SUBORDINATED SECURITIES PURCHASE AGREEMENT
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LAURUS MASTER FUND, LTD.
AND
XXXXXXX.XXX INC.
DATED: DECEMBER 22, 2006
LIST OF EXHIBITS
Subordinated Secured Term Note.........................................Exhibit A
Warrant................................................................Exhibit B
Escrow Agreement ......................................................Exhibit C
SUBORDINATED SECURITIES PURCHASE AGREEMENT
THIS SUBORDINATED SECURITIES PURCHASE AGREEMENT (as amended, modified,
restated and/or supplemented from time to time, this "Agreement") is made and
entered into as of December 22, 2006, by and between XXXXXXX.XXX Inc., a
Delaware corporation (the "Company"), and LAURUS MASTER FUND, LTD., a Cayman
Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Subordinated Secured Term Note in the aggregate principal amount of One Million
Dollars ($1,000,000) in the form of Exhibit A hereto (as amended, modified,
restated and/or supplemented from time to time, the "Note");
WHEREAS, the Company wishes to issue to the Purchaser warrants in the
form of Exhibits B hereto (as amended, modified, restated and/or supplemented
from time to time, "Warrant A"), (the "Warrants") to purchase up to 10,000,000
shares of the Company's Common Stock (upon the terms and subject to adjustment
as set forth therein) in connection with the Purchaser's purchase of the Note;
WHEREAS, the Purchaser desires to purchase the Note and the Warrants on
the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrants to
the Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and
conditions set forth in this Agreement, on the Closing Date (as defined in
Section 3), the Company shall sell to the Purchaser, and the Purchaser shall
purchase from the Company, the Note. The sale of the Note on the Closing Date
shall be known as the "Offering". The Note will mature on the Maturity Date (as
defined in the Note). Collectively, the Note and Warrants, together with the
Warrant Shares (as hereinafter defined), are referred to as the "Securities".
2. FEES AND WARRANTS. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser
the Warrants to purchase up to 10,000,000 of shares of Common Stock
(subject to adjustment as set forth
therein and in the Warrant Side Letter, as hereinafter defined) in
connection with and in consideration of the Purchaser's purchase of the
Note pursuant to Section 1 hereof. The shares of the Company's Common
Stock (as defined in Section 4.3(a) below) issued upon the due and
timely exercise of the Warrants will be referred to as the "Warrant
Shares". Subject to Section 11.4 hereof, all the representations,
covenants, warranties, undertakings, and indemnification, and other
rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted for the benefit of the
Purchaser as holder of the Warrants.
(b) Subject to the terms of Section 2(d) below, the
Company shall pay to Laurus Capital Management, LLC, the manager of the
Purchaser, a closing payment in an amount equal to three and one-half
percent (3.50%) of the aggregate principal amount of the Note. The
foregoing fee is referred to herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its
reasonable expenses (including legal fees and expenses) incurred in
connection with the preparation and negotiation of this Agreement and
the Related Agreements (as hereinafter defined), and expenses incurred
in connection with the Purchaser's due diligence review of the Company
and its Subsidiaries (as defined in Section 4.2) and all related
matters. Amounts required to be paid under this Section 2(c) will be
paid on the Closing Date and shall be $20,000 for such expenses
referred to in this Section 2(c).
(d) The Closing Payment and the expenses referred to in
the preceding clause (c) (net of deposits previously paid by the
Company) shall be paid at closing out of funds held pursuant to the
Escrow Agreement (as defined below) and a disbursement letter (the
"Disbursement Letter").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein,
the closing of the transactions contemplated hereby (the "Closing"), shall take
place on the date hereof, at such time or place as the Company and the Purchaser
may mutually agree (such date is hereinafter referred to as the "Closing Date").
3.2 DELIVERY. Pursuant to the Escrow Agreement, at the
Closing on the Closing Date, the Company will deliver to the Purchaser, among
other things, the Note and the Warrants and the Purchaser will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter by
certified funds or wire TRANSFER. The Company hereby acknowledges and agrees
that Purchaser's obligation to purchase the Note from the Company on the Closing
Date shall be contingent upon the satisfaction (or waiver by the Purchaser in
its sole discretion) of the items and matters set forth in the closing checklist
provided by the Purchaser to the Company on or prior to the Closing Date.
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4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchaser as follows as of the date hereof
(unless an earlier date is indicated):
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each
of the Company and each of its Subsidiaries is a corporation, partnership or
limited liability company, as the case may be, duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization. Each of
the Company and each of its Subsidiaries has the corporate, limited liability
company or partnership, as the case may be, power and authority to own and
operate its properties and assets and, insofar as it is or shall be a party
thereto, to (1) execute and deliver (i) this Agreement, (ii) the Note and the
Warrants to be issued in connection with this Agreement, (iii) the
Reaffirmation, Ratification and Amendment Agreement dated as of the date hereof
between the Company, certain Subsidiaries of the Company and the Purchaser (as
amended, modified and/or supplemented from time to time, the "Reaffirmation
Agreement") (iv) the Funds Escrow Agreement dated as of the date hereof among
the Company, the Purchaser and the escrow agent referred to therein,
substantially in the form of Exhibit C hereto (as amended, modified, restated
and/or supplemented from time to time, the "Escrow Agreement"), (v) the
Warrants; (vi) the letter agreement dated as of the date hereof between the
Purchaser and the Company respecting the securities issueable pursuant to the
Warrants (as amended, modified, restated and/or supplemented from time to time,
the "Warrant Side Letter"; and (vii) all other documents, instruments and
agreements entered into on or after the date hereof in connection with the
transactions contemplated hereby and thereby, as executed by the applicable
parties and thereafter amended, modified, restated and/or supplemented from time
to time (the preceding clauses (ii) through (vii), collectively, the "Related
Agreements"); (2) issue and sell the Note; (3) issue and sell the Warrants and
Warrant Shares; and (4) carry out the provisions of this Agreement and the
Related Agreements and to carry on its business as presently conducted. Each of
the Company and each of its Subsidiaries is duly qualified and is authorized to
do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so has not, or could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
assets, liabilities, condition (financial or otherwise), properties, operations
and prospects of the Company and its Subsidiaries, taken as a whole (a "Material
Adverse Effect").
4.2 SUBSIDIARIES. Each direct and indirect Subsidiary of
the Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Schedule 4.2. For the purpose of this Agreement, a
"Subsidiary" of any person or entity means (i) a corporation or other entity
whose shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the directors of such
corporation, or other persons or entities performing similar functions for such
person or entity, are owned, directly or indirectly, by such person or entity or
(ii) a corporation or other entity in which such person or entity owns, directly
or indirectly, more than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
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(a) The authorized capital stock of the Company, as of
the date hereof consists of 21,000,000 shares, of which 20,000,000 are
authorized as shares of common stock, par value $0.001 per share (the
"Common Stock"), and 14,995,513 shares of Common Stock are issued and
outstanding , and 1,000,000 are authorized as shares of preferred
stock, par value $0.001 per share (the "Preferred Stock"), and
37,840.7895 shares of Preferred Stock are issued and outstanding. The
authorized, issued and outstanding capital stock of each Subsidiary of
the Company is set forth on Schedule 4.3.
(b) Except (i) as disclosed on Schedule 4.3, (ii) the
shares reserved for issuance under the stock option plans of the
Company and its Subsidiaries, and (iii) warrants, rights and shares
granted pursuant to this Agreement and the Related Agreements, there
are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder
agreements, or arrangements or agreements of any kind for the purchase
or acquisition from the Company of any of its equity securities. Except
as disclosed on Schedule 4.3, neither the offer, issuance or sale of
any of the Note or the Warrants, nor the issuance of any of the Warrant
Shares, nor the consummation of any transaction contemplated hereby,
will result in a change in the price or number of any equity securities
of the Company outstanding under anti-dilution or other similar
provisions contained in or affecting any such equity securities.
(c) All issued and outstanding shares of the Company's
Common Stock and Preferred Stock: (i) have been duly authorized and
validly issued and are fully paid and nonassessable; and (ii) were
issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions
of the shares of the Common Stock are as stated in the Company's
Certificate of Incorporation (the "Charter"). The Warrant Shares have
been duly and validly reserved for issuance. When issued in compliance
with the provisions of this Agreement, the Related Agreements and the
Company's Charter, the Securities will be validly issued, fully paid
and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities are subject to the provisions of
this Agreement, the Related Agreements and applicable law other than to
the extent effectively waived hereunder or thereunder (including,
without limitation, the Uniform Commercial Code in the case of the
Note) and may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate,
partnership or limited liability company, as the case may be, action on the part
of the Company and each of its Subsidiaries (including their respective officers
and directors) necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company and its
Subsidiaries hereunder and under the other Related Agreements at the Closing
and, the authorization, sale, issuance and delivery of the Note and Warrants has
been taken or will be taken prior to the Closing. This Agreement and the Related
Agreements, when executed and delivered and to the extent it is a party thereto,
will be valid and binding obligations of each of
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the Company and each of its Subsidiaries, enforceable against each such person
or entity in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Note is not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with. The
issuance of the Warrants and the subsequent exercise of the Warrants for Warrant
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with.
4.5 LIABILITIES. Neither the Company nor any of its
Subsidiaries has any liabilities that should have been but were not disclosed in
any of the Company's filings under the Securities Act or Securities Exchange Act
of 1934 ("Exchange Act") made on or prior to the date of this Agreement,
including (without limitation) the SEC Reports, as hereinafter defined
(collectively, the "Securities Filings"), except for (i) liabilities incurred in
the ordinary course of business, and (ii) liabilities under documents governing
Permitted Indebtedness and Permitted Guarantees, copies of which governing
documents have been provided to the Purchaser and (iii) liabilities set forth in
the Schedules.
4.6 AGREEMENTS; ACTION. Except as set forth on Schedule
4.6 or as disclosed in any Securities Filings:
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees
to which the Company or any of its Subsidiaries is a party or by which
it is bound containing any: (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its Subsidiaries in excess of
$50,000 (other than (A) obligations of, or payments to, the Company or
any of its Subsidiaries arising from purchase, lease, license or sale
agreements entered into in the ordinary course of business, (B)
Permitted Indebtedness and Permitted Guarantees (as defined in Section
6.12(e) hereof), and (C) the matters disclosed in Schedule 4.7); or
(ii) transfer or license of any patent, copyright, trade secret or
other proprietary right to or from the Company or any of its
Subsidiaries (other than licenses arising from the purchase of "off the
shelf" or other standard products); or (iii) provisions restricting the
development, manufacture or distribution of the Company's or any of its
Subsidiaries products or services; or (iv) indemnification by the
Company or any of its Subsidiaries with respect to infringements of
proprietary rights (other than indemnification provisions protecting
the licensor of licenses arising from the purchase of "off the shelf"
or other standard products).
(b) Since July 1, 2006 (the "Balance Sheet Date"),
neither the Company nor any of its Subsidiaries has: (i) declared or
paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock; (ii) incurred
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any indebtedness for money borrowed or any other liabilities (other
than ordinary course obligations) individually in excess of $50,000 or,
in the case of indebtedness and/or liabilities individually less than
$50,000, in excess of $100,000 in the aggregate, other than Permitted
Indebtedness and Permitted Guarantees; (iii) made any loans or advances
to any person or entity not in excess, individually or in the
aggregate, of $100,000, other than ordinary course advances for travel
expenses, and other than intercompany loans and advances among the
Company and its Subsidiaries SET FORTH ON SCHEDULE 4.6; or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above,
all such indebtedness, liabilities, agreements, understandings,
instruments, contracts or proposed transactions involving the same
person or entity (including persons or entities the Company or any
Subsidiary of the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(d) The Company maintains all disclosure controls and
procedures required under applicable law ("Disclosure Controls")
designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act
is recorded, processed, summarized, and reported in accordance with and
within the time periods specified in the rules and forms of the
Securities and Exchange Commission ("SEC").
(e) The Company makes and keep books, records, and
accounts, that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the Company's assets. The Company
maintains internal control over financial reporting ("Financial
Reporting Controls") designed by, or under the supervision of, the
Company's principal executive and principal financial officers, and
effected by the Company's board of directors, management, and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles ("GAAP"), including that:
(i) material transactions are executed in
accordance with management's general or specific authorization
or material deviations are timely detected;
(ii) unauthorized acquisition, use, or
disposition of the Company's assets that could have a material
effect on the financial statements are prevented or timely
detected;
(iii) transactions are recorded as necessary to
permit preparation of financial statements in accordance with
GAAP, and that the Company's receipts and expenditures are
being made only in accordance with the general or specific
authorizations of, or policies and procedures established by,
the Company's management and/or board of directors;
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(iv) transactions are recorded as necessary to
maintain accountability for all material assets; and (v) the
recorded accountability for assets is compared with the
existing assets at reasonable intervals, and appropriate
action is taken with respect to any differences.
(f) There is no weakness in any of the Company's
Disclosure Controls or Financial Reporting Controls that is required to
be disclosed in any of the Securities Filings, except as so disclosed.
4.7 OBLIGATIONS TO RELATED PARTIES. Except as set forth
on Schedule 4.7 or in the Securities Filings, there are no obligations of the
Company or any of its Subsidiaries to officers, directors, stockholders or
employees of the Company or of any of its Subsidiaries other than:
(a) for payment of salary for services rendered and for
bonus payments;
(b) reimbursement for reasonable expenses incurred on
behalf of the Company and its Subsidiaries;
(c) for other standard employee benefits made generally
available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of
Directors of the Company and each Subsidiary of the Company, as
applicable); and
(d) obligations listed in the Company's and each of its
Subsidiary's financial statements or disclosed in any of the Company's
Securities Filings.
Except as described above, in the Securities Filings or set forth on Schedule
4.6 or 4.7: (i) none of the officers, directors or, to the best of the Company's
knowledge, key employees or stockholders of the Company or any of its
Subsidiaries or any members of their immediate families, are indebted to the
Company or any of its Subsidiaries, individually or in the aggregate, in excess
of $50,000 or have any direct or indirect ownership interest in any firm or
corporation with which the Company or any of its Subsidiaries is affiliated or
with which the Company or any of its Subsidiaries has a business relationship,
or any firm or corporation which competes with the Company or any of its
Subsidiaries, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete with
the Company or any of its Subsidiaries; (ii) no officer, director or stockholder
of the Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between the Company or any of its
Subsidiaries and any such person; and (iii) neither the Company nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
person or entity other than pursuant to any of the Permitted Guarantees.
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4.8 CHANGES. Since the Balance Sheet Date, except as
disclosed in any Securities Filing or in any Schedule to this Agreement or to
any of the Related Agreements, there has not been:
(a) any change in the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects
of the Company or any of its Subsidiaries, which individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key
employee or group of employees of the Company or any of its
Subsidiaries;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or
otherwise, other than (A) any Permitted Guarantees, or (B) any new
licenses arising from the purchase of "off the shelf" or other standard
products containing indemnification provisions protecting the licensor
thereof;
(d) any damage, destruction or loss, whether or not
covered by insurance, which has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries
of a valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or
any of its Subsidiaries to any stockholder, employee, officer or
director of the Company or any of its Subsidiaries, other than advances
made in the ordinary course of business;
(g) any material change in any compensation arrangement
or agreement with any employee, officer, director or stockholder of the
Company or any of its Subsidiaries;
(h) any declaration or payment of any dividend or other
distribution of the assets of the Company or any of its Subsidiaries
(for the sake of clarity, advances and repayments of intercompany loans
and advances among the Company and its Subsidiaries are not such
distributions);
(i) any labor organization activity related to the
Company or any of its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed
or guaranteed by the Company or any of its Subsidiaries, except those
for immaterial amounts, for current liabilities incurred in the
ordinary course of business, and for Permitted Indebtedness and
Permitted Guarantees;
(k) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets owned
by the Company or any of its Subsidiaries;
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(l) any change in any material agreement to which the
Company or any of its Subsidiaries is a party or by which either the
Company or any of its Subsidiaries is bound which either individually
or in the aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that,
either individually or in the aggregate, has had, or could reasonably
be expected to have, individually or in the aggregate, a Material
Adverse Effect; or
(n) any arrangement or commitment by the Company or any
of its Subsidiaries to do any of the acts described in subsection (a)
through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as
set forth on Schedule 4.9, each of the Company and each of its Subsidiaries has
good and marketable title to its properties and assets, and good title to its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than the following (each a "Permitted
Encumbrance"):
(a) those resulting from taxes which have not yet become
delinquent or are being contested as permitted by Section 6.7;
(b) statutory liens incurred or imposed in the ordinary
course (i) of mechanics, carriers, warehouses, processors, suppliers
and laborers, (ii) respecting worker's compensation, unemployment
insurance, or social security, or (iii) as a condition precedent to the
operation of business or the exercise of any of any authorizations,
licenses or privileges, in each case to the extent and only for so long
as the underlying obligations are not delinquent or are being
diligently contested in good faith;
(c) liens incurred in respect of judgments and awards
discharged within 30 days from the making thereof;
(d) in the case of real estate, easements, rights-of-way,
restrictions, covenants and other agreements of record and other
similar charges or encumbrances that (i) do not secure indebtedness or
guarantees, and (ii) do not interfere with the use of or conduct of any
business of the Company or any of its Subsidiaries thereon;
(e) any cash deposits made or bonds posted in the
ordinary course to secure performance under any contract or applicable
law;
(f) in the case of any account, intangible, instrument,
lease, agreement or document, any contractual right, power, privilege,
remedy, interest, defect, restriction, covenant, claim, counterclaim,
right of recoupment, abatement, reduction or setoff, or defense of any
account debtor or other party thereto, whether now existing or
hereafter arising, and whether pursuant to the applicable contractual
provisions or applicable law;
(g) the security interests or liens (including leases
treated as security interests or liens) encumbering Equipment or other
assets purchased or leased with Permitted Indebtedness so long as they
respectively secure only the corresponding Permitted
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Indebtedness or capitalized lease obligations and encumber only the
assets so purchased or leased (and the products and proceeds thereof,
insurance therefor and warranty and other contract rights related
thereto) and no other assets of the Company or any of its Subsidiaries;
(h) each currently existing lien described in Schedule
4.9 hereto, or any continuation, restatement, or replacement thereof on
terms no less favorable in all material respects to the Purchaser than
the lien being continued, restated or replaced;
(i) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially
impair the operations of the Company or any of its Subsidiaries, so
long as in each such case, such liens and encumbrances have no effect
on the lien priority of the Purchaser in such property; and
(j) those that have otherwise arisen in the ordinary
course of business, so long as they have no effect on the lien priority
of the Purchaser therein.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns
or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes necessary for
its business as now conducted and, to the Company's knowledge, as
presently proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing proprietary rights, nor is the Company or any of its
Subsidiaries bound by or a party to any options, licenses or agreements
of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other
than such licenses or agreements arising from the purchase of "off the
shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has
received any communications alleging that the Company or any of its
Subsidiaries has violated any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity, nor is the Company or any of its
Subsidiaries aware of any basis therefor.
(c) The Company does not believe it is or will be
necessary to utilize any inventions, trade secrets or proprietary
information of any of its employees made prior to their employment by
the Company or any of its Subsidiaries, except for inventions, trade
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secrets or proprietary information that have been rightfully assigned
to the Company or any of its Subsidiaries.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the
Company nor any of its Subsidiaries is in violation or default of (x) any term
of its Charter or Bylaws, or (y) any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the Company each pursuant hereto
and thereto, will not, with or without the passage of time or giving of notice,
result in (i) any such violation or default, or be in conflict in any material
respect with, any such indebtedness, mortgage, indenture, contract, agreement or
instrument, (ii) result in the creation of any mortgage, pledge, lien,
encumbrance or charge thereunder upon any of the properties or assets of the
Company or any of its Subsidiaries, or (iii) result in the suspension,
revocation, impairment, forfeiture or nonrenewal of any material permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
4.12 LITIGATION. Except as set forth on Schedule 4.12
hereto, there is no action, suit, proceeding or investigation pending or, to the
Company's knowledge, currently threatened against the Company or any of its
Subsidiaries, and 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 agency or instrumentality, that (a) prevents the
Company or any of its Subsidiaries (i) from entering into this Agreement or the
other Related Agreements, or (ii) from consummating the transactions
contemplated hereby or thereby, or (b) has had, or if adversely determined could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or any change in the current equity ownership of the
Company or any of its Subsidiaries; and the Company has no knowledge of any
reasonable basis to assert any of the foregoing. Except as set forth on Schedule
4.12 hereto, there is no action, suit, proceeding or investigation by the
Company or any of its Subsidiaries (as plaintiff or investigator) currently
pending or which the Company or any of its Subsidiaries intends to initiate
other than collection and similar matters in the normal course.
4.13 TAX RETURNS AND PAYMENTS. Except as set forth on
Schedule 4.13 hereto: (i) each of the Company and each of its Subsidiaries has
timely filed all tax returns (federal, state and local) required to be filed by
it; and (ii) all taxes shown to be due and payable on such returns, any
assessments imposed, and all other taxes due and payable by the Company or any
of its Subsidiaries on or before the Closing, have been paid or will be paid
prior to the time they become delinquent other than those being diligently
contested in good faith. Except as set forth on Schedule 4.13, neither the
Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other,
have been or are being audited as of the date hereof; or
(b) of any adjustment, deficiency, assessment or court
decision in respect of its federal, state or other taxes.
11
Except as set forth on Schedule 4.13, the Company has no knowledge of any
liability for any tax to be imposed upon its properties or assets as of the date
of this Agreement that is not adequately provided for.
4.14 EMPLOYEES. Neither the Company nor any of its
Subsidiaries has any collective bargaining agreements with any of its employees.
There is no labor union organizing activity pending or, to the Company's
knowledge, threatened with respect to the Company or any of its Subsidiaries.
Except as disclosed in the Securities Filings or on Schedule 4.14, neither the
Company nor any of its Subsidiaries is a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company's knowledge: no employee of the
Company or any of its Subsidiaries, nor any consultant with whom the Company or
any of its Subsidiaries has contracted, is in violation of any term of any
material employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company and its
Subsidiaries of their present employees, and the performance of the Company's
and its Subsidiaries' contracts with its independent contractors, will not
result in any such violation. To the Company's knowledge, no employee of the
Company or any of its Subsidiaries is obligated under any material contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency that would interfere with their duties to the Company or any of its
Subsidiaries. To the Company's knowledge, neither the Company nor any of its
Subsidiaries has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective employment or
severance agreement with the Company or any of its Subsidiaries and any rights
that may be available under applicable law, and except for the general severance
policies of the Company and its Subsidiaries, no employee of the Company or any
of its Subsidiaries has been granted the right to continued employment by the
Company or any of its Subsidiaries or to any material compensation following
termination of employment with the Company or any of its Subsidiaries. Except as
set forth on Schedule 4.14, to the knowledge of the Company, no officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company or any of its Subsidiaries, nor does the Company or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. Except as set
forth on Schedule 4.15, and except as disclosed in Securities Filings, neither
the Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 and except as disclosed in Securities Filings, to the
Company's knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.
12
4.16 COMPLIANCE WITH LAWS; PERMITS. Neither the Company
nor any of its Subsidiaries is in violation of any provision of the
Xxxxxxxx-Xxxxx Act of 2002 or any SEC related regulation, or any other
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties, that has had, or
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any other Related Agreement and the issuance of
any of the Securities, except such as have been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed by or on behalf of the Company in a timely manner or by or on
behalf of the Purchaser. Each of the Company and its Subsidiaries has all
material franchises, permits, licenses and any similar authority necessary for
the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.17 ENVIRONMENTAL AND SAFETY LAWS. Neither the Company
nor any of its Subsidiaries is in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries, other than in the
normal course in accordance with such applicable statutes, laws or regulations.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal
and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the environment
from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building
materials; or
(b) any petroleum products or nuclear materials.
4.18 VALID OFFERING. Assuming the accuracy of the
representations and warranties of the Purchaser contained in this Agreement, the
offer, sale and issuance of the Securities will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws.
4.19 FULL DISCLOSURE. Each of the Company and each of its
Subsidiaries has provided to the Purchaser or its representatives all
information requested by the Purchaser in connection with its decision to
purchase the Note and Warrants, including all information the Company and its
Subsidiaries believe is reasonably necessary to make such investment decision.
Neither this Agreement, the Related Agreements, the exhibits and schedules
hereto and thereto
13
nor any other document delivered by the Company or any of its Subsidiaries to
Purchaser or its attorneys or agents in connection herewith or therewith or with
the transactions contemplated hereby or thereby, contain any untrue statement of
a material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Any financial projections and other estimates
provided to the Purchaser by the Company or any of its Subsidiaries were based
on the Company's and its Subsidiaries' experience in the industry and on
assumptions of fact and opinion as to future events which the Company or any of
its Subsidiaries, at the date of the issuance of such projections or estimates,
believed to be reasonable.
4.20 INSURANCE. Each of the Company and each of its
Subsidiaries has general commercial, product liability, fire and casualty
insurance policies with coverages that the Company believes are customary for
companies similarly situated to the Company and its Subsidiaries in the same or
similar business.
4.21 SEC REPORTS. Except as set forth on Schedule 4.21,
the Company has filed all proxy statements, reports and other documents required
to be filed by it under the Securities Xxxxxxxx Xxx 0000, as amended (the
"Exchange Act"). The Company has furnished the Purchaser copies of: (i) its
Annual Reports on Form 10-KSB for its fiscal years ended June 30, 2005; and (ii)
its Quarterly Reports on Form 10-Q for its fiscal quarter ended December 31,
2005and on Form 10-QSB for its fiscal quarter ended September 30, 2005, and its
12B-25 filed May 16, 2006, and the Form 8-K filings which it has made since June
30, 2005, to date (collectively, the "SEC Reports"). Except as set forth on
Schedule 4.21 or subsequent SEC Reports set forth in this Section 4.21, each SEC
Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.22 LISTING. The Company's Common Stock is quoted on the
Pink Sheets(R) under the symbol "XXXX.XX" and is not listed or quoted on a
Principal Market (as hereafter defined). For purposes hereof, the term
"Principal Market" means the NASD Over The Counter Bulletin Board, NASDAQ
Capital Market, NASDAQ Global Select Market, NASDAQ Global Market, American
Stock Exchange or New York Stock Exchange (whichever of the foregoing, if any,
is at the time the principal trading exchange or market for the Common Stock).
4.23 NO INTEGRATED OFFERING. Neither the Company, nor any
of its Subsidiaries or affiliates, nor any person acting on its or 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 cause the offering
of the Securities pursuant to this Agreement or any of the Related Agreements to
be integrated with prior offerings by the Company for purposes of the Securities
Act that would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
14
4.24 STOP TRANSFER. The Securities are restricted
securities as of the date of this Agreement. Neither the Company nor any of its
Subsidiaries will issue any stop transfer order or other order impeding the sale
and delivery of any of the Warrant Shares at such time as the Warrant Shares are
registered for public sale or an exemption from registration is available,
except as required by state and federal securities laws.
4.25 DILUTION. The Company specifically acknowledges that
its obligation to issue the shares of Common Stock upon exercise of the Warrants
is binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
4.26 PATRIOT ACT. (a) The Company certifies that, to the
best of Company's knowledge, neither the Company nor any of its Subsidiaries has
been designated, nor is or shall be owned or controlled, by a "suspected
terrorist" as defined in U.S. Federal Executive Order 13224. The Company hereby
acknowledges that the Purchaser seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of those
efforts, the Company hereby represents, warrants and covenants that: (i) none of
the cash or property that the Company or any of its Subsidiaries will pay or
will contribute to the Purchaser has been or shall be derived from, or related
to, any activity that is deemed criminal under United States law; and (ii) no
contribution or payment by the Company or any of its Subsidiaries to the
Purchaser, to the extent that they are within the Company's and/or its
Subsidiaries' control, shall cause the Purchaser to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
notify the Purchaser if any of these representations, warranties or covenants
ceases to be true and accurate regarding the Company or any of its Subsidiaries.
The Company shall provide the Purchaser all additional information regarding the
Company or any of its Subsidiaries that the Purchaser deems necessary or
convenient to ensure compliance with all applicable laws concerning money
laundering and similar activities. The Company understands and agrees that if at
any time it is discovered that any of the foregoing representations, warranties
or covenants are incorrect, or if otherwise required by applicable law or
regulation related to money laundering or similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser's investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser, in its sole discretion, determines that it is in
the best interests of the Purchaser in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.
(b) The Purchaser certifies that, to the best of Purchaser's
knowledge, neither the Purchaser nor any of its Subsidiaries has been
designated, nor is or shall be owned or controlled, by a "suspected terrorist"
as defined in U.S. Federal Executive Order 13224. The Purchaser hereby
acknowledges that the Company seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of those
efforts, the Purchaser hereby represents, warrants and covenants that: (i) none
of the cash or property that the Purchaser or any of its Subsidiaries will pay
or will contribute to the Company has been or shall be derived from, or related
to, any activity that is deemed criminal under United States law; and (ii) no
15
contribution or payment by the Purchaser or any of its Subsidiaries to the
Company, to the extent that they are within the Purchaser's and/or its
Subsidiaries' control, shall cause the Company to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Purchaser shall promptly
notify the Company if any of these representations, warranties or covenants
ceases to be true and accurate regarding the Purchaser or any of its
Subsidiaries. The Purchaser shall provide the Company all additional information
regarding the Purchaser or any of its Subsidiaries that the Company deems
necessary or convenient to ensure compliance with all applicable laws concerning
money laundering and similar activities. The Purchaser understands and agrees
that if at any time it is discovered that any of the foregoing representations,
warranties or covenants are incorrect, or if otherwise required by applicable
law or regulation related to money laundering or similar activities, the Company
may undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Company's investment in the Purchaser. The Purchaser further understands that
the Company may release confidential information about the Purchaser and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Company, in its sole discretion, determines that it is in the
best interests of the Company in light of relevant rules and regulations under
the laws set forth in subsection (ii) above.
4.27 ERISA. To the extent the Company or any of its
Subsidiaries has any benefit plan subject to the Employee Retirement Income
Security Act of 1974 ("ERISA"), and the regulations and published
interpretations thereunder: (i) neither the Company nor any of its Subsidiaries
has engaged in any Prohibited Transactions (as defined in Section 406 of ERISA
and Section 4975 of the Internal Revenue Code of 1986, as amended (the "CODE"));
(ii) each of the Company and each of its Subsidiaries has met all applicable
minimum funding requirements under Section 302 of ERISA in respect of its plans;
(iii) neither the Company nor any of its Subsidiaries has any knowledge of any
event or occurrence which would cause the Pension Benefit Guaranty Corporation
to institute proceedings under Title IV of ERISA to terminate any employee
benefit plan(s); (iv) neither the Company nor any of its Subsidiaries has any
fiduciary responsibility for investments with respect to any plan existing for
the benefit of persons other than the Company's or such Subsidiary's employees;
and (v) neither the Company nor any of its Subsidiaries has withdrawn,
completely or partially, from any multi-employer pension plan so as to incur
liability under the Multiemployer Pension Plan Amendments Act of 1980.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to and covenants and agrees with (as applicable)
the Company as follows (it being understood that such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 NO SHORTING. The Purchaser or any of its affiliates
and investment partners has not, will not and will not cause any person or
entity to, directly or beneficially engage in "short sales" of the Company's
Common Stock or Preferred Stock as long as the Note and Warrants shall be
outstanding.
5.2 REQUISITE POWER AND AUTHORITY. The Purchaser has full
all necessary power and authority under all applicable provisions of law, to
execute and deliver this
16
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on the Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
the Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) as limited by general principles of equity that
restrict the availability of equitable and legal remedies.
5.3 INVESTMENT REPRESENTATIONS. The Purchaser understands
that the Securities are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon the Purchaser's
representations contained in this Agreement, including, without limitation, the
Purchaser's representation (in Section 5,7) that it is an "accredited investor"
within the meaning of Regulation D under the Securities Act of 1933, as amended
(the "Securities Act"). The Purchaser confirms that it has received or has had
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the Note and the Warrants to be
purchased by it under this Agreement and the Warrant Shares acquired by it upon
the exercise of the Warrants, respectively. The Purchaser further confirms that
it has had the opportunity to ask questions and receive answers from the Company
regarding the Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering, the Note, the Warrants and
the Securities and obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser or to
which the Purchaser had access.
5.4 THE PURCHASER BEARS ECONOMIC RISK. The Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. The Purchaser must bear the
economic risk of this investment until the Securities are sold pursuant to: (i)
an effective registration statement under the Securities Act; or (ii) an
exemption from registration that is available with respect to such sale.
5.5 ACQUISITION FOR OWN ACCOUNT. The Purchaser is
acquiring the Note and Warrants and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.6 THE PURCHASER CAN PROTECT ITS INTEREST. The Purchaser
represents that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks of
its investment in the Note, the Warrants and the Securities and to protect its
own interests in connection with the transactions contemplated in this Agreement
and the Related Agreements. Further, the Purchaser is aware of no advertisement
or
17
other publication in connection with the transactions contemplated in the
Agreement or the Related Agreements.
5.7 ACCREDITED INVESTOR. The Purchaser represents that it
is an accredited investor within the meaning of Regulation D under the
Securities Act.
5.8 Legends.
(a) The Warrant Shares, if not issued by DWAC system (as
hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO [XXXXXXX.XXX INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Warrants shall bear substantially the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
XXXXXXX.XXX INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Note shall bear substantially the following
legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
XXXXXXX.XXX INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
18
6. COVENANTS OF THE COMPANY. The Company covenants and agrees,
with the Purchaser that, until such time as the Note Amounts have been fully
paid, unless the Purchaser in its sole discretion consents otherwise (as
provided in Section 11.4 and 11.6):
6.1 STOP-ORDERS. The Company will advise the Purchaser,
promptly after it receives notice of issuance by the SEC, any state securities
commission or any other regulatory authority, of such issuance of any stop order
or other order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
6.2 LISTING. The Company shall, within six (6) months of
the date hereof, secure the listing or quotation, as applicable, of the shares
of its Common Stock including, without limitation, those shares issuable upon
the exercise of the Warrants, on a Principal Market (subject to official notice
of issuance) and shall maintain such listing or quotation, as applicable, so
long as any other shares of Common Stock shall be so listed or quoted, as
applicable. The Company will maintain the listing or quotation, as applicable,
of its Common Stock on the Principal Market, and will comploy in all material
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable.
6.3 AUTHORIZATION OF COMMON STOCK. The Company shall,
within three (3) months of the date hereof, have sufficient authorized shares of
Common Stock for the exercise of the Warrants. In the event that the Company has
not complied with this Section 6.3 by the nine-month anniversary of the date
hereof, the Company shall pay interest to the Purchaser at a rate that is two
percent (2%) above the Contract Rate until such time as such shares have been
authorized.
6.4 MARKET REGULATIONS. The Company shall notify the SEC
and applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
6.5 REPORTING REQUIREMENTS. The Company will deliver, or
cause to be delivered, to the Purchaser each of the following, which shall be in
form and detail acceptable to the Purchaser:
(a) As soon as available after the end of each fiscal
year of the Company, and in any event by no later than the first
business day after the expiration of the period (including any
extensions) required for filing of its annual report on Form 10-K with
the SEC under the Exchange Act, a copy of such annual report, including
the consolidated audited financial statements of the Company and its
Subsidiaries together with a report of independent certified public
accountants of recognized standing selected by the Company and
reasonably acceptable to the Purchaser (the "ACCOUNTANTS") (the current
accountants being acceptable), which annual financial statements shall
include each of the consolidated balance sheet of the Company and its
Subsidiaries as at the end of such
19
fiscal year and the related consolidated statements of income, retained
earnings and cash flows of the Company and its Subsidiaries for the
fiscal year then ended, all in reasonable detail and prepared in
accordance with GAAP, together with (i) if and when available, copies
of any management letters prepared by the Accountants; and (ii) a
certificate of the Company's President, Chief Executive Officer or
Chief Financial Officer stating that such financial statements have
been prepared to his knowledge in accordance with GAAP and whether or
not such officer has knowledge of the occurrence and/or continuance of
any Event of Default (as defined in the Note) and, if so, stating in
reasonable detail the facts with respect thereto;
(b) As soon as available after the end of each fiscal
quarter of the Company, and in any event by no later than the first
business day after the expiration of the period (including any
extensions) required for filing of its quarterly report on Form 10-Q
with the SEC under the Exchange Act, a copy of such quarterly report,
including an unaudited consolidated balance sheet and statements of
income, retained earnings and cash flows of the Company and its
Subsidiaries as at the end of and for such quarter and for the year to
date period then ended, in reasonable detail and prepared in accordance
with GAAP, subject to year-end adjustments and accompanied by a
certificate of the Company's President, Chief Executive Officer or
Chief Financial Officer, stating (i) that such financial statements
have been prepared in accordance with GAAP to his knowledge, subject to
year-end audit adjustments, and (ii) whether or not such officer has
knowledge of the occurrence and/or continuance of any Event of Default
(as defined in the Note) not theretofore reported and remedied and, if
so, stating in reasonable detail the facts with respect thereto;
(c) As soon as available and in any event within fifteen
(15) days after the end of each calendar month, a copy of the Company's
regularly prepared internal unaudited consolidated financial
statements, including (without limitation) balance sheets, statements
of income, retained earnings and cash flows, and in reasonable detail
and stating in comparative form the figures for the corresponding date
and periods in the previous year, all prepared in accordance with past
practice, subject to year-end adjustments and accompanied by a
certificate of the Company's President, Chief Executive Officer or
Chief Financial Officer, stating (i) that such financial statements
have been prepared in accordance with past practice, subject to
year-end audit adjustments; and (ii) whether or not such officer has
knowledge of the occurrence fo any Event of Default (as defined in the
Note) not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto;
(d) Promptly after (i) the filing thereof, copies of the
Company's most recent registration statements and annual, quarterly,
monthly or other regular reports which the Company files with the
Securities and Exchange Commission (the "SEC"), and (ii) the issuance
thereof, copies of such financial statements, reports and proxy
statements as the Company shall send to its stockholders; and
(e) Promptly following request such other information
respecting the Company and its Subsidiaries as the Purchaser shall
reasonably request.
20
The Company shall timely file with the SEC all reports required to be filed
pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination.
6.6 USE OF FUNDS. The Company shall use the proceeds of
the sale of the Note and the Warrants to fund the Company's operating expenses
and finance further research and development of the Company's technology
platform.
6.7 ACCESS TO FACILITIES. Each of the Company and each of
its Subsidiaries will permit any representatives designated by the Purchaser (or
any successor of the Purchaser), upon reasonable notice and during normal
business hours, at such person's expense and accompanied by a representative of
the Company or any Subsidiary (provided that no such prior notice shall be
required to be given and no such representative of the Company or any Subsidiary
shall be required to accompany the Purchaser in the event the Purchaser believes
such access is necessary to preserve or protect the Collateral (as defined in
the Master Security Agreement) or following the occurrence and during the
continuance of an Event of Default (as defined in the Note)), to:
(a) visit and inspect any of the properties of the
Company or any of its Subsidiaries;
(b) examine the corporate and financial records of the
Company or any of its Subsidiaries (unless such examination is not
permitted by federal, state or local law or by contract) and make
copies thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the
Company or any of its Subsidiaries with the directors, officers and
independent accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD and other applicable federal securities laws.
6.8 TAXES. Each of the Company and each of its
Subsidiaries will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or business of the
Company and its Subsidiaries; provided, however, that any such tax, assessment,
charge or levy need not be paid currently if (i) the validity thereof shall
currently and diligently be contested in good faith by appropriate proceedings,
(ii) such tax, assessment, charge or levy shall have no effect on the lien
priority of the Purchaser's liens (if any) on the affected property of the
Company or any of its Subsidiaries, and (iii) the Company and/or such Subsidiary
shall have set aside on its books adequate reserves with respect thereto in
accordance with GAAP; and provided, further, that the Company and its
Subsidiaries will pay all such taxes, assessments, charges or levies forthwith
upon the commencement of proceedings to foreclose any lien which may have
attached as security therefor.
21
6.9 INSURANCE. Each of the Company and its Subsidiaries
will keep its assets which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by fire, explosion and other
risks customarily insured against by companies in similar business similarly
situated as the Company and its Subsidiaries; and the Company and its
Subsidiaries will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner which the Company reasonably believes is
customary for companies in similar business similarly situated as the Company
and its Subsidiaries and to the extent available on commercially reasonable
terms. The Company, and each of its Subsidiaries, will jointly and severally
bear the full risk of loss from any loss of any nature whatsoever with respect
to their respective assets pledged to the Purchaser as security for their
respective obligations hereunder and under the Related Agreements. At the
Company's and each of its Subsidiaries' joint and several cost and expense in
amounts and with carriers reasonably acceptable to the Purchaser, each of the
Company and each of its Subsidiaries shall (i) keep all its insurable properties
and its insurable interests in properties in which it has an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts and
with such deductibles, as is reasonable and customary in the case of companies
engaged in businesses similar to the Company's or the respective Subsidiary's;
(ii) maintain a bond in such amounts as is customary in the case of companies
engaged in businesses similar to the Company's or the respective Subsidiary's
insuring against larceny, embezzlement or other criminal misappropriation of
insured's officers and employees who may either singly or jointly with others at
any time have access to the assets or funds of the Company or any of its
Subsidiaries either directly or through governmental authority to draw upon such
funds or to direct generally the disposition of such assets; (iii) maintain
public and product liability insurance against claims for personal injury, death
or property damage suffered by others; (iv) maintain all such worker's
compensation or similar insurance as may be required under the laws of any state
or jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) furnish the Purchaser with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, (y) excepting the Company's fidelity bonds, workers'
compensation policy, D&O Policies, and insurance that is part of a Permitted
Encumbrance, endorsements to such policies naming the Purchaser as "co-insured"
or "additional insured" and in the case of casualty losses to tangible personal
property pledged to the Purchaser appropriate loss payable endorsements, in form
and substance satisfactory to the Purchaser, naming the Purchaser as loss payee,
and (z) evidence that as to the Purchaser the insurance coverage shall not be
impaired or invalidated by any act or neglect of the Company or any Subsidiary
and the insurer will provide the Purchaser with at least thirty (30) days notice
prior to cancellation. The Company and each Subsidiary shall instruct the
insurance carriers that in the event of any casualty loss thereunder for which
the Purchaser is the applicable loss payee, the carriers shall make payment for
such loss to the Company and/or the Subsidiary and the Purchaser jointly. In the
event that as of the date of receipt of each such casualty loss recovery upon
any such insurance, the Purchaser has not declared an Event of Default (as
defined in the Note), then the Company and/or such Subsidiary shall be permitted
to direct the application of such loss recovery proceeds toward investment in
property, plant and equipment that would comprise "Collateral" secured by the
Purchaser's security interest pursuant to the Master Security Agreement or if
not applicable, such other security agreement as shall be required by the
Purchaser, with any surplus funds to be applied toward payment of the
22
obligations of the Company to the Purchaser as a permitted voluntary prepayment
without premium or penalty. In the event that the Purchaser has properly
declared an Event of Default, then all such casualty loss recoveries received by
the Purchaser upon any such insurance thereafter may be applied to the
obligations of the Company hereunder and under the Related Agreements, in such
order as the Purchaser may determine. Any surplus (following satisfaction of all
of the Company's outstanding obligations to the Purchaser) shall be paid by the
Purchaser to the Company or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by the Company or the Subsidiary, as
applicable, to the Purchaser, on demand.
6.10 INTELLECTUAL PROPERTY. Each of the Company and each
of its Subsidiaries shall maintain in full force and effect its existence,
rights and franchises and all licenses and other rights to use Intellectual
Property owned or licensed by it and reasonably deemed to be necessary and of
continued value to the conduct of its business.
6.11 PROPERTIES. Each of the Company and each of its
Subsidiaries will keep its equipment and real properties in good repair, working
order and condition, reasonable wear and tear and retirement excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and each of the Company and each of its
Subsidiaries will at all times comply with each provision of all leases to which
it is a party or under which it occupies property if the breach of such
provision could, either individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
6.12 CONFIDENTIALITY. The Company will not, and will not
permit any of its Subsidiaries to, disclose, and will not include in any public
announcement, the name of the Purchaser, unless expressly agreed to by the
Purchaser or unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. Notwithstanding the
foregoing, the Company may disclose the Purchaser's identity and the terms of
this Agreement to its current and prospective debt and equity financing sources.
The Purchaser acknowledges that, promptly following execution and delivery,
conformed copies of this Agreement and the Related Agreements and all amendments
thereto may (notwithstanding the foregoing) be filed by the Company as material
agreements with the SEC.
6.13 REQUIRED APPROVALS. (I) For so long as twenty-five
percent (25%) of the principal amount of the Note is outstanding, the Company,
without the prior written consent of the Purchaser, shall not, and shall not
permit any of its Subsidiaries to:
(a) (i) directly or indirectly declare or pay any cash
dividends, other than cash dividends paid to the Company or any of its
wholly-owned Subsidiaries, (ii) issue any Preferred Stock that has a
scheduled mandatory redemption date prior to the one year anniversary
of the Maturity Date (as defined in the Note) or (iii) redeem any of
its Preferred Stock or other equity interests;
(b) liquidate, dissolve or effect a material
reorganization (it being understood that in no event shall the Company
or any of its Subsidiaries dissolve, liquidate or merge with any other
person or entity (unless, in the case of such a merger involving the
Company, the Company is the surviving entity, or, in the case of merger
not involving the
23
Company, any Subsidiary or any entity acquired by the Company or any
Subsidiary, as applicable, is the surviving entity);
(c) become subject to (including, without limitation, by
way of amendment to or modification of) any agreement or instrument
that by its terms would (under any circumstances) restrict the right of
the Company or any of its Subsidiaries to perform the provisions of
this Agreement, any Related Agreement or any of the currently and
expressly agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business
of the Company and its Subsidiaries taken as a whole; or
(e) (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of Permitted Indebtedness, as hereinafter
defined) whether secured or unsecured, other than (A) the Company's
indebtedness owed under this Agreement or any Related Agreement, (B)
the subordinated debt aggregating $10,000,000 listed in Schedule
6.12(e) hereto and made a part hereof, and the other indebtedness (if
any) set forth on Schedule 6.12(e) attached hereto and made a part
hereof, and any refinancings or replacements thereof on terms no less
favorable as a whole to the Purchaser than the indebtedness being
refinanced or replaced, as determined by Purchaser in its sole
discretion, (C) any indebtedness incurred to finance the purchase of
equipment not in excess of five percent (5%) of the fair market value
of the Company's and its Subsidiaries' assets, and any indebtedness
incurred in connection with the purchase of assets (other than
equipment), or any restatements, refinancings or replacements thereof
on terms no less favorable as a whole to the Purchaser than the
indebtedness being restated, refinanced or replaced, as determined by
Purchaser in its sole discretion, so long as any lien relating thereto
shall only encumber the fixed assets so purchased or leased (and the
products and proceeds thereof, insurance therefor and warranty and
other contract rights related thereto) and no other assets of the
Company or any of its Subsidiaries, (D) intercompany loans and advance
among the Company and its subsidiaries, (E) short-term unsecured trade
obligations for the purchase of goods or services in the ordinary
course, and (F) additional subordinated debt in such amounts and on
such subordination and other terms as the Purchaser may approve from
time to time, and any refinancings or replacements thereof on terms no
less favorable as a whole to the Purchaser than the indebtedness being
refinanced or replaced, as determined by Purchaser in its sole
discretion, (the indebtedness permitted by clauses (A) through (F)
being referred to as "Permitted Indebtedness"); (ii) cancel any
indebtedness owing to it in excess of $50,000 in the aggregate during
any 12 month period, excluding the settlement of any account in the
ordinary course and any intercompany loans and advances among the
Company and its Subsidiaries; (iii) assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other person or entity, except for (A) the
endorsement of negotiable instruments by the Company or any Subsidiary
thereof for deposit or collection or similar transactions in the
ordinary course of business, (B) any guarantees and indemnifications
respecting indebtedness otherwise permitted to be outstanding pursuant
to this clause (e), (C) guarantees by the Company or any Subsidiary of
any obligation of any Subsidiary or the Company that could have been
incurred directly by the guarantor without violating this Agreement or
any Related
24
Agreement, and (D) any guarantees of indebtedness set forth on Schedule
6.12(e) attached hereto and made a part hereof (the guarantees
permitted by clauses (A) through (F) being referred to as "Permitted
Guarantees"); and
(II) The Company, without the prior written consent of the Purchaser,
shall not, and shall not permit any of its Subsidiaries to, create or acquire
any Subsidiary after the date hereof unless (i) such Subsidiary is a
wholly-owned Subsidiary of the Company and (ii) such Subsidiary becomes a party
to the Master Security Agreement, the Stock Pledge Agreement and the Subsidiary
Guaranty (either by executing a counterpart thereof or an assumption or joinder
agreement in respect thereof) and, to the extent required by the Purchaser,
satisfies each condition of this Agreement and the Related Agreements as if such
Subsidiary were a Subsidiary on the Closing Date.
6.14 REISSUANCE OF SECURITIES. The Company agrees to
reissue certificates representing the Warrant Shares without the legends set
forth in Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such
Warrant Shares pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration
statement after such Warrant Shares are registered under the Securities
Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the Purchaser and broker, if any,
including (without limitation) the representations required by applicable law.
6.15 OPINION. On the Closing Date, the Company will
deliver to the Purchaser an opinion acceptable to the Purchaser from the
Company's external legal counsel. The Company will provide, at the Company's
expense, such other legal opinions in the future as are deemed reasonably
necessary by the Purchaser (and acceptable to the Purchaser) in connection with
the exercise of the Warrants.
6.16 MARGIN STOCK. The Company will not permit any of the
proceeds of the Note or the Warrants to be used directly or indirectly to
"purchase" or "carry" "margin stock" or to repay indebtedness incurred to
"purchase" or "carry" "margin stock" within the respective meanings of each of
the quoted terms under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.
6.17 NO RESTRICTION ON FUTURE INVESTMENT BY PURCHASER. The
Company will not, and will not permit its Subsidiaries to, agree, directly or
indirectly, to any restriction with any person or entity limiting the ability of
the Purchaser to provide any additional funds and/or he sale or issuance any
equity interests of the Company or any of its Subsidiaries with the Company or
any of its Subsidiaries.
6.18 AUTHORIZATION AND RESERVATION OF SHARES. Following
the increase in the authorized shares of Common Stock required pursuant to
Section 6.3 hereof, the Company shall
25
at all times have authorized and reserved a sufficient number of shares of
Common Stock to provide for the exercise of the Warrants.
7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees
with the Company as follows:
7.1 CONFIDENTIALITY. The Purchaser will not disclose, and
will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 NON-PUBLIC INFORMATION. The Purchaser will not effect
any sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
7.3 LIMITATION ON ACQUISITION OF COMMON STOCK OF THE
COMPANY. Notwithstanding anything to the contrary contained in this Agreement,
any Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions between the Purchaser and the Company,
the Purchaser may not acquire stock in the Company (including, without
limitation, pursuant to a contract to purchase, by exercising an option or
warrant, by converting any other security or instrument, by acquiring or
exercising any other right to acquire, shares of stock or other security
convertible into shares of stock in the Company, or otherwise, and such
contracts, options, warrants, conversion or other rights shall not be
enforceable or exercisable)to the extent such stock acquisition would cause any
interest (including any original issue discount) payable by the Company to the
Purchaser not to qualify as "portfolio interest" within the meaning of Section
881(c)(2) of the Code, by reason of Section 881(c)(3) of the Code, taking into
account the constructive ownership rules under Section 871(h)(3)(C) of the Code
(the "Stock Acquisition Limitation"). The Stock Acquisition Limitation shall
automatically become null and void without any notice to the Company upon the
earlier to occur of either (a) the Company's delivery to the Purchaser of a
Notice of Redemption (as defined in the Note) or (b) the existence of an Event
of Default (as defined in the Note) at a time when the average closing price of
the Company's Common Stock as reported by Pink Sheets(R) or any applicable
Principal Market for the immediately preceding five trading days is greater than
or equal to $1.00 per share.
8. COVENANTS OF THE COMPANY AND THE PURCHASER REGARDING
INDEMNIFICATION.
8.1 COMPANY INDEMNIFICATION. The Company agrees to
indemnify, hold harmless, reimburse and defend the Purchaser, each of the
Purchaser's officers, directors, agents, affiliates, control persons, and
principal shareholders, against all claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any nature
("Purchaser Losses"), incurred by or imposed upon the Purchaser that result,
arise out of or are based upon: (i) any misrepresentation by the Company or any
of its Subsidiaries or breach of any warranty by the Company or any of its
Subsidiaries in this Agreement, any Related Agreement or in any exhibits or
schedules attached hereto or thereto; or (ii) any breach or default in
performance by Company or any of its Subsidiaries of any covenant or undertaking
to be performed by Company or any of its Subsidiaries hereunder, under any
Related Agreement or
26
under any other agreement entered into by the Company and/or any of its
Subsidiaries and the Purchaser relating hereto or thereto; IN EACH CASE
excluding all Purchaser Losses to the extent occasioned by the gross negligence,
willful misconduct or bad faith of any such indemnified person as finally
determined pursuant to applicable law.
8.2 PURCHASER'S INDEMNIFICATION. The Purchaser agrees to
indemnify, hold harmless, reimburse and defend the Company and each of the
Company's officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any nature
("Company Losses"), incurred by or imposed upon the Company that result, arise
out of or are based upon: (i) any misrepresentation by the Purchaser or breach
of any warranty by the Purchaser in this Agreement or any Related Agreement or
in any exhibits or schedules attached hereto or thereto; or (ii) any breach or
default in performance by the Purchaser of any covenant or undertaking to be
performed by the Purchaser hereunder, under any Related Agreement or under any
other agreement entered into by the Company and the Purchaser relating hereto or
thereto; IN EACH CASE excluding all Company Losses to the extent occasioned by
the gross negligence, willful misconduct or bad faith of any such indemnified
person as finally determined pursuant to applicable law.
9. EXERCISE OF THE WARRANTS.
9.1 Mechanics of Exercise.
(a) Provided the Purchaser has notified the Company of
the Purchaser's intention to sell the Warrant Shares in accordance with
the Warrants and the Warrant Shares are included in an effective
registration statement or are otherwise exempt from registration in the
amount to be sold: (i) upon the exercise of the Warrants or part
thereof, the Company shall, at its own cost and expense, take all
necessary action (including the issuance of an opinion of counsel
reasonably acceptable to the Purchaser following a request by the
Purchaser) to assure that the Company's transfer agent shall issue
shares of the Company's Common Stock in the name of the Purchaser (or
its nominee) or such other persons as designated by the Purchaser in
accordance with Section 9.1(b) hereof and in such denominations to be
specified representing the number of Warrant Shares issuable upon such
exercise; and (ii) the Company warrants that no instructions other than
these instructions have been or will be given by the Company to the
transfer agent of the Company's Common Stock and that after the
Effectiveness Date (as defined in the Registration Rights Agreement)
the registered Warrant Shares issued will be freely transferable
subject to the prospectus delivery requirements of the Securities Act
and the provisions of this Agreement, and will not contain a legend
restricting the resale or transferability of the registered Warrant
Shares.
(b) The Purchaser will give notice of its decision to
exercise its right to exercise the Warrants or part thereof by
telecopying or otherwise delivering an executed and completed notice of
the number of shares to be subscribed to the Company (the "Form of
Subscription"). The Purchaser will not be required to surrender the
Warrants until the Purchaser receives a credit to the account of the
Purchaser's prime broker through the DWAC system (as defined below),
representing the Warrant Shares or until
27
the Warrants have been fully exercised. Each date on which a Form of
Subscription is telecopied or delivered to the Company in accordance
with the provisions hereof shall be deemed a "Exercise Date." Pursuant
to the terms of the Form of Subscription, the Company will issue
instructions to the transfer agent accompanied by an opinion of counsel
within three (3) business days of the date of the delivery to the
Company of the duly and timely completed Form of Subscription and
payment therefore (the "Instruction Date") and shall use its best
efforts to cause the transfer agent to promptly transmit the
certificates representing the Warrant Shares set forth in the
applicable Form of Subscription to the Holder by crediting the account
of the Purchaser's prime broker with the Depository Trust Company
("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system
within three (3) business days after the Instruction Date (the
"Delivery Date").
(c) The Company understands that a delay in the delivery
of the Warrant Shares in the form required pursuant to Section 9 hereof
beyond the Delivery Date could result in economic loss to the
Purchaser. In the event that the Company fails to direct its transfer
agent to deliver the Warrant Shares to the Purchaser via the DWAC
system within the time frame set forth in Section 9.1(b) above and the
Warrant Shares are not delivered to the Purchaser by the Delivery Date,
as compensation to the Purchaser for such loss, the Company agrees to
pay late payments to the Purchaser for late issuance of the Warrant
Shares in the form required pursuant to Section 9 hereof upon exercise
of the Warrants in the amount equal to the greater of: (i) $500 per
business day after the Delivery Date; or (ii) the Purchaser's actual
damages from such delayed delivery. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand
and, in the case of actual damages, accompanied by reasonable
documentation of the amount of such damages. Such documentation shall
show the number of shares of Common Stock (if any) that the Purchaser
was forced to purchase (in an open market transaction) which the
Purchaser anticipated receiving upon such exercise, and shall be
calculated as the amount by which (A) the Purchaser's total purchase
price (including customary brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate amount of
the Exercise Price for the Warrants, for which such Form of
Subscription was not timely honored.
10. REGISTRATION RIGHTS.
10.1 REGISTRATION RIGHTS GRANTED. The Company hereby
grants registration rights to the Purchaser pursuant to the Registration Rights
Agreement.
10.2 OFFERING RESTRICTIONS. Except as previously disclosed
in the SEC Reports or in the Securities Filings, or stock or stock options
granted to employees or directors of the Company or its Subsidiaries (these
exceptions hereinafter referred to as the "Excepted Issuances"), neither the
Company nor any of its Subsidiaries will, prior to the full repayment of the
Note (together with all accrued and unpaid interest and fees related thereto),
(x) enter into any equity line of credit agreement or similar agreement or (y)
issue, or enter into any agreement to issue, any securities with a
variable/floating conversion and/or pricing feature that are or could be (by
conversion or registration) free-trading securities (i.e., common stock subject
to a registration statement).
28
11. MISCELLANEOUS.
11.1 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS AGREEMENT AND THE RELATED AGREEMENTS SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
APPLICABLE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAWS; PROVIDED, HOWEVER, THAT THE CREATION, PERFECTION, AND
ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT TO THE
RELATED AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF (A) THE STATE IN WHICH THE
APPLICABLE COMPANY OR SUBSIDIARY IS ORGANIZED IN THE CASE OF TYPES OF
COLLATERAL IN WHICH SECURITY INTERESTS CAN BE PERFECTED BY THE FILING
OF UCC FINANCING STATEMENTS IN THAT STATE OR (B) IN ALL OTHER CASES THE
STATE IN WHICH THE APPLICABLE ASSET OR PROPERTY IS LOCATED OR DEEMED
LOCATED.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE
OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON
THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THAT THE PURCHASER
AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE
TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE
OF NEW YORK; AND FURTHER PROVIDED, THAT, NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO PRECLUDE THE PURCHASER FROM BRINGING SUIT
OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL (AS DEFINED IN THE MASTER
SECURITY AGREEMENT) OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS
DEFINED IN THE MASTER SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF THE PURCHASER. THE COMPANY EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY
OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY FEDERAL EXPRESS OR
REGISTERED OR CERTIFIED MAIL DELIVERED TO THE COMPANY AT THE ADDRESS
SET
29
FORTH IN SECTION 11.9 AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE COMPANY'S ACTUAL RECEIPT THEREOF OR FOUR (4)
BUSINESS DAYS AFTER DEPOSIT IN THE U.S. MAILS FOR DELIVERY BY SUCH MAIL
AND PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY
A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANY
ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, ANY RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR
THERETO.
11.2 SEVERABILITY. Wherever possible each provision of
this Agreement and the Related Agreements shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement or any Related Agreement shall be prohibited by or invalid or illegal
under applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity or illegality, without invalidating the remainder of
such provision or the remaining provisions thereof which shall not in any way be
affected or impaired thereby.
11.3 SURVIVAL. The representations, warranties, covenants
and agreements of the parties made herein shall survive any investigation made
by the parties and the closing of the transactions contemplated hereby to the
extent provided therein. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument. All indemnities set forth herein
shall survive the execution, delivery and termination of this Agreement and the
Note, and the making and repayment of the obligations arising hereunder, under
the Note and under the other Related Agreements.
11.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, this Agreement and the Related Agreements shall inure to the
benefit of, and be binding upon and enforceable by, the successors, heirs,
executors, administrators and permitted assigns of the parties hereto. The
Purchaser shall not be permitted to assign this Agreement or Related Agreement
or any of its rights hereunder or thereunder to a competitor of the Company
unless an Event of Default (as defined in the Note) has occurred and is
continuing. Notwithstanding anything to the contrary in this Agreement or any
Related Agreement, and irrespective of any permitted assignment of this
Agreement or any Related Agreement (in whole or in part): until the first
anniversary of the date hereof: (a) the Company and its Subsidiaries shall be
entitled at all times to deal exclusively with the Purchaser respecting this
Agreement and the Related Agreements, the administration hereof and thereof and
its performance hereunder and thereunder, including (without limitation) (i) any
supplement to, modification, amendment,
30
restatement or waiver of or departure from this Agreement or any Related
Agreement or any release of Collateral (each a "Modification"), (ii) the
delivery of any notice, report, other document or further assurance, or (iii)
any payment or collateral administration; (b) the Purchaser shall not assign or
delegate (in whole or in part) to any other person in its sole discretion its
right or power to review, approve or sign any Modification or to administer this
Agreement or any Related Agreement; and (c) no permitted assignee shall have any
right or power whatsoever to review, approve or sign any Modification or to
administer this Agreement or any Related Agreement, irrespective of its
agreements and understandings with the Purchaser.
11.5 ENTIRE AGREEMENT; MAXIMUM INTEREST. This Agreement
and the exhibits and schedules hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof, and supersede and completely replace any and all (and no party shall be
liable or bound to any other in any manner by any) prior or other
representations, warranties, covenants, promises, assurances or other agreements
or understandings (whether written, oral, express, implied or otherwise) with
regard to the subjects hereof except as specifically set forth herein. Nothing
contained in this Agreement, any Related Agreement or in any document referred
to herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum rate permitted by applicable law. In the event that the rate of interest
or dividends required to be paid or other charges hereunder exceed the maximum
rate permitted by such law, any payments in excess of such maximum shall be
credited against principal amounts owed by the Company to the Purchaser (as a
permitted prepayment without premium or penalty) and thus refunded to the
Company.
11.6 AMENDMENT AND WAIVER. Subject to Section 11.4 hereof:
(a) Except as otherwise provided in subsection (b) or (c)
of this Section with respect to waivers, this Agreement may be
restated, supplemented, amended or modified only in a written agreement
between the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written
consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of
the Company under this Agreement may be waived only with the written
consent of the Company.
11.7 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement or the
Related Agreements, shall impair any such right, power or remedy, nor shall it
be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
31
(b) when sent by confirmed facsimile if sent during
normal business hours of the recipient, and if not, then on the next
business day;
(c) four (4) business days after having been sent by
registered or certified mail, return receipt requested, postage
prepaid; or
(d) one (1) business day after deposit on a business day
in time for that evening's pickup with a nationally recognized
overnight courier, specifying next day delivery, with written
verification of receipt.
All communications shall be sent as follows:
XXXXXXX.XXX INC.
IF TO THE COMPANY, TO: 000 Xxxxxxx 0, 0xx Xxxxx
Xxxxxxx, Xxxxxxxxxxx 00000
Attention: Chief Financial Officer
Attention: Chief Financial Officer
Facsimile: Facsimile: 203-295-2102
WITH A COPY TO:
Xxxxxxxx Xxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile: 212-704-6160
IF TO THE PURCHASER, TO: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
X.X. Xxx 000 XX
Xxxxxx Xxxxx
Xxxxxx Xxxx
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 000-000-0000
WITH A COPY TO:
Xxxx X. Xxxxxx, Esq.
000 Xxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
32
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 ATTORNEYS' FEES. In the event that any suit or action
is instituted to enforce any provision in this Agreement or any Related
Agreement, the prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any right of
such prevailing party under or with respect to this Agreement and/or such
Related Agreement, including, without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
11.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement and the Related Agreements are for convenience of
reference only and are not to be considered in construing this Agreement or any
Related Agreement.
11.11 FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement or
any Related Agreement may be executed by facsimile signatures and in any number
of counterparts of any such document or any of its signature pages, each of
which shall be an original, but all of which together for such document shall
constitute one agreement.
11.12 BROKER'S FEES. Except as set forth on Schedule 11.12
hereof, each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker's or finder's fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
11.13 CONSTRUCTION. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and the Related
Agreements and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Agreement or any Related Agreement to favor any
party against the other.
11.14
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
33
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
XXXXXXX.XXX INC. LAURUS MASTER FUND, LTD.
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
34
EXHIBIT A
SECURED TERM NOTE
A-1
EXHIBIT B
WARRANT
X-0
XXXXXXX X
XXXXXX XXXXXXXXX
X-0
