SECURITIES PURCHASE AGREEMENT
Exhibit
10.1
SECURITIES
PURCHASE AGREEMENT
(the
“Agreement”),
dated
as of February 12, 2007, by and among Composite Technology Corporation, a Nevada
corporation (the “Company”),
and
the investors listed on the Schedule of Buyers attached hereto (individually,
a
“Buyer”
and
collectively, the “Buyers”).
RECITALS
A. The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of
the
Securities Act of 1933, as amended (the “1933
Act”),
and/or Rule 506 of Regulation D (“Regulation D”)
as
promulgated by the United States Securities and Exchange Commission (the
“SEC”)
under
the 1933 Act.
B. The
Company has authorized a new series of senior convertible debentures of the
Company, which notes shall be convertible into the Company’s common stock, par
value $0.001 per share (the “Common
Stock”),
in
accordance with the terms of the Debentures.
C. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of
senior convertible debentures, in substantially the form attached hereto as
Exhibit
A
(the
“Debentures”),
set
forth opposite such Buyer’s name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be up to $30,000,000), which Debentures
shall be convertible into shares of Common Stock at the conversion price set
forth in the Debentures (as converted, collectively, the “Conversion
Shares”)
and
(ii) warrants in substantially the form attached hereto as Exhibit
B
(the
“Warrants”),
to
acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer’s name in column (4) of the Schedule of Buyers (as
exercised, collectively, the “Warrant
Shares”).
D. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in
the
form attached hereto as Exhibit
C
(the
“Registration
Rights Agreement”)
pursuant to which the Company will provide certain registration rights with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement) under the 1933 Act and the rules and regulations, promulgated
thereunder and applicable state securities laws.
E. The
Debentures, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the “Securities”.
F. The
Company has retained CapStone Investments to act as its placement agent in
connection with the sale of the securities pursuant to this Agreement (the
“Placement
Agent”).
NOW,
THEREFORE,
the
Company and each Buyer hereby agree as follows:
1. PURCHASE
AND SALE OF DEBENTURES AND WARRANTS.
(a) Purchase
of Debentures and Warrants.
(i) Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 5 and
6
below, the Company shall hold a closing in which it shall issue and sell and
the
applicable Buyer shall purchase, the Debentures and Warrants (the “Initial
Closing”).
The
Company may (but is not obligated to) hold one or more additional closings
(each, a “Closing”
and
the
final Closing, the “Final
Closing”)
upon
the purchase and sale of additional Debentures and Warrants until an aggregate
amount of up to $30,000,000 of Debentures and Warrants has been sold. No Closing
may occur after ten (10) business days after the Initial Closing.
(ii) After
the
Initial Closing, a prospective Buyer’s execution of the signature page of this
Agreement shall constitute its offer to purchase Debentures and Warrants (the
“Subscription”).
The
Company may accept or reject the Subscription from any Buyer, in whole or in
part in its sole discretion. The Company’s written execution of acceptance of
the Subscription shall constitute a binding agreement to sell Debentures and
Warrants to such Buyer. The Company shall notify each Buyer of the portion,
if
any, of such Buyer’s offer which has been accepted and, if any portion of a
Buyer’s offer is rejected, shall cause the Escrow Agent to refund to such Buyer
the purchase price paid by the Buyer for the Debentures and Warrants with
respect to which such Buyer’s Subscription was rejected, if any.
(iii) At
any
Closing, each Buyer severally, but not jointly, shall purchase from the Company
on such Closing Date (as defined below), (A) a certain principal amount in
Debentures as set forth opposite such Buyer’s name in column 3 on the Schedule
of Buyers, and (B) Warrants to acquire up to that number of Warrant Shares
as is
set forth opposite such Buyer’s name in column 4 on the Schedule of Buyers.
Prior to each Closing, the Company shall deliver to Xxxxxxxxxx & Xxxxx LLP,
in trust as escrow agent, the Debentures and the Warrants to be purchased by
the
Buyers at such Closing, each registered in such name or names as each Buyer
may
designate, with instructions that such Debentures or Warrants are to be held
for
release to such Buyers only upon payment in full of the Purchase Price to the
Company by such Buyers as set forth in Section 1(b) hereof.
(iv) The
date
and time of the Initial Closing (the “Initial Closing
Date”)
shall
be 10:00 a.m., Pacific Time, on the date hereof (or such later date as is
mutually agreed to by the Company and each Buyer). The date and time of each
subsequent Closing (a “Closing
Date”)
shall
be 10:00 a.m., Pacific Time, on the date that Buyer executes this Agreement
or
(or such later date as is mutually agreed to by the Company and each Buyer).
Each Closing shall occur after notification of satisfaction (or waiver) of
the
conditions to such Closing set forth in Sections 5 and 6 below at the offices
of
Xxxxxxxxxx & Xxxxx LLP, 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxx Xxxxxxx,
Xxxxxxxxxx 00000.
(v) The
aggregate purchase price for the Debentures and the Warrants to be purchased
by
each Buyer at any Closing (the “Purchase
Price”)
shall
be the amount set forth opposite such Buyer’s name in column 6 of the Schedule
of Buyers. Each Buyer shall pay $1.00 for each $1.00 of principal amount of
Debentures and related Warrants to be purchased by such Buyer at such Closing.
2
(b) Form
of Payment.
On each
applicable Closing Date, each Buyer shall pay its Purchase Price to the Company
for the Debentures and the Warrants to be issued and sold to such Buyer at
such
Closing by wire transfer of immediately available funds for the amount of the
Purchase Price to an escrow account subject to the Escrow Agreement among the
Company, Xxxxxxxxxx & Xxxxx LLP (the “Escrow
Agent”)
and
the Buyers. On each applicable Closing Date and in accordance with the Escrow
Agreement, the Debentures and Warrants shall be released to the Buyers who
have
paid the Purchase Price. If the applicable Closing does not occur within five
(5) business days of a Buyer paying its Purchase Price to the Escrow Agent,
then
that Buyer may terminate the Agreement with respect to such Buyer, subject
to
Section 7 of this Agreement.
2. BUYER’S
REPRESENTATIONS AND WARRANTIES.
Each
Buyer hereby severally, and not jointly, represents and warrants to the Company
and the Placement Agent that:
(a) No
Public Sale or Distribution.
Such
Buyer is (i) acquiring the Debentures and the Warrants and (ii) upon the
conversion of the Debentures and exercise of the Warrants (other than pursuant
to a Cashless Exercise (as defined in the Warrants)) will acquire the Conversion
Shares issuable upon conversion of the Debentures and the Warrant Shares
issuable upon exercise of the Warrants, for its own account and not with a
view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided,
however,
that by
making the representations herein, such Buyer does not agree to hold any of
the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with, or pursuant to, or
a
registration statement or an exemption under the 1933 Act. Such Buyer is
acquiring the Securities hereunder in the ordinary course of its business.
Such
Buyer does not presently have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
(b) Accredited
Investor Status; No General Solicitation.
Such
Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D. The definition of “accredited investor” is annexed hereto. Such
Buyer is not required to be registered as a broker-dealer under Section 15
of
the Exchange Act. Such Buyer is not purchasing the Securities as a result of
any
advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or to such Buyer’s knowledge,
any general solicitation or advertisement.
(c) Reliance
on Exemptions.
Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company and the Placement
Agent are relying in part upon the truth and accuracy of, and such Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire
the
Securities.
3
(d) Information.
Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such Buyer.
Such Buyer and its advisors, if any, have been afforded the opportunity to
ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to
its
acquisition of the Securities.
(e) Investment
Experience.
Such
Buyer acknowledges that it can bear the economic risk and complete loss of
its
investment in the Securities and has such knowledge and experience in financial
or business matters that it is capable of evaluating the merits and risks of
the
investment contemplated hereby.
(f) No
Governmental Review.
Such
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
(g) Transfer
or Resale.
Such
Buyer understands that except as provided in the Registration Rights Agreement:
(i) the Securities have not been and are not being registered under the 1933
Act
or any state securities laws, and may not be offered for sale, sold, assigned
or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred
may
be sold, assigned or transferred pursuant to an exemption from such
registration, (C) such Buyer provides the Company with reasonable assurance
that
such Securities can be sold, assigned or transferred pursuant to Rule 144 or
Rule 144A promulgated under the 1933 Act, as amended (or a successor rule
thereto) (collectively, “Rule
144”),
or
(D) the sale, assignment, or transfer meets the requirement of Regulation S
under the 1933 Act, as amended; (ii) any sale of the Securities made in reliance
on Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the Person (as defined in Section 3(s))
through whom the sale is made) may be deemed to be an underwriter (as that
term
is defined in the 0000 Xxx) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and
(iii)
neither the Company nor any other Person is under any obligation to register
the
Securities under the 1933 Act or any state securities laws or to comply with
the
terms and conditions of any exemption thereunder.
(h) Legends.
Such
Buyer understands that the certificates or other instruments representing the
Debentures and the Warrants and, until such time as the resale of the Conversion
Shares and the Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing Conversion Shares and the Warrant Shares, except as set forth
below, shall bear any legend as required by the “blue sky” laws of any state and
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
4
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL,
IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
THE
SECURITIES.
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection
with
a sale, assignment or other transfer, such holder provides the Company with
an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A.
(i) Validity;
Enforcement.
This
Agreement and the Registration Rights Agreement to which such Buyer is a party
have been duly and validly authorized, executed and delivered on behalf of
such
Buyer and shall constitute the legal, valid and binding obligations of such
Buyer enforceable against such Buyer in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity
or
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement
of
applicable creditors’ rights and remedies.
(j) Residency;
Organization.
If such
Buyer is an entity, (i) such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers and (ii) such Buyer is a validly
existing corporation, limited partnership or limited liability company and
has
all requisite corporate, partnership or limited liability company power and
authority to invest in the Securities pursuant to this Agreement.
(k) Brokers
and Finders.
No
Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company, any Subsidiary or any Buyer for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of such Buyer.
5
(l) Prohibited
Transactions.
During
the last ten (10) Business Days prior to the date hereof, neither such Buyer
nor
any Affiliate (as defined below) of such Buyer nor any Person acting on behalf
of or pursuant to any understanding with such Buyer or Affiliate of such Buyer
has, directly or indirectly, effected or agreed to effect any short sale,
whether or not against the box, established any “put equivalent position” (as
defined in Rule 16a-1(h) under the Exchange Act) with respect to the Common
Stock, granted any other right (including, without limitation, any put or call
option) with respect to the Common Stock or with respect to any security that
includes, relates to or derived any significant part of its value from the
Common Stock or otherwise sought to hedge its position in the Securities (each,
a “Prohibited
Transaction”).
Prior
to the earliest to occur of (i) the termination of this Agreement or (ii) the
date of the 8-K Filing as described in Section 8(n), such Buyer shall not,
and
shall cause any Person acting on behalf of or pursuant to any understanding
with
such Buyer not to, engage, directly or indirectly, in a Prohibited Transaction.
Such Buyer acknowledges that the representations, warranties and covenants
contained in this Section 2(l) are being made for the benefit of the Buyers
as
well as the Company and that each of the other Buyers shall have an independent
right to assert any claims against such Buyer arising out of any breach or
violation of the provisions of this Section 2(l). For purposes of this
Agreement, “Affiliate”
means
with respect to any Person, any other Person which directly or indirectly
through one or more intermediaries Controls, is controlled by, or is under
common control with, such Person and “Control”
(including the terms “controlling”, “controlled by” or “under common control
with”) means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
Except
as
set forth in the SEC Reports and the Disclosure Schedule hereto, the Company
represents and warrants to each of the Buyers and the Placement Agent
that:
(a) Organization
and Qualification.
The
Company and its “Subsidiaries”
(which
for purposes of this Agreement means any material operating entity in which
the
Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are entities duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authority to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
have
a Material Adverse Effect. As used in this Agreement, “Material
Adverse Effect”
means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements
and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries except
as set forth on Schedule
3(a).
6
(b) Authorization;
Enforcement; Validity.
The
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement, the Debentures, the Registration Rights
Agreement, the Warrants, and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the “Transaction
Documents”)
and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Debentures, the Warrants
and
the Placement Agent Warrants (as defined below), the reservation for issuance
and the issuance of 100% of the Conversion Shares issuable
upon conversion of the Debentures, the reservation for issuance and issuance
of
100% of the Warrant Shares upon exercise of the Warrants, the reservation of
the
shares of Common Stock issuable upon exercise of the warrants (the “Placement
Agent Warrant Shares”) issued
to
the Placement Agent (the “Placement
Agent Warrants”)
have
been duly authorized by the Company’s Board of Directors and no further filing,
consent, or authorization is required by the Company, its Board of Directors
or
its stockholders, except for post-closing Securities filings or notifications
required to be made under federal or state securities laws. This Agreement
and
the other Transaction Documents of even date herewith have been duly executed
and delivered by the Company, and shall constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally,
the
enforcement of applicable creditors’ rights and remedies.
(c) Issuance
of Securities.
The
issuance of the Debentures, the Warrants and the Placement Agent Warrants are
duly authorized and are free from all taxes, liens and charges with respect
to
the issue thereof. As of the applicable Closing, a number of shares of Common
Stock shall have been duly authorized and reserved for issuance which equals
at
least 100% of the maximum number of shares Common Stock issuable upon conversion
of the Debentures (assuming for purposes hereof, that the Debentures are
convertible at the initial Conversion Price and without taking into account
any
limitations on the conversion of the Debentures set forth in the Debentures)
and
upon exercise of the Warrants and the Placement Agent Warrants (without taking
into account of any limitations on the exercise of the Warrants set forth in
the
Warrants). Upon issuance or conversion in accordance with the Debentures or
exercise in accordance with the Warrants and the Placement Agent Warrants,
as
the case may be, and payment of the consideration set forth in this Agreement,
the Debentures, the Warrants and the Placement Agent Warrants, the Conversion
Shares, the Warrant Shares and the Placement Agent Warrant Shares, respectively,
will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the
issue
thereof, with the holders being entitled to all rights accorded to a holder
of
Common Stock.
7
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby
and
thereby (including, without limitation, the issuance of the Debentures and
the
Warrants, and reservation for issuance and issuance of the Conversion Shares
and
the Warrant Shares) will not (i) result in a violation of the Articles of
Incorporation (as defined in Section 3(r)) of the Company or any of its
Subsidiaries or Bylaws (as defined in Section 3(s)) of the Company or any of
its
Subsidiaries or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or result
in
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is
a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the NASD’s OTC Bulletin Board (the
“Principal
Market”))
applicable to the Company or any of its Subsidiaries or by which any property
or
asset of the Company or any of its Subsidiaries is bound or affected, except
in
the cases of clauses (ii) and (iii) for any such conflicts, violations or
defaults which can reasonably be expected to have no Material Adverse
Effect.
(e) Consents.
The
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it to
execute, deliver or perform any of its obligations under or contemplated by
the
Transaction Documents, in each case in accordance with the terms hereof or
thereof, except for post-closing securities filings or notifications to be
made
under federal or state securities laws. All consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant
to
the preceding sentence have been obtained or effected on or prior to the
applicable Closing Date, except for the filing with the SEC of one or more
Registration Statements in accordance with the requirements of the Registration
Rights Agreement. The Company and its Subsidiaries are unaware of any facts
or
circumstances which might prevent the Company from obtaining or effecting any
of
the registration, application or filings pursuant to the preceding sentence.
The
Company is not in violation of the applicable listing requirements of the
Principal Market and has no knowledge of any facts which would reasonably lead
to delisting or suspension of the Common Stock. The issuance by the Company
of
the Securities shall not have the effect of delisting or suspending the Common
Stock from the Principal Market.
(f) Acknowledgment
Regarding Buyer’s Purchase of Securities.
The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an Affiliate of the Company or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the “1934
Act”)).
The
Company further acknowledges that no Buyer is acting as a financial advisor
or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby,
and
any advice given by a Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer’s purchase of the
Securities. The Company further represents to each Buyer that the Company’s
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
8
(g) No
General Solicitation; Placement Agent’s Fees.
Neither
the Company, nor any of its Affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of
the
Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby, including, without limitation,
placement agent fees payable to the Placement Agent in connection with the
sale
of the Securities. The Company shall pay, and hold each Buyer harmless against,
any liability, loss or expense (including, without limitation, attorney’s fees
and out-of-pocket expenses) arising in connection with any such claim. Other
than the Placement Agent, the Company has not engaged any Placement Agent or
other agents in connection with the sale of the Securities.
(h) Private
Placement; No Integrated Offering.
Subject
to the accuracy of the Buyer’s representations and warranties in Section 2 of
this Agreement, the offer and sale by the Company of the Securities in
conformity with the terms of this Agreement constitute transactions that are
exempt from registration under the 1933 Act. None of the Company, its
Subsidiaries, any of their Affiliates, and any Person acting on their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company
are
listed or designated. None of the Company, its Subsidiaries, their Affiliates
and any Person acting on their behalf will take any action or steps referred
to
in the preceding sentence that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.
(i) Dilutive
Effect.
The
Company understands and acknowledges that the number of Conversion Shares
issuable upon conversion of the Debentures, the Warrant Shares issuable upon
exercise of the Warrants and the Placement Agent Warrant Shares issuable upon
exercise of the Placement Agent Warrants will increase in certain circumstances.
The Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Debentures in accordance with this Agreement and the
Debentures, its obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants, and its obligation
to issue the Placement Agent Warrant Shares upon exercise of the Placement
Agent
Warrants in accordance with this Agreement and the Placement Agent Warrants
in
each case, is absolute and unconditional regardless of the dilutive effect
that
such issuance may have on the ownership interests of other stockholders of
the
Company.
(j) Application
of Takeover Protections; Rights Agreement.
The
Company and its board of directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Articles of Incorporation
or
the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company’s issuance of the
Securities and any Buyer’s ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control
of
the Company.
9
(k) SEC
Documents; Financial Statements.
(i)
During the two (2) years prior to the date hereof, the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act with
respect to such time period (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements, notes and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the “SEC
Documents”).
The
Company has delivered to the Buyers or their respective representatives true,
correct and complete copies of the SEC Documents not available on the XXXXX
system. As of their respective filing dates, the SEC Documents complied in
all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Each registration statement and any amendment thereto filed by
the
Company since January 1, 2005 pursuant to the 1933 Act and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the 1933 Act and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant
to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing
of
any sale of securities pursuant thereto did not contain any untrue statement
of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of
the
circumstances under which they were made, not misleading.
(ii)
As
of their respective filing 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 SEC with respect thereto. Such financial statements have been prepared
in
accordance with United States generally accepted accounting principles,
consistently applied, 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 audit
adjustments). No other information provided by or on behalf of the Company
to
the Buyers in connection with the transactions contemplated hereby which is
not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in any disclosure schedules,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
10
(l) Absence
of Certain Changes.
Since
September 30, 2006, there has been no event which has had, or could reasonably
be expected to result, in a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole. Since September 30, 2006, there has not been:
(i) any
change in the consolidated assets, liabilities, financial condition or operating
results of the Company from that reflected in the financial statements included
in the Company’s Annual Report on Form 10-K for the year ended September 30,
2006, except for changes in the ordinary course of business which have not
had
and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate;
(ii) any
declaration or payment of any dividend, or any authorization or payment of
any
distribution, on any of the capital stock of the Company, or any redemption
or
repurchase of any securities of the Company;
(iii) any
material damage, destruction or loss, whether or not covered by insurance to
any
assets or properties of the Company or its Subsidiaries;
(iv) any
waiver, not in the ordinary course of business, by the Company or any Subsidiary
of a material right or of a material debt owed to it;
(v) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company or a Subsidiary, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company and its Subsidiaries
taken as a whole (as such business is presently conducted and as it is proposed
to be conducted);
(vi) any
change or amendment to the Company's Articles of Incorporation or Bylaws, or
material change to any material contract or arrangement by which the Company
or
any Subsidiary is bound or to which any of their respective assets or properties
is subject;
(vii) any
material transaction entered into by the Company or a Subsidiary other than
in
the ordinary course of business;
(viii) the
loss
of the services of any key employee, or material change in the composition
or
duties of the senior management of the Company or any Subsidiary;
or
(ix) the
loss
or threatened loss of any customer which has had or could reasonably be expected
to have a Material Adverse Effect; or
The
Company and its Subsidiaries, individually and on a consolidated basis, are
not
as of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the applicable Closing, will not be Insolvent (as defined
below). For purposes of this Section 3(l), “Insolvent”
means,
with respect to any Person (as defined in Section 3(s)), (i) the present fair
saleable value of such Person’s assets is less than the amount required to pay
such Person’s total Indebtedness (as defined in Section 3(s)), (ii) such Person
is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (iii)
such
Person intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature or (iv) such Person has
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted.
11
(m) No
Undisclosed Events, Liabilities, Developments or Circumstances.
No
material event, liability, development or circumstance has occurred or exists,
or is contemplated to occur with respect to the Company, its Subsidiaries or
their respective business, properties, prospects, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock
and
which has not been publicly announced.
(n) Use
of
Proceeds.
The net
proceeds of the sale of the Debentures and the Warrants hereunder shall be
used
by the Company for working capital and general corporate purposes. The Company
is not, nor will the Company be engaged in, the business of extending credit
for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulations T, U or X of the Board of Governors of the Federal Reserve System),
and no amounts borrowed under this Debenture will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of purchasing
or
carrying any margin stock.
(o) Conduct
of Business; Regulatory Permits.
Neither
the Company nor its Subsidiaries is in violation of any term of or in default
under its Articles of Incorporation or Bylaws or their organizational charter
or
articles of incorporation or bylaws, respectively. Neither the Company nor
any
of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation that are currently necessary or
applicable to the operation of the Company or its Subsidiaries as currently
conducted and neither the Company nor any of its Subsidiaries will conduct
its
business in violation of the foregoing except for possible violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Without limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the Principal
Market or the SEC or other state or federal securities laws and has no knowledge
of any facts or circumstances which would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future. Since September 30, 2006, (i) the Common Stock has been designated
for
quotation on the Principal Market, (ii) trading in the Common Stock has not
been
suspended by the SEC or the Principal Market and (iii) the Company has received
no communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure
to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
12
(p) Xxxxxxxx-Xxxxx
Act; Internal Controls.
The
Company is in compliance with any and all applicable requirements of the
Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and any
and
all applicable rules and regulations promulgated by the SEC thereunder that
are
effective as of the date hereof, except where such noncompliance would not
have,
individually or in the aggregate, a Material Adverse Effect. The Company and
the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared
with
the existing assets at reasonable intervals and appropriate action is taken
with
respect to any differences. To the extent necessary to comply with applicable
SEC rules, the Company has established disclosure controls and procedures (as
defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material information
relating to the Company, including the Subsidiaries, is made known to the
certifying officers by others within those entities, particularly during the
period in which the Company’s most recently filed period report under the 1934
Act, as the case may be, is being prepared. The Company's certifying officers
have evaluated the effectiveness of the Company's controls and procedures as
of
the end of the period covered by the most recently filed periodic report under
the 1934 Act (such date, the "Evaluation
Date").
The
Company presented in its most recently filed periodic report under the 1934
Act
the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
308
of Regulation S-K) or, to the best of the Company's knowledge, in other factors
that could significantly affect the Company's internal controls. The Company
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with United States GAAP and the
applicable requirements of the 1934 Act.
(q) Transactions
With Affiliates.
Except
as set forth in the SEC Documents filed at least ten (10) Business Days prior
to
the date hereof, none of the officers, directors or employees of the Company
is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for ordinary course services as employees, officers or 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 such
officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
13
(r) Equity
Capitalization.
(i) As
of the date hereof, the authorized capital stock of the Company consists of
(i)
300,000,000 shares of Common Stock, of which as of the date hereof,
[178,635,325] are issued and outstanding and (ii) no shares of preferred stock.
All of such outstanding shares have been validly issued and are fully paid
and
nonassessable and were issued in full compliance with applicable state and
federal securities law and any rights of third parties. All of the issued and
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive
rights, and were issued in full compliance with applicable state and federal
securities law and any rights of third parties and are owned by the Company,
beneficially and of record, subject to no lien, encumbrance or other adverse
claim. None of the Company’s or the Subsidiary’s share capital is subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company or any Subsidiary. Except with respect
to
the Warrants and the Placement Agent Warrants, 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 share capital of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by
which
the Company or any of its Subsidiaries is or may become bound to issue
additional share capital of the Company or any of its Subsidiaries or 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 share capital of the Company or any of its
Subsidiaries. Except as set forth in the Disclosure Schedule, there are no
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound. There are no financing statements securing
obligations in any material amounts, either singly or in the aggregate, filed
in
connection with the Company or any of its Subsidiaries. Except as set forth
in
the Disclosure Schedule, there are no agreements or arrangements under which
the
Company is obligated to register the sale of any of their securities under
the
1933 Act (except the Registration Rights Agreement).
(ii)
The
issuance and sale of the Securities hereunder will not obligate the Company
to
issue or offer to issue shares of Common Stock or other securities to any other
Person (other than the Buyers) and will not result in the adjustment of the
exercise, conversion, exchange or reset price of any outstanding
security.
(iii)
The
Company has furnished to the Buyers true, correct and complete copies of the
Company’s Articles of Incorporation, as amended and as in effect on the date
hereof (the “Articles
of Incorporation”),
and
the Company’s Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”),
and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof
in
respect thereto.
(s) Indebtedness
and Other Contracts.
Except
for Permitted Indebtedness, the Company (i) has no outstanding Indebtedness
(as
defined below), (ii) is not a party to any contract, agreement or instrument,
the violation of which, or default under which, by the other party(ies) to
such
contract, agreement or instrument would result in a Material Adverse Effect,
(iii) is not in violation of any term of or in default under any material
contract, agreement or instrument, except where such violations and defaults
would not result, individually or in the aggregate, in a Material Adverse
Effect, and (iv) is not a party to any contract, agreement or instrument, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect.
14
For
purposes of this Agreement: (x) “Indebtedness”
of
any
Person means, without duplication (A) all indebtedness for borrowed money,
(B)
all obligations issued, undertaken or assumed as the deferred purchase price
of
property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising
under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under
any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby,
is
classified as a capital lease, (G) all indebtedness referred to in clauses
(A)
through (F) above secured by (or for which the holder of such Indebtedness
has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) “Contingent
Obligation”
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) “Person”
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(t) Absence
of Litigation.
There
is no material action, suit, proceeding, inquiry or investigation before or
by
the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, the Common Stock or any
of
the Company’s Subsidiaries, any of the Company’s or its Subsidiaries’ officers
or directors or the transactions contemplated by the Transaction
Documents.
(u) Employee
Relations.
(i) The
Company is not a party to or bound by any collective bargaining agreements
or
other agreements with labor organizations. The Company has not violated in
any
material respect any laws, regulations, orders or contract terms, affecting
the
collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees’ health, safety, welfare, wages and hours.
15
(ii)
(a)
There are no labor disputes existing, or to the Company's knowledge, threatened,
involving strikes, slow-downs, work stoppages, job actions, disputes, lockouts
or any other disruptions of or by the Company's employees, (b) there are no
unfair labor practices or petitions for election pending or, to the Company's
knowledge, threatened before the National Labor Relations Board or any other
foreign, federal, state or local labor commission relating to the Company's
employees, (c) no demand for recognition or certification heretofore made by
any
labor organization or group of employees is pending with respect to the Company
and (d) to the Company's best knowledge, the Company enjoys good labor and
employee relations with its employees and labor organizations.
(iii) The
Company is, and at all times has been, in compliance in all material respects
with all applicable laws respecting employment (including laws relating to
classification of employees and independent contractors) and employment
practices, terms and conditions of employment, wages and hours, and immigration
and naturalization.
(iv) The
Company is not a party to, or bound by, any employment or other contract or
agreement that contains any severance, termination pay or change of control
liability or obligation, including, without limitation, any “excess parachute
payment,” as defined in Section 2806(b) of the Internal Revenue
Code.
(v) Title.
The
Company and its Subsidiaries have good and marketable title in fee simple to
all
real property and good and marketable title to all personal property owned
by
them which is material to the business of the Company and its Subsidiaries,
in
each case free and clear of all liens, encumbrances and defects except such
as
do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any
of
its Subsidiaries. Any real property and facilities and personal property held
under lease by the Company and any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such
property and buildings by the Company and its Subsidiaries.
(w) Intellectual
Property.
The
Company and the Subsidiaries have, or have rights to use, all patents,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other intellectual property rights necessary or material for use
in
connection with its business as described in the SEC Reports and which the
failure to so have could have a Material Adverse Effect (collectively, the
“Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a written notice that the
use of the Intellectual Property Rights by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of the
Company, (i) use of the Intellectual Property Rights by the Company or any
Subsidiary does not violate or infringe upon the rights of any Person, and
(ii)
no third Party is infringing upon the Intellectual Property Rights of the
Company or any Subsidiary. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable.
(x) Tax
Status.
The
Company and each of its Subsidiaries (i) has made or filed all foreign, federal
and state income and all other tax returns, reports and declarations required
by
any jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to
the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of
any jurisdiction, and the officers of the Company know of no basis for any
such
claim. All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third
party
when due. There are no tax liens or claims pending or, to the Company’s
knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property. There are no outstanding tax sharing agreements
or other such arrangements between the Company and any Subsidiary or other
corporation or entity.
16
(y) Insurance
Coverage.
The
Company and each Subsidiary maintains in full force and effect insurance
coverage that is customary for comparably situated companies for the business
being conducted and properties owned or leased by the Company and each
Subsidiary, and the Company reasonably believes such insurance coverage to
be
adequate against all liabilities, claims and risks against which it is customary
for comparably situated companies to insure.
(z) Ranking
of Debentures.
Except
for Indebtedness outstanding immediately prior to such Closing Date as set
forth
in the Disclosure Schedule, no Indebtedness of the Company is senior to or
ranks
pari
passu
with the
Debentures in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise.
(aa) Off
Balance Sheet Arrangements.
There
is no transaction, arrangement, or other relationship between the Company and
an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed or
that
otherwise would be reasonably likely to have a Material Adverse
Effect.
(bb) Manipulation
of Price.
The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result or
that
could reasonably be expected to cause or result, in the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale
or resale of any of the Securities or (ii) other than the Placement Agent,
sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any
of
the Securities.
(cc) Company’s
Knowledge.
For
purposes of this Agreement, “knowledge of the Company” or the “Company’s
knowledge” means the actual knowledge of the executive officers (as defined in
Rule 405 under the 1900 Xxx) of the Company.
4. COVENANTS.
(a) Best
Efforts.
Each
party shall use its best efforts timely to satisfy each of the conditions to
be
satisfied by it as provided in Sections 5 and 6 of this Agreement.
17
(b) Form
D
and Blue Sky.
The
Company agrees to file a Form D with respect to the Securities as required
under
Regulation D and to provide a copy thereof to each Buyer and the Placement
Agent
promptly after such filing. The Company shall, on or before the applicable
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities
for
sale to the Buyers at such Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers and the Placement Agent on or prior to such
Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or “Blue
Sky” laws of the states of the United States following each Closing
Date.
(c) Reporting
Status.
Until
the date on which the Investors (as defined in the Registration Rights
Agreement) shall have sold all the Conversion Shares and the Warrant Shares
and
none of the Debentures or the Warrants is outstanding (the “Reporting
Period”),
the
Company shall file all reports required to be filed with the SEC pursuant to
the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination. The Company
will
furnish to the Buyers and/or their assignees such information relating to the
Company and its Subsidiaries as from time to time may reasonably be requested
by
the Buyers and/or their assignees; provided, however, that the Company shall
not
disclose material nonpublic information to the Buyers, or to advisors to or
representatives of the Buyers, unless prior to disclosure of such information
the Company identifies such information as being material nonpublic information
and provides the Buyers, such advisors and representatives with the opportunity
to accept or refuse to accept such material nonpublic information for review
and
any Buyer wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.
(d) Listing.
The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock
is
then listed (subject to official notice of issuance) and shall maintain such
listing of all Registrable Securities from time to time issuable under the
terms
of the Transaction Documents. The Company shall maintain the Common Stocks’
authorization for quotation on the Principal Market. Neither the Company nor
any
of its Subsidiaries shall take any action which would be reasonably expected
to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(d).
(e) Fees.
The
Company shall reimburse all (i) reasonable costs and expenses (including
travel-related expenses) of Placement Agent, including without limitation,
fees,
expenses, travel expenses and disbursements of outside counsel, consultants
and
engineers incurred in connection with due diligence and preparation of the
Transaction Documents and the administration of the Notes and (ii) reasonable
costs, expenses and travel expenses of Agent (including fees and costs of
Agent’s outside counsel) in connection with the enforcement or protection of
their rights and remedies under the Notes. These fees shall not exceed $10,000
unless prior approval has been granted by the Company. Except as otherwise
set
forth in the Transaction Documents, each party to this Agreement shall bear
its
own expenses in connection with the sale of the Securities to the
Buyers.
18
(f) Conduct
of Business.
The
business of the Company and its Subsidiaries shall not be conducted in violation
of any law, ordinance or regulation of any state or federal governmental entity,
administrative agency or other regulatory agency, except where such violations
would not result, either individually or in the aggregate, in a Material Adverse
Effect.
(g) No
Conflicting Agreements.
The
Company will not take any action, enter into any agreement or make any
commitment that would conflict or interfere in any material respect with the
Company’s obligations to the Buyers under the Transaction
Documents.
(h) Compliance
with Laws.
The
Company will comply in all material respects with all applicable laws, rules,
regulations, orders and decrees of all state or federal governmental entities,
administrative agencies or other regulatory agencies..
(i) Reservation
of Common Stock.
The
Company shall at all times reserve and keep available out of its authorized
but
unissued shares of Common Stock, solely for the purpose of providing for the
conversion of the Debentures (including Interest) and the exercise of the
Warrants and the Placement Agent Warrants, such number of shares of Common
Stock
as shall from time to time equal the Conversion Shares issuable upon the due
conversion of 100% of the Debentures, Interest Shares (as defined in the
Debenture) and the Warrant Shares and the Placement Agent Warrant Shares
issuable upon the due exercise of the Warrants and the Placement Agent Warrants,
as the case may be, in accordance with their respective terms.
(j) Independent
Directors.
Within
120 days of this Agreement, the Company’s Board of Directors will use
commercially reasonable efforts to appoint two additional members to serve
on
the Board. Both of these directors shall qualify as “independent directors” as
defined by NASDAQ Market Place Rule 4350. One of these directors shall be
proposed by the Required Holders (as defined in the Debenture), subject to
the
prior approval of then current Company Board of Directors, which approval may
not be unreasonably withheld or delayed.
5. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Debentures and the
related Warrants to each Buyer at any Closing is subject to the satisfaction,
at
or before the applicable Closing Date, of each of the following conditions,
provided that these conditions are for the Company’s sole benefit and may be
waived by the Company at any time in its sole discretion by providing such
Buyer
with prior written notice thereof:
(i) Such
Buyer shall have executed each of the Transaction Documents to which it is
a
party and delivered the same to the Company.
(ii) Such
Buyer shall have delivered to the Escrow Agent the Purchase Price by wire
transfer of immediately available funds.
19
(iii) The
Buyers collectively shall have delivered to the Escrow Agent by wire transfer
at
least $15,000,000 of immediately available funds, either at this Closing or
prior Closings.
(iv) The
representations and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of such Closing Date as though
made at that time (except for representations and warranties that speak as
of a
specific date), and such Buyer shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by such Buyer at
or
prior to such Closing Date.
6. CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE.
The
obligation of each Buyer hereunder to purchase the Debentures and
the
related Warrants at any Closing is subject to the satisfaction, at or before
the
applicable Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer’s sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
(i) The
Company shall have executed and delivered to such Buyer (A) each of the
Transaction Documents, (B) the Debentures (in such principal amounts as such
Buyer shall request) being purchased by such Buyer at such Closing pursuant
to
this Agreement, and (C) the Warrants (in such amounts as such Buyer shall
request) being purchased by such Buyer at such Closing pursuant to this
Agreement.
(ii) Such
Buyer shall have received the opinion of Xxxxxxxxxx & Xxxxx LLP, the
Company’s corporate counsel, dated as of such Closing Date, in substantially the
form of Exhibit
D attached
hereto.
(iii) The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in
such
entity’s jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction.
(iv) The
Company shall have delivered to such Buyer a certified copy of the Articles
of
Incorporation as certified by the Secretary of State of the State of
Nevada.
(v) The
Company shall have delivered to such Buyer a certificate, executed by the Chief
Executive Officer of the Company and dated as of the applicable Closing Date,
as
to (i) resolutions adopted by the Company’s Board of Directors to approve the
transactions contemplated by this Agreement, (ii) the Articles of Incorporation
and (iii) the Bylaws, each as in effect at such Closing.
(vi) The
representations and warranties of the Company shall be true and correct as
of
the date when made and as of such Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date)
and
the Company shall have performed, satisfied and complied in all respects with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to such
Closing Date. Such Buyer shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of such Closing Date, to the
foregoing effect.
20
(vii) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities, except for
post-closing securities filings or notifications required to be made under
federal or state securities laws.
(viii) No
judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order
of
or by any governmental authority, shall have been issued, and no action or
proceeding shall have been instituted by any governmental authority, enjoining
or preventing the consummation of the transactions contemplated hereby or by
the
other Transaction Documents.
(ix) No
stop
order or suspension of trading shall have been imposed by the Principal Market,
the SEC or any other governmental or regulatory body with respect to public
trading in the Common Stock.
(x) The
Company shall have delivered to such Buyer such other documents relating to
the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.
7. TERMINATION.
In
the
event that a Closing shall not have occurred with respect to a Buyer on or
before three (3) Business Days (or, in the case of the Initial Closing, one
(1)
Business Day) from the date Buyer executed such Agreement due to the Company’s
or such Buyer’s failure to satisfy the conditions set forth in Sections 5 and 6
above (and the nonbreaching party’s failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party (but in the case that a Buyer
is
the breaching party, only with respect to such breaching Buyer) at the close
of
business on such date without liability of any party to any other
party.
In
the
event of termination by the Company or any Buyer of its obligations to effect
the Initial Closing pursuant to this Agreement, written notice thereof shall
forthwith be given to the other Buyers and the other Buyers shall have the
right
to terminate their obligations to effect the Initial Closing upon written notice
to the Company and the other Buyers. Nothing in this Section 7 shall be deemed
to release any party from any liability for any breach by such party of the
terms and provisions of this Agreement or the other Transaction Documents or
to
impair the right of any party to compel specific performance by any other party
of its obligations under this Agreement or the other Transaction
Documents.
21
8. MISCELLANEOUS.
(a) Governing
Law; Consent to Jurisdiction; Waiver of Jury Trial.
This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York
for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served
on
each party hereto anywhere in the world by the same methods as are specified
for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that
any
such suit, action or proceeding brought in any such court has been brought
in an
inconvenient forum. EACH
OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.
(b) Counterparts.
This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if
the
signature were an original, not a facsimile signature.
(c) Headings.
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
(d) Severability.
If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(e) Entire
Agreement; Amendments.
This
Agreement and the other Transaction Documents supersede all other prior oral
or
written agreements between the Buyers, the Company, their Affiliates and Persons
acting on their behalf with respect to the matters discussed herein and therein,
and this Agreement, the other Transaction Documents and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be amended other than by an instrument in writing signed
by
the Company and the Required Holders (as defined in the Debentures) and any
amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities, as
applicable; provided that any amendment of Sections 1(a)(iii), 4(a) through
4(d), and 5 shall require the consent of all Buyers; provided, further, however,
that any amendment that disproportionately affects a Buyer in a materially
and
adversely manner (except as a result of holding a greater percentage of
Debentures) shall require prior written consent of such Buyer; provided further,
however, that any Buyer may be added as a party to this Agreement in accordance
with Section 1 of this Agreement by the Company without the consent of the
prior
Buyers. No provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought. No such amendment shall
be effective to the extent that it applies to less than all of the holders
of
the applicable Securities then outstanding. No consideration shall be offered
or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration
also
is offered to all of the parties to the Transaction Documents, holders of
Debentures or holders of the Warrants, as the case may be. The Company has
not,
directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. Without limiting
the
foregoing, the Company confirms that, except as set forth in this Agreement,
no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company or otherwise.
22
(f) Notices.
Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with an overnight courier service,
in
each case properly addressed to the party to receive the same. The addresses
and
facsimile numbers for such communications shall be:
If
to
the Company:
Composite
Technology Corporation
0000
XxXxx Xxxxxx
Xxxxxx,
Xxxxxxxxxx 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
Attention: Chief
Executive Officer
With
a copy to:
Xxxxxxxxxx
& Xxxxx, LLP
00000
Xxxxxxxx Xxxx., Xxxxx 000
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
Attention: Xxxxx
Xxxxx, Esq.
23
If
to
a Buyer or Buyers:
to
its
address and facsimile number set forth on the Schedule of Buyers, with copies
to
such Buyer’s representatives as set forth on the Schedule of Buyers.
or
to
such other address and/or facsimile number and/or to the attention of such
other
Person as the recipient party has specified by written notice given to each
other party five (5) Business Days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above,
respectively.
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the
Debentures or the Warrants.
(h) No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
(i) Survival.
The
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4 and
8
shall survive the applicable Closing. Each Buyer shall be responsible only
for
its own representations, warranties, agreements and covenants
hereunder.
(j) Further
Assurances.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
(k) No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be applied against any party.
(l) Independent
Nature of Buyers’ Obligations and Rights.
The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under
any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall
be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers
are
in any way acting in concert or as a group with respect to such obligations
or
the transactions contemplated by the Transaction Documents. Each Buyer confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any
other
Transaction Documents, and it shall not be necessary for any other Buyer to
be
joined as an additional party in any proceeding for such purpose. The Company
acknowledges that each of the Buyers has been provided with the same Transaction
Documents for the purpose of closing a transaction with multiple Buyers and
not
because it was required or requested to do so by any Buyer.
24
(m) Further
Assurances.
The
parties shall execute and deliver all such further instruments and documents
and
take all such other actions as may reasonably be required to carry out the
transactions contemplated hereby and to evidence the fulfillment of the
agreements herein contained.
(n) Publicity.
Except
as set forth below, no public release or announcement concerning the
transactions contemplated hereby shall be issued by the Company or the Buyers
without the prior consent of the Company (in the case of a release or
announcement by the Buyers) or the Buyers (in the case of a release or
announcement by the Company) (which consents shall not be unreasonably
withheld), except as such release or announcement may be required by law or
the
applicable rules or regulations of any securities exchange or securities market,
in which case the Company or the Buyers, as the case may be, shall allow the
Buyers or the Company, as applicable, to the extent reasonably practicable
in
the circumstances, reasonable time to comment on such release or announcement
in
advance of such issuance. By 8:30 a.m. (New York City time) on the Trading
Day
(as defined below) immediately following the Initial Closing Date, the Company
shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement. The Company will file a Current Report on Form
8-K attaching the press release described in the foregoing sentence as well
as
copies of the Transaction Documents, on the first Trading Day immediately
following the Initial Closing. In addition, the Company will make such other
filings and notices in the manner and time required by the SEC or the Principal
Market. Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Buyer, or include the name of any Buyer in any filing with
the
SEC (other than the Registration Statement and any exhibits to filings made
in
respect of this transaction in accordance with periodic filing requirements
under the 0000 Xxx) or any regulatory agency or the Principal Market, without
the prior written consent of such Buyer, except to the extent such disclosure
is
required by law or trading market regulations, in which case the Company shall
provide the Buyers with prior notice of such disclosure. For purposes of this
Agreement, “Trading
Day”
means
(i) if the relevant stock or security is listed or admitted for trading on
The
New York Stock Exchange, Inc., the Nasdaq Global Market, the Nasdaq Capital
Market, any other national securities exchange, or the OTC Bulletin Board,
a day
on which such exchange is open for business; or (ii) if the relevant stock
or
security is quoted on a system of automated dissemination of quotations of
securities prices, a day on which trades may be effected through such
system.
[Signature
Page Follows]
25
IN
WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as
of
the date first written above.
|
COMPANY:
|
||
| COMPOSITE TECHNOLOGY CORPORATION | ||
| |
|
|
| By: | /s/ Xxxxxx X Xxxxxxxx | |
|
Xxxxxx X Xxxxxxxx |
||
|
Chief
Executive Officer
|
||
26
IN
WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as
of
the date first written above.
|
BUYERS:
|
|
________________________________________
Buyer
____/s/___________________________________
Signature
________________________________________
Authorized
Representative
________________________________________
Title
|
SUBSCRIPTION
ACCEPTANCE (REGARDING POST-INITIAL CLOSING BUYERS):
Accepted
as of the ___ day of _________, 2007 as to $_______________ in principal of
Debentures and the related number of Warrants;
Subscription
price accepted being $______________
COMPOSITE
TECHNOLOGY CORPORATION
By: /s/ Xxxxxx
Xxxxxxxx
Name: Xxxxxx
Xxxxxxxx
Title: Chief
Executive Officer
27
