state securities laws shall
have become effective with respect thereto, or an exemption from registration
under the Securities Act and applicable state securities laws is available
in
connection with such offer or sale. These securities and the securities issuable
upon conversion or exercise hereof (i) may be pledged or hypothecated in
connection with a bona fide margin account or other financing secured by such
securities or (ii) may be transferred or assigned to an affiliate of the holder
hereof without the necessity of an opinion of counsel or the consent of the
issuer hereof.”
Notwithstanding
the foregoing, it is agreed that, as long as (A) the resale or transfer
(including without limitation a pledge) of any of the Securities is registered
pursuant to an effective registration statement, (B) such Securities have been
sold pursuant to Rule 144, subject to receipt by the Company of customary
documentation reasonably acceptable to the Company in connection therewith,
or
(C) such Securities are eligible for resale under Rule 144(k) or any successor
provision, such Securities shall be issued without any legend or other
restrictive language and, with respect to Securities upon which such legend
is
stamped, the Company shall issue new certificates without such legend to the
holder upon request. The Company shall execute and deliver written instructions
to the transfer agent for its Common Stock (the “Transfer
Agent”)
as may be necessary to satisfy any request by an Investor for removal of such
legends no later than the close of business on the third (3rd)
Business Day following the receipt of the request from an Investor to the extent
such legends may be removed in accordance with this Section
2.5.
2.6 Reliance
on Exemptions.
Such Investor understands that the Securities are being offered and sold to
it
in reliance upon specific exemptions from the registration requirements of
U.S.
federal and state securities laws and that the Company is relying upon the
truth
and accuracy of the representations and warranties of such
Investor
set forth in this Section
2
in order
10
to
determine the availability of such exemptions and the eligibility of
such
Investor
to acquire the Securities. Such Investor acknowledges that it did not purchase
the Securities based upon any advertisement in any publication of general
circulation. Such Investor is relying on the representations, acknowledgements
and agreements made by the Company in Section
3
and elsewhere in this Agreement in making investing, trading and/or other
decisions concerning the Company’s securities.
2.7 Non-Affiliate
Status; Common Stock Ownership.
Such Investor is not an Affiliate of the Company or of any other Investor and
is
not acting in association or concert with any other Person in regard to its
purchase of the Securities or otherwise in respect of the Company. Such
Investor’s investment in the Securities is not for the purpose of acquiring,
directly or indirectly, control of, and it has no intent to acquire or exercise
control of, the Company or to influence the decisions or policies of the Board
of Directors.
2.8
Fees.
Such Investor has not agreed to pay any compensation or other fee, cost or
related expenditure to any underwriter, broker, agent or other representative
in
connection with the transactions contemplated hereby.
2.9
No
Conflicts.
The execution and performance of this Agreement and the other Transaction
Documents to which it is a party do not conflict in any material respect with
any agreement to which such Investor is a party or is bound, any court order
or
judgment applicable to such Investor, or the constituent documents of such
Investor.
2.10 No
Governmental Review.
Such Investor understands that no U.S. federal or state agency or any other
Governmental Authority has passed on or made any recommendation or endorsement
of the Securities or the fairness or suitability of an investment in the
Securities nor have such authorities passed upon the
accuracy of any information provided to such Investor or made any findings
or
determinations as to the merits of the offering of the Securities.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Investor and agrees with
each
Investor that, as of the Execution Date:
3.1 Organization,
Good Standing and Qualification.
Each of the Company and its Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power
and authority to carry on its business as now conducted. Each of the Company
and
its Subsidiaries is duly qualified to transact business and is in good standing
in each jurisdiction in which it conducts business except where the failure
so
to qualify has not had or would not reasonably be expected to have a Material
Adverse Effect.
3.2 Authorization;
Consents.
The Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents, to issue and sell
the
Notes and the Warrants to the Investors in accordance with the terms hereof
and
thereof, and to issue the Conversion Shares upon conversion of the Notes
and the Warrant Shares upon exercise of the Warrants. All
corporate action on the part of the Company by its officers, directors and
shareholders necessary for the authorization, execution and delivery of, and
the
performance by the
11
Company
of its obligations under, the Transaction Documents has been taken, and no
further consent or authorization of the Company, its Board of Directors,
shareholders, any Governmental Authority or organization (other than such
approval as may be required under the Securities Act and applicable state laws
in respect of the Registration Rights Agreement, or any other person or entity)
is required (pursuant to any rule of the Principal Market or
otherwise).
The Board of Directors has determined that the sale and issuance of the
Securities, and the consummation of the transactions contemplated hereby and
by
the other Transaction Documents (including without limitation the issuance
of
the Notes and Warrants, the issuance of Conversion Shares in accordance with
the
terms of the Notes and the issuance of Warrant Shares in accordance with the
terms of the Warrants), are in the best interests of the Company.
3.3 Enforcement.
This Agreement has been and, at or prior to the Closing, each other Transaction
Document required to be delivered by the terms hereof at such Closing will
be,
duly executed and delivered by the Company. This Agreement constitutes and,
upon
the execution and delivery thereof by the Company, each other Transaction
Document will constitute the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with their respective
terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization or other similar laws of general application relating
to or affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity.
3.4 Disclosure
Documents; Agreements; Financial Statements; Other Information.
The Company is subject to the reporting requirements of the Exchange Act and,
except as described on Schedule
3.4,
the Company has, to the best of its knowledge, filed with the Commission all
SEC
Documents that the Company was required to file with the Commission on or after
December 31, 2005. The Company is not aware of any event occurring or expected
to occur on or prior to the Closing Date (other than the transactions effected
hereby) that would require the filing of, or with respect to which the Company
intends to file, a Form 8-K after the Closing. Each SEC Document filed on or
after December 31, 2005, as of the date of the filing thereof with the
Commission (or if amended or superseded by a filing prior to the Execution
Date,
then on the date of such amending or superseding filing), complied, to the
best
of the Company’s knowledge, in all material respects with the requirements of
the Securities Act or Exchange Act, as applicable, and the rules and regulations
promulgated thereunder and, as of the date of such filing (or if amended or
superseded by a filing prior to the Execution Date, then on the date of such
filing), such SEC Document (including all exhibits and schedules thereto and
documents incorporated by reference therein) did not, to the best of the
Company’s knowledge, contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. To the best of the Company’s knowledge, all documents required
to be filed as exhibits to the SEC Documents filed on or after December 31,
2005
have been filed as required. Except as set forth in the Disclosure Documents,
the Company has no liabilities, contingent or otherwise, other than liabilities
incurred in the ordinary course of business which, under GAAP, are not required
to be reflected in the financial statements included in the Disclosure Documents
and which, individually or in the aggregate, are not material to the
consolidated business or financial condition of the Company and its Subsidiaries
taken as a whole. As of their respective dates, the financial statements of
the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto. To the
12
best
of the Company’s knowledge, such financial statements have been prepared in
accordance with GAAP consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements,
to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash
flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments). The Company will prepare the financial statements
to be included in any reports, schedules, registration statements and definitive
proxy statements that the Company is required to file or files with the
Commission after the date hereof in accordance with GAAP (except in the case
of
unaudited interim statements, to the extent they may exclude footnotes or may
be
condensed or summary statements).
3.5 Capitalization;
Debt Schedule.
The capitalization of the Company, including its authorized capital stock,
the
number of shares issued and outstanding, the number of shares issuable and
reserved for issuance pursuant to the Company’s stock option plans and
agreements, the number of shares issuable and reserved for issuance pursuant
to
securities (other than the Notes and Warrants) exercisable for, or convertible
into or exchangeable for any shares of Common Stock and the number of shares
initially to be reserved for issuance upon conversion of the Notes and exercise
of the Warrants, is set forth on Schedule
3.5
hereto. All outstanding shares of capital stock of the Company have been, or
upon issuance will be, validly issued, fully paid and non-assessable. All
Subsidiaries of the Company are disclosed on Schedule
3.5
hereto. Except as disclosed on
Schedule 3.5
hereto, the Company or a wholly-owned Subsidiary of the Company owns all of
the
capital stock of each Subsidiary of the Company, which capital stock is validly
issued, fully paid and non-assessable, and no shares of the capital stock of
the
Company or any of its Subsidiaries are subject to preemptive rights or any
other
similar rights of the shareholders of the Company or any such Subsidiary or
any
Liens created by or through the Company or any such Subsidiary. Except as
disclosed on Schedule
3.5
or as contemplated herein, there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries (whether
pursuant to anti-dilution, “reset” or other similar provisions).
Schedule
3.5
identifies all Debt of the Company and/or its Subsidiaries currently outstanding
in excess of $25,000 as of the date hereof.
3.6 Due
Authorization; Valid Issuance.
The Notes are duly authorized and, when issued, sold and delivered in accordance
with the terms of this Agreement, will be duly and validly issued, free and
clear of any Liens imposed by or through the Company. The Warrants are duly
authorized and, when issued, sold and delivered in accordance with the terms
of
this Agreement, will be duly and validly issued, free and clear of any Liens
imposed by or through the Company. The Conversion Shares issuable under the
Notes and the Warrant Shares issuable under the Warrants are duly authorized
and
reserved for issuance and, when issued and delivered in accordance with the
terms of the Notes or the Warrants, as the case may be, will be duly and validly
issued, fully paid and nonassessable, free and clear of any Liens imposed by
or
through the Company. Assuming the accuracy of each Investor’s representations
contained herein, the issuance
13
and
sale of the Notes and Warrants under this Agreement will be effected in
compliance with all applicable Federal and state securities laws.
3.7 Form
SB-2.
The Company is eligible to register the Conversion Shares and Warrant Shares
for
resale in a secondary offering by each Investor on a registration statement
on
Form SB-2 under the Securities Act.
To the Company’s knowledge, as
of the date hereof and as of the Closing Date, there
exist no facts or circumstances (including without limitation any required
approvals or waivers of any circumstances that may delay or prevent the
obtaining of accountant’s consents) that could reasonably be expected to
prohibit or delay the preparation, filing or effectiveness of such registration
statement on Form SB-2.
3.8 No
Conflict.
Neither the Company nor any of its Subsidiaries is in violation of any
provisions of its charter, Bylaws or any other governing document. Except as
set
forth on Schedule
3.8,
neither the Company nor any of its Subsidiaries is in violation of or in default
(and no event has occurred which, with notice or lapse of time or both, would
constitute a default) under any provision of any instrument or contract to
which
it is a party or by which it or any of its Property is bound, or in violation
of
any provision of any Governmental Requirement applicable to the Company or
any
Subsidiary of the Company, except for any violation or default that has not
had
or would not reasonably be expected to have a Material Adverse Effect.
The
(i) execution, delivery and performance of this Agreement and the other
Transaction Documents and (ii) consummation of the transactions contemplated
hereby and thereby (including without limitation, the issuance of the Notes
and
the Warrants and the reservation for issuance and issuance of the Conversion
Shares and the Warrant Shares) will not result in any violation of any
provisions of the Company’s or any of its Subsidiary’s charter, Bylaws or any
other governing document or in a default under any provision of any instrument
or contract to which the Company or Subsidiary of the Company is a party or
by
which it or any of its Property is bound, or in violation of any provision
of
any Governmental Requirement applicable to the Company or Subsidiary of the
Company or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision, instrument
or contract or an event which results in the creation of any Lien upon any
assets of the Company or of any of its Subsidiaries or the triggering of any
preemptive or anti-dilution rights (including
without limitation pursuant to any “reset” or similar provisions) or
rights of first refusal or first offer,
or
any other rights that would allow or permit the holders of the Company’s
securities or any other Person to purchase shares of Common Stock or other
securities of the Company or Subsidiary of the Company (whether
pursuant to a shareholder rights plan provision or otherwise).
3.9 Financial
Condition; Taxes; Litigation.
3.9.1
The financial condition of each of the Company and each Subsidiary of the
Company is, in all material respects, as described in the Disclosure Documents,
except for changes in the ordinary course of business and normal year-end
adjustments that are not, in the aggregate, materially adverse to the
consolidated business or financial condition of the Company and its Subsidiaries
taken as a whole. There has been no (i) material adverse change to the business,
operations, properties, financial condition, prospects or results of operations
of the Company and its Subsidiaries taken as a whole since the date of the
Company’s most recent financial statements
14
contained
in the Disclosure Documents or
(ii) change by the Company in its accounting principles, policies and methods
except as required by changes in GAAP.
3.9.2
Each of the Company and its Subsidiaries has prepared in good faith and duly
and
timely filed all tax returns required to be filed by it and such returns are
complete and accurate in all material respects and the Company and its
Subsidiaries each has paid all taxes required to have been paid by it, except
for taxes which it reasonably disputes in good faith or the failure of which
to
pay has not had or would not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any Subsidiary of the Company has any liability
with respect to taxes that accrued on or before the date of the most recent
balance sheet of the Company included in the Disclosure Documents in excess
of
the amounts accrued with respect thereto that are reflected on such balance
sheet.
3.9.3
Except for sales tax audits undertaken by state taxing authorities in the
ordinary course of business, neither the Company nor any of its Subsidiaries
is
the subject of any pending or, to the Company’s knowledge, threatened inquiry,
investigation or administrative or legal proceeding by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, the
Commission, the NASD, any state securities commission or other Governmental
Authority.
3.9.4
Except as set forth on Schedule
3.9.4,
there is no material claim, litigation or administrative proceeding pending,
or,
to the Company’s knowledge, threatened or contemplated, against the Company or
any of its Subsidiaries, or against any officer, director or employee of the
Company or any such Subsidiary in connection with such person’s employment
therewith. Neither the Company nor any of its Subsidiaries is a party to or
subject to the provisions of, any order, writ, injunction, judgment or decree
of
any court or Government Authority which has had or would reasonably be expected
to have a Material Adverse Effect.
3.10
Acknowledgement
of Dilution.
The Company acknowledges that the issuance of Conversion Shares upon conversion
of the Notes and issuance of the Warrant Shares upon exercise of the Warrants
may result in dilution of the outstanding shares of Common Stock, which dilution
may be substantial under certain market conditions. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion
of
the Notes in accordance with the terms of the Notes, and to issue Warrant Shares
upon exercise of the Warrants in accordance with the terms of the Warrants,
is
unconditional (other than with respect to the conditions set forth in the Notes
and the Warrants, respectively) regardless of the effect of any such dilution.
The
Company further acknowledges that, to the extent not otherwise prohibited by
applicable law and the terms of this Agreement, each Investor may enter into
hedging transactions with respect to the Common Stock.
3.11 Intellectual
Property.
Except as set forth in Schedule
3.11:
(a) The
Company and its Subsidiaries own, free and clear of claims or rights or any
other Person, with full right to use, sell, license, sublicense, dispose of,
and
bring actions for infringement of, or, to the knowledge of the Company, has
acquired licenses or other rights to use, all Intellectual Property necessary
for the conduct of its business as presently conducted (other than with respect
to software which is generally commercially available and not used or
incorporated into the Company’s products and open source software which may be
subject to one or more
15
“general
public” licenses). All works that are used or incorporated into the Company’s or
any of its Subsidiaries’ services, products or services or products actively
under development and which is proprietary to the Company or such Subsidiary
was
developed by or for the Company or its Subsidiaries by the current or former
employees, consultants or independent contractors of the Company or its
Subsidiaries or purchased or licensed by the Company or one or more of its
Subsidiaries.
(b) The
business of the Company and its Subsidiaries as presently conducted and the
production, marketing, licensing, use and servicing of any products or services
of the Company and its Subsidiaries do not, to the knowledge of the Company,
infringe or conflict with any patent, trademark, copyright, or trade secret
rights of any third parties or any other Intellectual Property of any third
parties in any material respect. Neither the Company nor any of its Subsidiaries
has received written notice from any third party asserting that any Intellectual
Property owned or licensed by the Company or its Subsidiaries, or which the
Company or any of its Subsidiaries otherwise has the right to use, is invalid
or
unenforceable by the Company or such Subsidiary and, to the Company’s knowledge,
there is no valid basis for any such claim (whether or not pending or
threatened).
(c) No
claim is pending or, to the Company’s knowledge, threatened against the Company
or any of its Subsidiaries nor has the Company or any of its Subsidiaries
received any written notice or other written claim from any Person asserting
that any of the Company’s or its Subsidiaries’ present or contemplated
activities infringe or may infringe in any material respect any Intellectual
Property of such Person, and the Company is not aware of any infringement by
any
other Person of any material rights of the Company or any of its Subsidiaries
under any Intellectual Property Rights.
(d) All
licenses or other agreements under which the Company or any of its Subsidiaries
is granted Intellectual Property (excluding licenses to use software utilized
in
the Company’s or such Subsidiary’s internal operations and which is generally
commercially available) are in full force and effect and, to the Company’s
knowledge, there is no material default by any party thereto. The Company has
no
reason to believe that the licensors under such licenses and other agreements
do
not have and did not have all requisite power and authority to grant the rights
to the Intellectual Property purported to be granted thereby.
(e) All
licenses or other agreements under which the Company or any of its Subsidiaries
has granted rights to Intellectual Property to others (including all end-user
agreements) are in full force and effect, there has been no material default
by
the Company or any of its Subsidiaries thereunder and, to the Company’s
knowledge, there is no material default of any provision thereof relating to
Intellectual Property by any other party thereto.
(f) The
Company and its Subsidiaries have taken all steps required in accordance with
commercially reasonable business practice to establish and preserve their
ownership in their owned Intellectual Property and to keep confidential all
material technical information developed by or belonging to the Company or
its
Subsidiaries which has not been patented or copyrighted. To the Company’s
knowledge, neither the Company nor any of its Subsidiaries is making any
unlawful use of any Intellectual Property of any other Person,
including,
16
without
limitation, any former employer of any past or present employees of the Company
or any of its Subsidiaries. To the Company’s knowledge, neither the Company, any
of its Subsidiaries nor any of their respective employees has any agreements
or
arrangements with former employers of such employees relating to any
Intellectual Property of such employers, which materially interfere or conflict
with the performance of such employee’s duties for the Company or its
Subsidiaries or result in any former employers of such employees having any
rights in, or claims on, the Company’s or any of its Subsidiaries’ Intellectual
Property. Each current employee of the Company and of each of its Subsidiaries
has executed agreements regarding confidentiality, proprietary information
and
assignment of inventions and copyrights to the Company or its Subsidiaries,
each
independent contractor or consultant of the Company and of each of its
Subsidiaries has executed agreements regarding confidentiality and proprietary
information, and neither the Company nor any of its Subsidiaries has received
written notice that any employee, consultant or independent contractor is in
violation of any agreement or in breach of any agreement or arrangement with
former or present employers relating to proprietary information or assignment
of
inventions. Without limiting the foregoing: (i) the Company and each of its
Subsidiaries has taken reasonable security measures to guard against
unauthorized disclosure or use of any of its Intellectual Property that is
confidential or proprietary; and (ii) the Company has no reason to believe
that
any Person (including, without limitation, any former employee or consultant
of
the Company or of any of its Subsidiaries) has unauthorized possession of any
of
its Intellectual Property, or any part thereof, or that any Person has obtained
unauthorized access to any of its Intellectual Property. The Company and each
of
its Subsidiaries has complied in all material respects with its respective
obligations pursuant to all agreements relating to Intellectual Property rights
that are the subject of licenses granted by third parties, except for any
non-compliance that has not had or would not reasonably be expected to have
a
Material Adverse Effect.
3.12 Registration
Rights; Rights of Participation
Except with respect to the number of shares of Common Stock as is listed on
Schedule
3.12,
(A) the Company has not granted or agreed to grant to any person or entity
any
rights (including “piggy-back” registration rights) to have any securities of
the Company registered with the Commission or any other governmental authority
which has not been satisfied in full or waived on or prior to the date hereof
and (B) no person or entity, including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties, has any right of first refusal, preemptive right, right of
participation, anti-dilutive right or any similar right to participate in,
or to
receive securities or other assets of the Company solely as a result of the
transactions contemplated by this Agreement or the other Transaction
Documents.
3.13 Solicitation;
Other Issuances of Securities.
Neither the Company nor any of its Subsidiaries or Affiliates, nor any Person
acting on its or their behalf, (i) has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offer or sale of the Securities, or (ii) has, directly
or
indirectly, made any offers or sales of any security or the right to purchase
any security, or solicited any offers to buy any security or any such right,
under circumstances that would require registration of the Securities under
the
Securities Act.
3.14 Fees.
Except as set forth on Schedule
3.14,
the Company is not obligated to pay any brokers, finders or financial advisory
fees or commissions to any underwriter, broker, agent or other representative
in
connection with the transactions contemplated hereby. The Company
will
17
indemnify
and hold harmless such Investor from and against any claim by any person or
entity alleging that such Investor is obligated to pay any such compensation,
fee, cost or related expenditure in connection with the transactions
contemplated hereby.
3.15 Foreign
Corrupt Practices.
Neither the Company, any of its Subsidiaries nor, to the knowledge of the
Company, any director, officer, agent, employee or other person acting on behalf
of the Company or any of its Subsidiaries, has (i) used any corporate funds
for
any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity, (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee, or (iii)
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended,
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
3.16 Key
Employees.
Each of the Company’s and each of its Subsidiarys’ executive officers (as
defined in Rule 501(f) of the Securities Act) (each, a “Key
Employee”)
is currently serving in the capacity described in the Disclosure Documents.
Except as set forth on Schedule
3.16,
the Company has no knowledge of any fact or circumstance (including without
limitation (i) the terms of any agreement to which such person is a party or
any
litigation in which such person is or may become involved and (ii) any illness
or medical condition that could reasonably be expected to result in the
disability or incapacity of such person) that would limit or prevent any such
person from serving in such capacity on a full-time basis in the foreseeable
future, or of any intention on the part of any such person to limit or terminate
his or her employment with the Company or any of its Subsidiaries. To the
knowledge of the Company, no Key Employee has borrowed money pursuant to a
currently outstanding loan that is secured by Common Stock or any right or
option to receive Common Stock.
3.17 Employee
Matters.
There is no strike, labor dispute or union organization activities pending
or,
to the knowledge of the Company, threatened between it and its employees. No
employees of the Company belong to any union or collective bargaining unit.
The
Company has complied in all material respects with all applicable federal and
state equal opportunity and other laws related to employment.
3.18 Environment.
Except
as disclosed in the Disclosure Documents, the Company and its Subsidiaries
have
no liabilities under any Environmental Law, nor, to the Company's knowledge,
do
any factors exist that are reasonably likely to give rise to any such liability,
affecting any of the properties owned or leased by the Company or any of its
Subsidiaries that, individually or in the aggregate, has
had or would reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries has
violated any Environmental Law applicable to it now or previously in effect,
other than such violations or infringements that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect.
3.19 ERISA.
Except as described on Schedule
3.19,
the Company does not maintain or contribute to, or have any obligation under,
any Pension Plan. The Company is in compliance in all material respects with
the
presently applicable provisions of ERISA and the United States Internal Revenue
Code of 1986, as amended, with respect to each Pension Plan except in
any
18
such
case for any such matters that, individually or in the aggregate, have not
had,
and would not reasonably be expected to have, a Material Adverse
Effect.
3.20 Disclosure.
The representations, warranties and written statements contained in this
Agreement and the other Transaction Documents and in the certificates, exhibits
and schedules delivered to such Investor by the Company pursuant to this
Agreement and the other Transaction Documents and in connection with such
Investor’s due diligence investigation of the Company, do not contain any untrue
statement of a material fact, and do not omit to state a material fact required
to be stated therein or necessary in order to make such representations,
warranties or statements not misleading in light of the circumstances under
which they were made. Neither the Company nor any Person acting on its behalf
or
at its direction has provided such Investor with material non-public information
other than the terms of the transactions contemplated hereby. Following the
issuance of a press release in accordance with Section
4.1(c)
of this Agreement, to the Company’s knowledge, such Investor will not possess
any material non-public information concerning the Company that was provided
to
such Investor by the Company or its agents or representatives. The Company
acknowledges that such Investor is relying on the representations,
acknowledgments and agreements made by the Company in this Section
3.20
and elsewhere in this Agreement in making trading and other decisions concerning
the Company’s securities.
3.21 Insurance.
The Company maintains insurance for itself and its Subsidiaries in such amounts
and covering such losses and risks as are reasonably sufficient and customary
in
the businesses in which the Company and its Subsidiaries are engaged.
As
of the date hereof and as of the Closing Date, no
notice of cancellation has been received for any of such policies and the
Company is in compliance in all material respects with all of the terms and
conditions thereof. The Company has no reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue to conduct its business as currently conducted without a significant
increase in cost. Without limiting the generality of the foregoing, the Company
maintains Director’s and Officer’s insurance in an amount not less than $5
million for each covered occurrence.
3.22
Property.
The Company and its
Subsidiaries
have good and marketable title to all real and personal Property owned by them,
in each case free and clear of all Liens, except for Permitted Liens. Any
Property held under lease by the Company or its Subsidiaries is held by them
under valid, subsisting and enforceable leases with such exceptions as are
not
material and do not interfere with the use made or proposed to be made of such
Property by the Company or any of its Subsidiaries. Schedule
3.22
sets forth all real property owned by the Company and all mortgages or other
liens (other than Permitted Liens specified in paragraphs (b), (c) and (d)
in
the definition thereof) encumbering such Property.
3.23
Regulatory
Permits.
The Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses,
except where the failure to have any such certificate,
authorization
or permit would not have a Material Adverse Effect,
and neither the
19
Company
nor any such Subsidiary has received any notice of proceedings relating to
the
revocation or modification of any such certificate, authorization or
permit.
3.24 [Intentionally
Omitted.]
3.25 Investment
Company Status.
The Company is not, and immediately after any Closing will not be, an
“investment
company”
or an entity “controlled”
by an “investment
company”
within the meaning of the Investment Company Act of 1940, as amended (the
“Investment
Company Act”),
and shall conduct its business in a manner so that it will not become subject
to
the Investment Company Act.
3.26 Transfer
Taxes.
No stock transfer or other taxes (other than income taxes) are required to
be
paid in connection with the issuance and sale of any of the Securities, other
than such taxes for which the Company has established appropriate reserves
and
intends to pay in full on or before the Closing.
3.27 Xxxxxxxx-Xxxxx
Act; Internal Controls and Procedures.
The Company is in material compliance with any and all applicable requirements
of the Xxxxxxxx-Xxxxx Act of 2002, as amended, and any and all applicable rules
and regulations promulgated by the SEC thereunder that are effective as of
the
date hereof. The Company maintains internal accounting controls, policies and
procedures, and such books and records as are reasonably designed to provide
reasonable assurance that (i)
all transactions to which the Company or any Subsidiary of the Company is a
party or by which its properties are bound are effected by a duly authorized
employee or agent of the Company, supervised by and acting within the scope
of
the authority granted by the Company’s senior management; (ii)
the recorded accounting of the Company’s consolidated assets is compared with
existing assets at regular intervals; and
(iii) all
transactions to which the Company or any Subsidiary of the Company is a party,
or by which its properties are bound, are recorded (and such records maintained)
in accordance with all Government Requirements and as may be necessary or
appropriate to ensure that the financial statements of the Company are prepared
in accordance with GAAP.
3.28
Embargoed
Person.
None of the funds or other assets of the Company or its Subsidiaries shall
constitute property of, or shall be beneficially owned, directly or indirectly,
by any person subject to trade restrictions under United States law, including,
but not limited to, the International Emergency Economic Powers Act,
50 U.S.C. § 1701 et seq.,
the Trading with the Enemy Act, 50 U.S.C. App. 1 et seq.,
and any Executive Orders or regulations promulgated under any such United States
laws (each, an “Embargoed
Person”),
with the result that the investments evidenced by the Securities are or would
be
in violation of law. No Embargoed Person shall have any interest of any nature
whatsoever in the Company or any Subsidiary of the Company with the result
that
the investments evidenced by the Securities are or would be in violation of
law.
None of the funds or other assets of the Company or its Subsidiaries shall
be
derived from any unlawful activity with the result that the investments
evidenced by the Securities are or would be in violation of law.
3.29 Transactions
with Interested Persons.
Except as described on Schedule
3.29,
no officer, director or employee of the Company or any of its Subsidiaries
is or
has made any arrangements with the Company or any of its Subsidiaries to become
a party to any transaction with
20
the
Company or any Subsidiary of the Company (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real
or personal property to or from, or otherwise requiring payments to or from
any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
3.30 Customers
and Suppliers.
The relationships of the Company and its Subsidiaries with their respective
customers and suppliers are maintained on commercially reasonable terms. Except
as set forth on Schedule
3.30
hereto, to the Company’s knowledge, no customer or supplier of the Company or
any of its Subsidiaries has any plan or intention to terminate its agreement
with the Company or such Subsidiary, which termination would reasonably be
expected to have a Material Adverse Effect.
3.31 Accountants.
The Company’s accountants, who
the Company expects will render their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2006, are, to the Company’s knowledge, independent
accountants as required by the Securities Act.
3.32 No
Other Agreements.
The Company has not, directly or indirectly, entered into any agreement with
or
granted any right to any Investor relating to the terms or conditions of the
transactions contemplated by the Transaction Documents, except as expressly
set
forth in the Transaction Documents.
3.33 Solvency.
(i) The fair saleable value of the Company’s assets exceeds the amount that will
be required to be paid on or in respect of the Company’s existing Debt; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business as now conducted and as proposed to be conducted; and (iii) the
expected cash flows of the Company for future periods, together with the
proceeds the Company would receive upon liquidation of its assets and the
proceeds from expected debt or equity offerings, after taking into account
all
anticipated uses of such amounts, would be sufficient to pay all Debt when
such
Debt is required to be paid. The Company has no knowledge of any facts or
circumstances which led it to believe that it will be required to file for
reorganization or liquidation under bankruptcy or reorganization laws of any
jurisdiction, and has no present intention to so file.
4. COVENANTS
OF THE COMPANY AND EACH INVESTOR.
4.1 The
Company agrees with each Investor that the Company will:
(a) file
a Form D with respect to the Securities issued at the Closing as and when
required under Regulation D and provide a copy thereof to such Investor promptly
after such filing;
(b) at
or prior to the Closing, take such action as the Company reasonably determines
upon the advice of counsel is necessary to qualify the Securities for sale
under
applicable state or “blue-sky” laws or obtain an exemption therefrom, and shall
promptly provide evidence of any such action to such Investor at such Investor’s
request; and
21
(c) (i)
on or prior to 8:30 a.m. (eastern time) on the fourth Business Day
following the Execution Date,
issue a press release disclosing the material terms of this Agreement and the
other Transaction Documents and the transactions contemplated hereby and
thereby, and (ii) on or prior to 5:00 p.m. (eastern time) on the fourth Business
Day
following the Execution Date,
file with the Commission a Current Report on Form 8-K disclosing the material
terms of and including as exhibits this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby; provided,
however,
that each Investor shall have a reasonable opportunity to review and comment
on
any such press release or Form 8-K prior to the issuance or filing thereof;
and
provided,
further,
that if the Company fails to issue a press release disclosing the material
terms
of this Agreement and the other Transaction Documents within the time frames
described herein, any Investor may issue a press release disclosing such
information without any notice to or consent by the Company. Thereafter, the
Company shall timely file any filings and notices required by the Commission
or
applicable law with respect to the transactions contemplated
hereby.
4.2 Existence
and Compliance.
The Company agrees that it will, and will cause each Subsidiary of the Company
to, while any Investor holds any Securities:
(a) maintain
its corporate existence in good standing;
(b) comply
with all Governmental Requirements applicable to the operation of its business,
except for instances of noncompliance that would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect;
(c)
comply
with all agreements, documents and instruments binding on it or affecting its
Properties or business, including, without limitation, all Material Contracts,
except for instances of noncompliance that would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect;
(d) provide
each Investor with copies of all materials sent to its shareholders at the
same
time as such materials are delivered to such shareholders;
(e) timely
file with the Commission all reports required to be filed pursuant to the
Exchange Act and refrain from terminating its status as an issuer required
by
the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination;
(f) take
commercially reasonable steps to limit sales of Common Stock by each of the
Company’s Key Employees during the period beginning on the Execution Date and
ending on the Effective Date to not more than 100,000 shares of Common Stock
over any three-month period; provided
that
there shall be no limitation on a Key Employee’s right to sell shares issuable
upon exercise of any warrant or option held by such Key Employee;
and
(g) use
commercially reasonable efforts to maintain adequate insurance coverage
(including D&O insurance) for the Company and each Company
Subsidiary.
22
4.3 Reservation
of Common Stock.
The Company shall, on the Closing Date, have authorized and reserved for
issuance to the Investors free from any preemptive rights, and shall keep
available at all times during which any Notes or Warrants are outstanding,
a
number of shares of Common Stock (the “Reserved
Amount”)
that, on such Closing Date, is not less than two hundred percent (200%) of
(i)
the number of Conversion Shares issuable upon conversion of all of the
Notes
to be issued at such Closing plus
(ii) the number of Warrant Shares issuable upon exercise of all of the Warrants
to be issued at the Closing, in each case without regard to any limitation
or
restriction on such conversion or exercise that may be set forth in the Notes
or
the Warrants. The Reserved Amount shall be allocated among the Investors in
accordance with each Investor’s Pro Rata Share. In the event that an Investor
shall sell or otherwise transfer any of such Investor’s Notes or Warrants, each
transferee shall be allocated a pro
rata
portion of such transferor’s Reserved Amount. Any portion of the Reserved Amount
allocated to any Investor or other Person which no longer holds any Notes or
Warrants shall be reallocated to the remaining Investors pro
rata
based on the number of the Registrable Securities held by such Investors at
such
time. In the event that the Reserved Amount is insufficient at any time to
cover
one hundred twenty five percent (125%) of the Registrable Securities issuable
upon the conversion of the Notes and exercise of the Warrants (without regard
to
any restriction on such conversion or exercise), the Company shall take such
action (including without limitation holding a meeting of its shareholders)
to
increase the Reserved Amount to cover two hundred percent (200%) of such
Registrable Securities, such increase to be effective not later than the
thirtieth (30th) day (or sixtieth (60th) day, in the event shareholder approval
is required for such increase) following the Company’s receipt of written notice
of such deficiency. While any Notes or Warrants are outstanding, the Company
shall not reduce the Reserved Amount without obtaining the prior written consent
of each Investor then holding a Note or a Warrant.
4.4 Use
of Proceeds.
The Company shall use the proceeds from the sale of the Notes and Warrants
for
working capital and general corporate purposes; provided,
that the Company shall not use any of such proceeds (i) to pay any dividend
or
make any distribution on any of its securities, or (ii) to repay any loan made
to or incurred by any Key Employee or any other officer or director or Affiliate
of the Company.
4.5 Transactions
with Affiliates. The
Company agrees that, during the period beginning on the Execution Date and
ending on the Termination Date, any transaction or arrangement between it or
any
Subsidiary of the Company and any Affiliate or employee of the Company shall
be
effected on an arms’ length basis and shall be approved by the Company’s
independent directors.
4.6 Use
of Investor Name.
Except as may be required by applicable law and/or this Agreement, the Company
shall not use, directly or indirectly, any Investor’s name or the name of any of
its Affiliates in any advertisement, announcement, press release or other
similar communication unless it has received the prior written consent of such
Investor for the specific use contemplated or as otherwise required by
applicable law or regulation.
4.7 [Intentionally
Omitted].
23
4.8 Limitations
on Disposition.
No Investor shall sell, transfer, assign or dispose of any Securities,
unless:
(a) there
is then in effect an effective registration statement under the Securities
Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) such
Investor has notified the Company in writing of any such disposition, and
furnished the Company with an opinion of counsel, reasonably satisfactory to
the
Company, that such disposition will not require registration of such Securities
under the Securities Act; provided,
however,
that no such opinion of counsel will be required (A) if the sale, transfer,
assignment or disposition is made to an Affiliate of such Investor, (B) if
the
sale, transfer, assignment or disposition is made pursuant to Rule 144 and
such Investor provides the Company with evidence reasonably satisfactory to
the
Company that the proposed transaction satisfies the requirements of Rule 144,
(C) if such
Securities are eligible for resale under Rule 144(k) or any successor
provision
or (D) if in connection with a bona
fide
pledge or hypothecation of any Securities under a margin arrangement with a
broker-dealer or other financial institution or the sale of any such Securities
by such broker-dealer or other financial institution following such Investor’s
default under such margin arrangement.
4.9 Disclosure
of Non-Public Information.
The Company agrees that it will not at any time following the Execution Date
disclose material non-public information to any Investor without first obtaining
such Investor’s written consent to such disclosure.
4.10 Indemnification
of Investors.
The Company will indemnify and hold each Investor and its directors, managers,
officers, shareholders, members, partners, employees and agents (each, an
“Investor
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Investor Party may suffer or incur as a result
of or
relating to (a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other Transaction
Documents or (b) any action instituted against an Investor, or any of them
or
their respective Affiliates, by any shareholder of the Company who is not an
Affiliate of such Investor, with respect to any of the transactions contemplated
by the Transaction Documents (unless such action is based upon a breach of
such
Investor’s representation, warranties or covenants under the Transaction
Documents or any agreements or understandings such Investor may have with any
such shareholder or any violations by such Investor of state or federal
securities laws or any conduct by such Investor which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Investor Party in respect of which indemnity may be sought pursuant
to this Agreement, such Investor Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof
with
counsel of its own choosing. Any Investor Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but
the fees and expenses of such counsel shall be at the expense of such Investor
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time following such Investor Party’s written request that
it do so, to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material
conflict on any material issue between
24
the
position of the Company and the position of such Investor Party. The Company
will not be liable to any Investor Party under this Agreement (i) for any
settlement by an Investor Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to such Investor Party’s wrongful actions or omissions, or gross
negligence or to such Investor Party’s breach of any of the representations,
warranties, covenants or agreements made by such Investor in this Agreement
or
in the other Transaction Documents.
4.11 Limitation
on Debt and Liens.
During
the period beginning on the Execution Date and ending on the Termination Date,
the Company shall refrain, and shall ensure that each Subsidiary of the Company
refrains, from (A) incurring any Debt other than Permitted Debt, and (B)
granting, establishing or maintaining any Lien on any of its Property other
than
Permitted Liens.
4.12 Restricted
Payments.
During the period beginning on the Execution Date and ending on the Termination
Date, the Company will not, and will not permit any Subsidiary of the Company
to, make any Restricted Payments other than Restricted Payments made by such
Subsidiaries to the Company.
4.13 Disposition
of Property.
During
the period beginning on the Execution Date and ending on the Termination Date,
the
Company will not, and will not permit any Subsidiary of the Company to,
dispose,
in a single transaction, or in a series of transactions all or any part of
its
Property unless (x) such disposition is (i) in the ordinary course of business,
(ii) for fair market value, and (iii) for cash, and (y) such Property is not
material to the Company’s or any of its Subsidiary’s business, operations or
financial condition or performance.
4.14 Modification
of Organizational Documents.
Except as described on Schedule
4.14,
during the period beginning on the Execution Date and ending on the Termination
Date, the Company will not, nor will it permit any of its Subsidiaries to,
consent to or implement any termination, amendment, modification, supplement
or
waiver of the certificate or articles of incorporation, articles of
organization, bylaws, regulations or other constituent documents of the Company
or any such Subsidiary.
4.15 Mergers
and Consolidations.
Except as described on Schedule
4.15,
during the period beginning on the Execution Date and ending on the Termination
Date, the Company will not, and will not permit any Subsidiary of the Company
to, without the prior written consent of Investors holding at least a majority
in principal amount of the Notes then outstanding (which consent will not be
unreasonably withheld), merge with or consolidate into, any Person, except
that
(i) any of the Company’s wholly owned Subsidiaries may merge with, consolidate
into the Company or another of the Company’s wholly owned Subsidiaries and (ii)
the Company or any Subsidiary of the Company may effect a merger solely for
the
purpose of changing its jurisdiction of incorporation.
25
4.16 Exchange
Right.
If
the Company intends to effect a Subsequent Placement at any time prior to
the
30th
day following the Closing, the Company shall deliver to each Investor a written
notice (an “Exchange
Notice”)
no later than two (2) Business Days (the “Exchange
Notice Date”)
prior to the closing date of such Subsequent Placement along with the proposed
definitive investment documents for such Subsequent Placement (the “Exchange
Documents”).
Each Investor shall have the right (but not the obligation) to exchange all
(but
not less than all) of such Investor’s Note and Warrant (an “Exchange”)
for the securities being offered in such Subsequent Placement (the “Exchange
Securities”).
If an Investor wishes to participate in an Exchange, such Investor shall
deliver
written notice thereof (an “Exchange
Election Notice”)
to the Company within ten (10) Business Days after receipt by such Investor
of
the Exchange Notice for such Exchange. If an Investor has timely delivered
an
Exchange Election Notice, the applicable Exchange shall be consummated on
(i)
the date that is the later of (x) the date on which the applicable Subsequent
Placement is consummated in accordance with its terms and (y) the date that
is
one Business Day after the date on which such Exchange Election Notice was
timely delivered by such Investor or (ii) such other date that is mutually
agreed to in writing or by email by the Company and such Investor (such date,
the “Exchange
Closing Date”).
Each Exchange shall be effected on a dollar-for-dollar basis so that each
dollar
of principal (and interest accrued through and including the applicable Exchange
Closing Date) shall be deemed payment for the Exchange Securities which shall
have the same terms and conditions, mutatis
mutandis,
granted to other Persons purchasing the Exchange Securities (whether as
purchasers in such Subsequent Placement or through an Exchange pursuant to
this
Section
4.16).
The Company and each Investor that elects to exercise its Exchange right
hereunder shall on the applicable Exchange Closing Date execute, and deliver
to
the other party, the Exchange Documents to which it is a party, and the Company
shall deliver the original certificates or other instruments evidencing the
Exchange Securities to be issued to such Investor within two Business Days
of
such Exchange Closing Date. Upon the execution of the Exchange Documents
by the
Company and an Investor, the obligations of the Company under the Investor’s
original Note and Warrant shall be extinguished. Each Investor that participates
in an Exchange shall return its original Note and Warrant to the Company
for
cancellation no later than two Business Days after the receipt of the
certificates evidencing its Exchange Securities; provided,
that the Investor’s original Note and Warrant shall be deemed cancelled even
should Investor fail to return the same to the Company for cancellation.
Notwithstanding the delivery by an Investor of an Exchange Election Notice
to
the Company, nothing contained herein shall be deemed to limit in any way
the
right of such Investor to effectuate a conversion or exercise of such Investor’s
Note or Warrant at any time prior to the applicable Exchange Closing Date,
in
which case, such Investor’s Exchange Election Notice shall be deemed to have
been revoked and the Company’s obligation to effect such Exchange with such
Investor shall be deemed to have been terminated.
26
5. CONDITIONS
TO CLOSING.
5.1 Conditions
to Investors’ Obligations at the Closing.
Each Investor’s obligations to effect the Closing, including without limitation
its obligation to purchase a Note and Warrant at the Closing, are conditioned
upon the fulfillment (or waiver by such Investor in its sole and absolute
discretion) of each of the following events as of the Closing Date, and the
Company shall use commercially reasonable efforts to cause each of such
conditions to be satisfied:
5.1.1
|
the
representations and warranties of the Company set forth in this Agreement
and in the other Transaction Documents shall be true and correct
in all
material respects as of such date as if made on such date (except
that to
the extent that any such representation or warranty relates to a
particular date, such representation or warranty shall be true and
correct
in all material respects as of that particular date);
|
5.1.2
|
the
Company shall have complied with or performed in all material respects
all
of the agreements, obligations and conditions set forth in this Agreement
and in the other Transaction Documents that are required to be complied
with or performed by the Company on or before the Closing;
|
5.1.3 | the Company shall have delivered to such Investor a certificate, signed by the Chief Executive Officer and Chief Financial Officer of the Company, certifying that the conditions specified in this Section 5.1 have been fulfilled as of the Closing, it being understood that such Investor may rely on such certificate as though it were a representation and warranty of the Company made herein; |
5.1.4
|
the
Company shall have delivered to such Investor an opinion of counsel
for
the Company, dated as of the Closing Date, in the form attached hereto
as
Exhibit
D
hereto;
|
5.1.5
|
the
Company shall have executed and delivered to such Investor the Note
and
the Warrant being purchased by such Investor at the
Closing;
|
5.1.6
|
the
Company shall have executed and delivered to such Investor the
Registration Rights Agreement and each other Transaction
Document;
|
5.1.7
|
the
Company shall have delivered to such Investor a certificate, signed
by the
Secretary or an Assistant Secretary of the Company, attaching (i)
the
articles and by-laws of the Company and (ii) resolutions passed by
its
Board of Directors to authorize the transactions contemplated hereby
and
by the other Transaction Documents, and certifying that such documents
are
true and complete copies of the originals and have not been amended
or
superseded, it being understood that such Investor may rely on such
certificate
as a representation and warranty of the Company made
herein;
|
27
5.1.8
|
the
Company shall have obtained the written agreement of each Key Employee
to
refrain from selling shares of Common Stock for the period specified
in,
and in accordance with, Section
4.2(f)
of this Agreement;
|
5.1.9
|
there
shall have occurred no material adverse change in the Company’s
consolidated business or financial condition since the date of the
Company’s most recent financial statements contained in the Disclosure
Documents;
|
5.1.10
|
the
Company shall have authorized and reserved for issuance upon conversion
of
the Notes and exercise of the Warrants two hundred percent (200%)
of the
aggregate number of shares of Common Stock issuable upon conversion
of all
of the Notes and exercise of all of the Warrants to be issued at
the
Closing (such number to be determined without regard to any restriction
on
such conversion or exercise);
|
5.1.11
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Government Authority of competent jurisdiction that is in
effect
that restrains or prohibits the consummation of the transactions
contemplated hereby and by the other Transaction Documents;
and
|
5.1.12 | the Company shall have paid the expenses described in Section 6.10 of this Agreement. |
5.2 Conditions
to Company’s Obligations at the Closing.
The Company’s obligations to effect the Closing with an Investor are conditioned
upon the fulfillment (or waiver by the Company in its sole and absolute
discretion) of each of the following events as of the Closing Date:
5.2.1
|
the
representations and warranties of such Investor set forth in this
Agreement and in the other Transaction Documents to which it is a
party
shall be true and correct in all material respects as of such date
as if
made on such date (except that to the extent that any such representation
or warranty relates to a particular date, such representation or
warranty
shall be true and correct in all material respects as of that
date);
|
5.2.2
|
such
Investor shall have complied with or performed all of the agreements,
obligations and conditions set forth in this Agreement that are required
to be complied with or performed by such
Investor
on or before the Closing;
|
28
5.2.3
|
there
shall be no injunction, restraining order or decree of any nature
of any
court or Government Authority of competent jurisdiction that is in
effect
that restrains or prohibits the consummation of the transactions
contemplated hereby and by the other Transaction Documents;
|
5.2.4 | such Investor shall have executed each Transaction Document to which it is a party and shall have delivered the same to the Company; and |
5.2.5 | such Investor shall have tendered to the Company the Purchase Price for the Note and the Warrant being purchased by it at the Closing by wire transfer of immediately available funds. |
6. MISCELLANEOUS.
6.1 Survival;
Severability.
The representations, warranties, covenants and indemnities made by the parties
herein and in the other Transaction Documents shall survive the Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided
that in such case the parties shall negotiate in good faith to replace such
provision with a new provision which is not illegal, unenforceable or void,
as
long as such new provision does not materially change the economic benefits
of
this Agreement to the parties.
6.2 Successors
and Assigns.
The terms and conditions of this Agreement shall inure to the benefit of and
be
binding upon the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations or liabilities under or by reason
of
this Agreement, except as expressly provided in this Agreement. An Investor
may
assign its rights and obligations hereunder in connection with any private
sale
or transfer of the Securities in accordance with the terms hereof, as long
as,
as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term “Investor” shall be deemed to refer to such
transferee as though such transferee were an original signatory hereto. The
Company may not assign its rights or obligations under this
Agreement.
6.3 No
Reliance.
Each party acknowledges that (i) it has such knowledge in business and financial
matters as to be fully capable of evaluating this Agreement, the other
Transaction Documents and the transactions contemplated hereby and thereby,
(ii)
it is not relying on any advice or representation of any other party in
connection with entering into this Agreement, the other Transaction Documents
or
such transactions (other than the representations made in this Agreement or
the
other Transaction Documents), (iii) it has not received from any other party
any
assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into this Agreement or the other Transaction
Documents or the performance of its obligations hereunder and thereunder, and
(iv) it has consulted with its own legal, regulatory, tax,
29
business,
investment, financial and accounting advisors to the extent that it has deemed
necessary, and has entered into this Agreement and the other Transaction
Documents based on its own independent judgment and, if applicable, on the
advice of such advisors, and not on any view (whether written or oral) expressed
by any other party.
6.4
Independent
Nature of Investors’ Obligations and Rights.
The obligations of each Investor hereunder are several and not joint with the
obligations of the other Investors hereunder, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor hereunder. The Company acknowledges and agrees that nothing contained
herein or in any other Transaction Document, and no action taken by any Investor
pursuant hereto or thereto, shall be deemed to constitute the Investors as
a
partnership, an association, a joint venture or any other kind of entity, or
a
“group” as described in Section 13(d) of the Exchange Act, or create a
presumption that the Investors are in any way acting in concert with respect
to
such obligations or the transactions contemplated by this Agreement. Each
Investor has been represented by its own separate counsel in connection with
the
transactions contemplated hereby, shall be entitled to protect and enforce
its
rights, including without limitation rights arising out of this Agreement or
the
other Transaction Documents, individually, and shall not be required to join
any
other Investor as an additional party in any proceeding for such
purpose.
6.5 Injunctive
Relief.
The Company acknowledges and agrees that a breach by it of its obligations
hereunder will cause irreparable harm to each Investor and that the remedy
or
remedies at law for any such breach will be inadequate and agrees, in the event
of any such breach, in addition to all other available remedies, such Investor
shall be entitled to an injunction restraining any breach and requiring
immediate and specific performance of such obligations without the necessity
of
showing economic loss or the posting of any bond.
6.6 Governing
Law; Jurisdiction; Waiver of Jury Trial.
(a) This Agreement shall be governed by and construed under the laws of the
State of California applicable to contracts made and to be performed entirely
within the State of California. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City
and
County of San Diego for the adjudication of any dispute hereunder or any other
Transaction Document or in connection herewith or therewith or with any
transaction contemplated hereby or thereby, and hereby irrevocably waives,
and
agrees not to assert in any suit, action or proceeding, any claim that it is
not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(b)
EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES AND AGREES THAT ANY DISPUTE OR
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION
DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE,
EACH PARTY HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
30
HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY
OF
THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH
SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION
6.6(b).
6.7 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, and all of which together shall constitute one
and
the same instrument. This Agreement may be executed and delivered by facsimile
transmission.
6.8 Headings.
The headings used in this Agreement are used for convenience only and are not
to
be considered in construing or interpreting this Agreement.
6.9 Notices.
Any
notice, demand or request required or permitted to be given by the Company
or
the Investor pursuant to the terms of this Agreement shall be in writing and
shall be deemed delivered (i) when delivered personally or by verifiable
facsimile transmission, unless such delivery is made on a day that is not a
Business Day, in which case such delivery will be deemed to be made on the
next
succeeding Business Day, (ii) on the next Business Day after timely delivery
to
an overnight courier and (iii) on the Business Day actually received if
deposited in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:
If
to the Company:
000
Xxxxxx Xxxxxx
Xxxxx
Xxxx, Xxxxxxxxxx 00000
Attn:
Xxxxxx Xxx
Tel: (000) 000-0000
Fax:
(000)
000-0000
with
a copy (which
shall not constitute notice) to:
Xxxxxxx
Xxxxxxxxx Xxxxx LLP
Suite
1900
000
Xxxxxxxx Xxxxx
Xxxxxxx,
XX 00000
31
Attn: Xxxxxxx
X. Xxxxxx
Tel: (000)
000-0000
Fax: (000)
000-0000
and
if to any Investor, to such address for such Investor as shall appear on the
signature page hereof executed by such Investor, or as shall be designated
by
such Investor in writing to the Company in accordance with this Section
6.9.
6.10 Expenses.
The Company and each Investor shall pay all costs and expenses that it incurs
in
connection with the negotiation, execution, delivery and performance of this
Agreement or the other Transaction Documents, provided,
however,
that that the Company shall, at the Closing, pay to Gemini the amount of $25,000
in immediately available funds as reimbursement for its out-of-pocket expenses
(including without limitation legal fees and expenses) incurred or to be
incurred by it in connection with its due diligence investigation of the Company
and the negotiation, preparation, execution, delivery and performance of this
Agreement and the other Transaction Documents.
At the Closing, the amount due for such fees and expenses may be netted out
of
the Purchase Price payable by any Investor managed by Gemini.
6.11 Entire
Agreement; Amendments.
This Agreement and the other Transaction Documents constitute the entire
agreement between the parties with regard to the subject matter hereof and
thereof, superseding all prior agreements or understandings, whether written
or
oral, between or among the parties. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended except pursuant to a written
instrument executed by the Company and the holders of at least two-thirds (2/3)
of the Registrable Securities into which all of the Notes and Warrants then
outstanding are convertible or exercisable (without
regard to any limitation on such conversion or exercise),
and no provision hereof may be waived other than by a written instrument signed
by the party against whom enforcement of any such waiver is sought. Any waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
[Signature
Pages to Follow]
32
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
By:
_______________________________
Name:
Title:
GEMINI
MASTER FUND, LTD.
By:
Gemini
Strategies, LLC
By: _______________________________
Name:
Title:
Principal
Amount of Note Purchased at Closing: ________________________
Number
of Shares into which Warrant Exercisable: ________________________
ADDRESS:
c/o
Gemini Strategies, LLC
00000
Xx Xxxxxx Xxxx, Xxxxx 000
Xxx
Xxxxx, XX 00000-0000
Attn: Xxxxxx
Xxxxxxx
Tel:
(000)
000-0000
Fax:
(000)
000-0000
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
By:
_______________________________
Name:
Title:
GREY
K OFFSHORE FUND, LTD.
By:
RNK
Capital LLC
By: _______________________________
Name:
Title:
Principal
Amount of Note Purchased at Closing: ________________________
Number
of Shares into which Warrant Exercisable: ________________________
ADDRESS:
c/o
RNK Capital LLC
000
Xxxxxxx Xxxxxx
0xx
Xxxxx
Xxx
Xxxx, XX 00000
Attn: Xxxxxx
Xxxxxx
Tel:
(000)
000-0000
Fax:
(000)
000-0000
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
By:
_______________________________
Name:
Title:
GREY
K FUND, LP
By:
RNK
Capital LLC
By: _______________________________
Name:
Title:
Principal
Amount of Note Purchased at Closing: ________________________
Number
of Shares into which Warrant Exercisable: ________________________
ADDRESS:
c/o
RNK Capital LLC
000
Xxxxxxx Xxxxxx
0xx
Xxxxx
Xxx
Xxxx, XX 00000
Attn: Xxxxxx
Xxxxxx
Tel:
(000)
000-0000
Fax:
(000)
000-0000
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
By:
_______________________________
Name:
Title:
[____________________________]
By:
[_______________________]
By: _______________________________
Name:
Title:
Principal
Amount of Note Purchased at Closing: ________________________
Number
of Shares into which Warrant Exercisable: ________________________
ADDRESS:
000
Xxxx Xxxxxx Xxxxx
Xxxxx
000
Xxxxxxx,
XX 00000
Attn: Xxxx
Xxxx
Tel:
(000)
000-0000
Fax:
(000)
000-0000