SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of June
13, 2005 among Secured Services, Inc., a Delaware corporation (the "COMPANY"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "PURCHASER" and collectively the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"SECURITIES ACT") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"ACTION" shall have the meaning ascribed to such term in Section
3.1(j).
"AFFILIATE" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule
144 under the Securities Act. With respect to a Purchaser, any investment
fund or managed account that is managed on a discretionary basis by the
same investment manager as such Purchaser will be deemed to be an Affiliate
of such Purchaser.
"CLOSING" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"CLOSING DATE" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations to
pay the Subscription Amount and (ii) the Company's obligations to deliver
the Securities have been satisfied or waived.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value
$0.0001 per share, and any other class of securities into which such
securities may hereafter have been reclassified or changed into.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"COMPANY COUNSEL" means Morse, Zelnick, Rose & Lander, LLP.
"CONVERSION PRICE" shall have the meaning ascribed to such term in
the Debentures.
"CUSTODIAL AGENT" shall have the meaning set forth in the Custodial
Agreement.
"CUSTODIAL AGREEMENT" shall mean the Custodial Agreement in
substantially the form of EXHIBIT E hereto executed and delivered
contemporaneously with this Agreement.
"DEBENTURES" means, the 7.5% Convertible Debentures due, subject to
the terms therein, three years from their date of issuance, issued by the
Company to the Purchasers hereunder, in the form of EXHIBIT A.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
term in Section 3.1.
"EFFECTIVE DATE" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"EVALUATION DATE" shall have the meaning ascribed to such term in
Section 3.1(r).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"EXEMPT ISSUANCE" means the issuance of (a) shares of Common Stock or
options to key employees, consultants, officers or directors of the Company
pursuant to any stock or option plan or other compensatory arrangement duly
adopted by a majority of the non-employee members of the Board of Directors
of the Company or a majority of the members of a committee of non-employee
directors established for such purpose; PROVIDED, HOWEVER, issuances to
such consultants of the Company and for the purpose of other compensatory
arrangements shall not exceed, in the aggregate, 250,000 shares per 12
month period, subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the
Common Stock, (b) securities upon the exercise or exchange of or conversion
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of any Securities issued hereunder and/or securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities
have not been amended since the date of this Agreement to increase the
number of such securities or to decrease the exercise, exchange or
conversion price of any such securities, (c) securities issued pursuant to
acquisitions or strategic transactions, provided any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the
Company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities and (d)
up to, in the aggregate, 250,000 shares per 12 month period, subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock, of Common
Stock to key officers, employees or consultants of acquisition targets of
the Company in consideration for the extension of or entry into employment
agreements.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to
such term in Section 3.1(o).
"LEGEND REMOVAL DATE" shall have the meaning ascribed to such term in
Section 4.1(c).
"LIENS" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"MARKET PRICE" shall mean $1.06597, the average of the each of the 10
VWAPs immediately prior to the date hereof.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to such
term in Section 3.1(b).
"MATERIAL PERMITS" shall have the meaning ascribed to such term in
Section 3.1(m).
"MAXIMUM RATE" shall have the meaning ascribed to such term in
Section 5.17.
"PARTICIPATION MAXIMUM" shall have the meaning ascribed to such term
in Section 4.13.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
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"PRE-NOTICE" shall have the meaning ascribed to such term in Section
4.13.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PURCHASER PARTY" shall have the meaning ascribed to such term in
Section 4.11.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in
the form of EXHIBIT B attached hereto.
"REGISTRATION STATEMENT" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale of the Underlying Shares by each Purchaser as provided for in
the Registration Rights Agreement.
"REQUIRED APPROVALS" shall have the meaning ascribed to such term in
Section 3.1(e).
"REQUIRED MINIMUM" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon exercise or conversion in full of all Warrants and
Debentures (including Underlying Shares issuable as payment of interest),
ignoring any conversion or exercise limits set forth therein, and assuming
that the Conversion Price is at all times on and after the date of
determination 75% of the then Conversion Price on the Trading Day
immediately prior to the date of determination.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in Section
3.1(h).
"SECURITIES" means the Debentures, the Warrants, the Warrant Shares
and the Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHORT SALES" shall include all "short sales" as defined in Rule 200
of Regulation SHO under the Exchange Act.
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the aggregate
amount to be paid for Debentures and Warrants purchased hereunder as
specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount", in United States
Dollars and in immediately available funds.
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"SUBSEQUENT FINANCING" shall have the meaning ascribed to such term
in Section 4.13.
"SUBSEQUENT FINANCING NOTICE" shall have the meaning ascribed to such
term in Section 4.13.
"SUBSIDIARY" means any subsidiary of the Company as set forth on
SCHEDULE 3.1(A).
"TRADING DAY" means a day on which the Common Stock is traded on a
Trading Market
"TRADING MARKET" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"TRANSACTION DOCUMENTS" means this Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, the Custodial Agreement and
any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"UNDERLYING SHARES" means the shares of Common Stock issued and
issuable upon conversion of the Debentures and upon exercise of the
Warrants and issued and issuable in lieu of the cash payment of interest on
the Debentures in accordance with the terms of the Debentures.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the primary
Trading Market on which the Common Stock is then listed or quoted as
reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m.
EST to 4:02 p.m. Eastern Time) using the VAP function; (b) if the Common
Stock is not then listed or quoted on the Trading Market and if prices for
the Common Stock are then reported in the "Pink Sheets" published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair market value
of a share of Common Stock as determined by a nationally
recognized-independent appraiser selected in good faith by Purchasers
holding a majority of the Stated Value of the shares of Debentures then
outstanding.
"WARRANTS" means collectively the Common Stock purchase warrants, in
the form of EXHIBIT C delivered to the Purchasers at the Closing in
accordance with Section 2.2(a) hereof, which Warrants shall be exercisable
immediately and have a term of exercise equal to four years.
"WARRANT SHARES" means the shares of Common Stock issuable upon
exercise of the Warrants.
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ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, up to $7,000,000
principal amount of the Debentures. Each Purchaser shall deliver to the Company
via wire transfer or a certified check immediately available funds equal to
their Subscription Amount and the Company shall deliver to each Purchaser their
respective Debenture and Warrants as determined pursuant to Section 2.2(a) and
the other items set forth in Section 2.2 issuable at the Closing. Upon
satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing
shall occur at the offices of the Custodial Agent, or such other location as the
parties shall mutually agree.
2.2 DELIVERIES.
a) On the Closing Date, the Company shall deliver or cause to be
delivered to the Custodial Agent with respect to each Purchaser
the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
EXHIBIT D attached hereto;
(iii) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, registered in the name
of such Purchaser;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal
to 40% of such Purchaser's Subscription Amount divided by
the Market Price, with an exercise price equal to
$1.2791, subject to adjustment therein;
(v) the Registration Rights Agreement duly executed by the
Company;
(vi) a Lock-up Agreement from each holder of Series B
Preferred Stock of the Corporation, in the form attached
hereto as EXHIBIT F, which agreement shall be binding on
successors and assigns, pursuant to which each such
holder agrees not to convert, exchange the Series B
Preferred Stock into Common Stock as further set forth in
such Agreement; and
(vii) the Custodial Agreement duly executed by the Company.
b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Custodial Agent the following:
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(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account of the Custodial Agent;
(iii) the Custodial Agreement duly executed by such Purchaser;
and
(iv) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 CLOSING CONDITIONS.
a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on
the Closing Date of the representations and warranties of
the Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the
Closing Date shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following
conditions being met:
(i) the accuracy in all material respects on the Closing Date
of the representations and warranties of the Company
contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date
shall have been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) the Company shall have consummated and completed to the
reasonable satisfaction of each Purchaser, the
acquisition of all of the stock/assets of Chameleon
Communications Technology, Inc. (the "CHAMELEON MERGER");
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(vi) the Company shall have consummated the issuance of $5
million of the Company's Series B Preferred Stock in
accordance with the Chameleon Merger; and
(vii) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of
limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial
Markets shall not have been suspended or limited, or
minimum prices shall not have been established on
securities whose trades are reported by such service, or
on any Trading Market, nor shall a banking moratorium
have been declared either by the United States or New
York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in
its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or
inadvisable to purchase the Debentures at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "DISCLOSURE SCHEDULES") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.
(a) SUBSIDIARIES. All of the direct and indirect subsidiaries of the
Company are set forth on SCHEDULE 3.1(A). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe
for or purchase securities. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) ORGANIZATION AND QUALIFICATION. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is
in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
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charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as the case may be, could not have or reasonably be expected to result in
(i) a material adverse effect on the legality, validity or enforceability
of any Transaction Document, (ii) a material adverse effect on the results
of operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii)
a material adverse effect on the Company's ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT") and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have
been duly authorized by all necessary action on the part of the Company and
no further action is required by the Company, its board of directors or its
stockholders in connection therewith other than in connection with the
Required Approvals. Each Transaction Document has been (or upon delivery
will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated hereby and thereby do not and will not:
(i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become
a default) under, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is
a party or by which any property or asset of the Company or any Subsidiary
is bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which
any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
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(e) FILINGS, CONSENTS AND APPROVALS. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.6, (ii)
the filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Debentures and Warrants and the listing of the
Underlying Shares for trading thereon in the time and manner required
thereby and (iv) the filing of Form D with the Commission and such filings
as are required to be made under applicable state securities laws
(collectively, the "REQUIRED APPROVALS").
(f) ISSUANCE OF THE SECURITIES. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company other than restrictions
on transfer provided for in the Transaction Documents. The Underlying
Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and
clear of all Liens imposed by the Company. The Company has reserved from
its duly authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Required Minimum on
the date hereof.
(g) CAPITALIZATION. The capitalization of the Company is as set forth
on SCHEDULE 3.1(G). The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other than
pursuant to the exercise of employee stock options under the Company's
stock option plans, the issuance of shares of Common Stock to employees
pursuant to the Company's employee stock purchase plan and pursuant to the
conversion or exercise of outstanding Common Stock Equivalents. No Person
has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or
may become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. All of the outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and none
of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the Securities.
There are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company's capital stock to which the Company
is a party or, to the knowledge of the Company, between or among any of the
Company's stockholders.
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(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the
date hereof (or such shorter period as the Company was required by law to
file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the "SEC REPORTS") on a timely basis or has received
a valid extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may ---- be otherwise
specified in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial position of
the Company and its consolidated subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) MATERIAL CHANGES. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be disclosed
in filings made with the Commission, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending
before the Commission any request for confidential treatment of
information.
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(j) LITIGATION. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "ACTION") which (i)
adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been,
and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not issued
any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business except in each case as could not have a Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not have or reasonably be expected to
result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
12
(n) TITLE TO ASSETS. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Company
and the Subsidiaries are in compliance.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure
to so have could have a Material Adverse Effect (collectively, the
"INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights of others.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage at least equal to the
aggregate Subscription Amount. To the best knowledge of the Company, such
insurance contracts and policies are accurate and complete. Neither the
Company nor any Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
13
(r) XXXXXXXX-XXXXX; INTERNAL ACCOUNTING CONTROLS. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The Company
has established disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that material information
relating to the Company, including its Subsidiaries, is made known to the
certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed periodic report under
the Exchange Act, as the case may be, is being prepared. The Company's
certifying officers have evaluated the effectiveness of the Company's
controls and procedures as of the date prior to the filing date of the most
recently filed periodic report under the Exchange Act (such date, the
"EVALUATION DATE"). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures
based on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no significant changes in the Company's internal
controls (as such term is defined in Item 307(b) of Regulation S-K under
the Exchange Act) or, to the knowledge of the Company, in other factors
that could significantly affect the Company's internal controls.
(s) CERTAIN FEES. No brokerage or finder's fees or commissions are or
will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the Transaction
Documents. The Purchasers shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents.
(t) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the rules
and regulations of the Trading Market.
(u) INVESTMENT COMPANY. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
14
(v) REGISTRATION RIGHTS. Other than each of the Purchasers, no Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.
(w) LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation
(or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation as a
result of the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
(y) DISCLOSURE. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might constitute
material, nonpublic information. The Company understands and confirms that
the Purchasers will rely on the foregoing representations and covenants in
effecting transactions in securities of the Company. All disclosure
provided to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to
this Agreement, furnished by or on behalf of the Company with respect to
the representations and warranties made herein are true and correct with
respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.
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(z) NO INTEGRATED OFFERING. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its 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 this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any Trading Market on which any of the
securities of the Company are listed or designated.
(aa) SOLVENCY. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder and excluding for the
purposes of this representation, the obligations of the Company under the
Debentures, (i) the Company's fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses
of the cash, would be sufficient to pay all amounts on or in respect of its
debt when such amounts are required to be paid. The Company does not intend
to incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be payable on or in respect
of its debt). The Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. The SEC Reports set forth as of the
dates thereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement, "INDEBTEDNESS" shall mean
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same
are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of
$50,000 due under leases required to be capitalized in accordance with
GAAP. Neither the Company nor any Subsidiary is in default with respect to
any Indebtedness.
(bb) TAX STATUS. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of
a tax deficiency which has been asserted or threatened against the Company
or any Subsidiary.
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(cc) NO GENERAL SOLICITATION. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers, certain other
"accredited investors" within the meaning of Rule 501 under the Securities
Act and to certain employees and related parties under Regulation S.
(dd) FOREIGN CORRUPT PRACTICES. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of
the Foreign Corrupt Practices Act of 1977, as amended.
(ee) ACCOUNTANTS. The Company's accountants are set forth on SCHEDULE
3.1(EE) of the Disclosure Schedule. To the knowledge of the Company, such
accountants, who the Company expects will express their opinion with
respect to the financial statements to be included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2004 are a registered
public accounting firm as required by the Securities Act.
(ff) SENIORITY. As of the Closing Date, no indebtedness or other
equity of the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security
interests (which is senior only as to underlying assets covered thereby)
and capital lease obligations (which is senior only as to the property
covered thereby).
(gg) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with respect
to any fees owed to its accountants and lawyers.
(hh) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF SECURITIES. The
Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by
any Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's decision to
enter into this Agreement has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.
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(ii) ACKNOWLEDGEMENT REGARDING PURCHASERS' TRADING ACTIVITY. Anything
in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 4.16 hereof and Section 3.2(f)), it is understood and
agreed by the Company (i) that none of the Purchasers have been asked to
agree, nor has any Purchaser agreed, to desist from purchasing or selling,
long and/or short, securities of the Company, or "derivative" securities
based on securities issued by the Company or to hold the Securities for any
specified term; (ii) that past or future open market or other transactions
by any Purchaser, including Short Sales, and specifically including,
without limitation, Short Sales or "derivative" transactions, before or
after the closing of this or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded
securities; (iii) that any Purchaser, and counter parties in "derivative"
transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a "short" position in the Common Stock, and
(iv) that each Purchaser shall not be deemed to have any affiliation with
or control over any arm's length counter-party in any "derivative"
transaction. The Company further understands and acknowledges that (a) one
or more Purchasers may engage in hedging activities at various times during
the period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined and (b) such
hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that
the hedging activities are being conducted. The Company acknowledges that
such aforementioned hedging activities do not constitute a breach of any of
the Transaction Documents.
(jj) MANIPULATION OF PRICE. The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any
action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of any of the Securities, (ii) sold, bid for, purchased, or, paid
any compensation for soliciting purchases of, any of the Securities (other
than for the placement agent's placement of the Securities), or (iii) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
18
obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. Each Transaction Document to which it
is a party has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable against
it in accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
(b) OWN ACCOUNT. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for distributing
or reselling such Securities or any part thereof in violation of the
Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting such Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal
and state securities laws) in violation of the Securities Act or any
applicable state securities law. Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does not
have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
(c) PURCHASER STATUS. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which
it exercises any Warrants or converts any Debentures it will be an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7)
or (a)(8) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
19
(f) SHORT SALES AND CONFIDENTIALITY PRIOR TO THE DATE HEREOF. Other
than the transaction contemplated hereunder, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any disposition,
including Short Sales (but not including the location and/or reservation of
borrowable shares of Common Stock), in the securities of the Company during
the period commencing from the earlier of the time that such Purchaser (i)
first [signed NDA - need date] and (ii) received a term sheet from the
Company or any other Person setting forth the material terms of the
transactions contemplated hereunder until the date hereof ("DISCUSSION
TIME"). Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser's assets, the
representation set forth above shall only apply with respect to the portion
of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement. Other than
to other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected
by the transferor and reasonably acceptable to the Company, the form and
substance of which opinion shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of
transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 4.1(b), of a legend on any of the Securities in the following
form:
20
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities
to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and who agrees to be bound by the
provisions of this Agreement and the Registration Rights Agreement and, if
required under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor
shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the
Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act,
or (ii) following any sale of such Underlying Shares pursuant to Rule 144,
or (iii) if such Underlying Shares are eligible for sale under Rule 144(k),
or (iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The Company shall cause its counsel
to issue a legal opinion to the Company's transfer agent promptly after the
Effective Date if required by the Company's transfer agent to effect the
removal of the legend hereunder. If all or any portion of a Debenture or
Warrant is converted or exercised (as applicable) at a time when there is
an effective registration statement to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144(k) or if
such legend is not otherwise required under applicable requirements of the
21
Securities Act (including judicial interpretations thereof) then such
Underlying Shares shall be issued free of all legends. The Company agrees
that following the Effective Date or at such time as such legend is no
longer required under this Section 4.1(c), it will, no later than three
Trading Days following the delivery by a Purchaser to the Company or the
Company's transfer agent of a certificate representing Underlying Shares,
as applicable, issued with a restrictive legend (such third Trading Day,
the "LEGEND REMOVAL DATE"), deliver or cause to be delivered to such
Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section.
Certificates for Securities subject to legend removal hereunder shall be
transmitted by the transfer agent of the Company to the Purchasers by
crediting the account of the Purchaser's prime broker with the Depository
Trust Company System.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $2,000 of Underlying Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to the
Company's transfer agent) delivered for removal of the restrictive legend
and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per
Trading Day 5 Trading Days after such damages have begun to accrue) for
each Trading Day after the second Trading Day after the Legend Removal Date
until such certificate is delivered without a legend. Nothing herein shall
limit such Purchaser's right to pursue actual damages for the Company's
failure to deliver certificates representing any Securities as required by
the Transaction Documents, and such Purchaser shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom.
(f) Until the one year anniversary of the Effective Date, the Company
shall not undertake a reverse or forward stock split or reclassification of
the Common Stock without the prior written consent of the Purchasers
holding a majority in principal amount outstanding of the Debentures.
4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
22
4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns Securities,
the Company covenants to use its best efforts to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act. As long as any Purchaser owns Securities, if the Company is
not required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.4 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to each Purchaser disclosing the
material terms of the transactions contemplated hereby, and shall attach the
Transaction Documents thereto. The Company and each Purchaser shall consult with
each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
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4.7 SHAREHOLDER RIGHTS PLAN. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 NON-PUBLIC INFORMATION. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.9 USE OF PROCEEDS. Except as set forth on SCHEDULE 4.9 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and not for the satisfaction of any portion of the
Company's debt (other than payment of trade payables in the ordinary course of
the Company's business and prior practices), to redeem any Common Stock or
Common Stock Equivalents or to settle any outstanding litigation. Additionally,
the Company shall not use the net proceeds raised hereunder to redeem any
securities of any Subsidiary in excess of (a) $1,000,000, at the Closing, to
NextPoint Partners, L.P. and (b) $1,000,000 at the time of the release of the
Secured Proceeds (as defined in the Custodial Agreement).
4.10 REIMBURSEMENT. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
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4.11 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, members, partners, employees and agents
(each, a "PURCHASER PARTY") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material
conflict on any material issue between the position of the Company and the
position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
Without limiting a Purchaser's other available remedies at law or equity, in no
event shall the liability of the Company to a Purchaser hereunder be greater in
amount than such Purchaser's Subscription Amount.
4.12 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors of the Company shall use
commercially reasonable efforts to amend the Company's certificate or
articles of incorporation to increase the number of authorized but unissued
shares of Common Stock to at least the Required Minimum at such time, as
soon as possible and in any event not later than the 75th day after such
date.
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(c) The Company shall, if applicable: (i) in the time and manner
required by the Trading Market, prepare and file with such Trading Market
an additional shares listing application covering a number of shares of
Common Stock at least equal to the Required Minimum on the date of such
application, (ii) take all steps necessary to cause such shares of Common
Stock to be approved for listing on the Trading Market as soon as possible
thereafter, (iii) provide to the Purchasers evidence of such listing, and
(iv) maintain the listing of such Common Stock on any date at least equal
to the Required Minimum on such date on such Trading Market or another
Trading Market.
4.13 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date that is the Debentures are no
longer outstanding, upon any financing by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents (a "SUBSEQUENT
FINANCING"), each Purchaser shall have the right to participate in up to an
amount of the Subsequent Financing equal to the such amount that would keep
such Purchaser's ownership in the Company, including for purposes of such
calculation, shares of Common Stock underlying fully paid convertible
derivatives of the Company, including the Debentures and excluding the
shares of Common Stock underlying derivative securities of the Company that
require cash payments by the holders thereof for exercise, after the
Subsequent Financing equal to such Purchaser's ownership in the Company
immediately prior to Subsequent Financing (the "PARTICIPATION MAXIMUM").
(b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("PRE-NOTICE"), which
Pre-Notice shall ask such Purchaser if it wants to review the details of
such financing (such additional notice, a "SUBSEQUENT FINANCING NOTICE").
Upon the request of a Purchaser, and only upon a request by such Purchaser,
for a Subsequent Financing Notice, the Company shall promptly, but no later
than 1 Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the
amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto.
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than 5:30
p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing to
participate in the Subsequent Financing, the amount of the Purchaser's
participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Purchaser as of such 5th
Trading Day, such Purchaser shall be deemed to have notified the Company
that it does not elect to participate.
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(d) If by 5:30 p.m. (New York City time) on the 5th Trading Day after
all of the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less
than the total amount of the Subsequent Financing, then the Company may
effect the remaining portion of such Subsequent Financing on the terms and
to the Persons set forth in the Subsequent Financing Notice.
(e) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.13, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.
(f) Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect of an Exempt Issuance.
4.14 SUBSEQUENT EQUITY SALES.
(a) From the date hereof until 90 days after the Effective Date,
neither the Company nor any Subsidiary shall issue shares of Common Stock
or Common Stock Equivalents; PROVIDED, HOWEVER, the 90 day period set forth
in this Section 4.14 shall be extended for the number of Trading Days
during such period in which (i) trading in the Common Stock is suspended by
any Trading Market, or (ii) following the Effective Date, the Registration
Statement is not effective or the prospectus included in the Registration
Statement may not be used by the Purchasers for the resale of the
Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds any of
the Securities, the Company shall be prohibited from effecting or entering
into an agreement to effect any Subsequent Financing involving a "Variable
Rate Transaction". The term "VARIABLE RATE TRANSACTION" shall mean a
transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A)
at a conversion, exercise or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the shares
of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined
price.
(c) Notwithstanding the foregoing, this Section 4.14 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance.
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4.15 EQUAL TREATMENT OF PURCHASERS. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same
consideration is also offered to all of the parties to the Transaction
Documents. Further, the Company shall not make any payment of principal or
interest on the Debentures in amounts which are disproportionate to the
respective principal amounts outstanding on the Debentures at any
applicable time. For clarification purposes, this provision constitutes a
separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended to treat for the Company the
Debenture holders as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.16 SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. Each
Purchaser severally and not jointly with the other Purchasers covenants
that neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after
the Discussion Time and ending at the time that the transactions
contemplated by this Agreement are first publicly announced as described in
Section 4.6. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated
by this Agreement are publicly disclosed by the Company as described in
Section 4.6, such Purchaser will maintain, the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Each Purchaser understands and
acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that coverage of short sales of
shares of the Common Stock "against the box" prior to the Effective Date of
the Registration Statement with the Securities is a violation of Section 5
of the Securities Act, as set forth in Item 65, Section 5 under Section A,
of the Manual of Publicly Available Telephone Interpretations, dated July
1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Notwithstanding the foregoing, no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in
Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and
the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser's
assets, the covenant set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.
ARTICLE V.
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any Purchaser,
as to such Purchaser's obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other Purchasers,
by written notice to the other parties, if the Closing has not been
consummated on or before June 30, 2005; PROVIDED, HOWEVER, that no such
termination will affect the right of any party to xxx for any breach by the
other party (or parties).
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5.2 FEES AND EXPENSES. At the Closing, the Company has agreed to
reimburse Midsummer Capital, LLC ("MIDSUMMER") up to $40,000, for its
actual, reasonable, out-of-pocket legal fees and expenses, $20,000 of which
has been paid prior to the Closing Date. Except as expressly set forth in
the Transaction Documents to the contrary, each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of any
Securities.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such
matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached
hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the
next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth
on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the
2nd Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the
party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages
attached hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an
amendment, by the Company and each Purchaser or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission
of either party to exercise any right hereunder in any manner impair the
exercise of any such right.
5.6 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their
mutual intent, and no rules of strict construction will be applied against
any party.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser,
which consent shall not be unreasonably withheld. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee
agrees in writing to be bound, with respect to the transferred Securities,
by the provisions hereof that apply to the "Purchasers".
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5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person, except as otherwise set forth in Section
4.11.
5.9 GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall
be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in the state and federal courts sitting in the City of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan for
the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is improper or
inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under
this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any
manner permitted by law. The parties hereby waive all rights to a trial by
jury. If either party shall commence an action or proceeding to enforce any
provisions of the Transaction Documents, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its
attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 SURVIVAL. The representations and warranties contained herein
shall survive the Closing and the delivery, exercise and/or conversion of
the Securities, as applicable for the applicable statue of limitations.
5.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if
such facsimile signature page were an original thereof.
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5.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way
be affected or impaired thereby and the parties will attempt to agree upon
a valid and enforceable provision that is a reasonable substitute therefor,
and upon so agreeing, shall incorporate such substitute provision in this
Agreement.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided,
then such Purchaser may rescind or withdraw, in its sole discretion from
time to time upon written notice to the Company, any relevant notice,
demand or election in whole or in part without prejudice to its future
actions and rights; PROVIDED, HOWEVER, in the case of a rescission of a
conversion of a Debenture or exercise of a Warrant, the Purchaser shall be
required to return any shares of Common Stock subject to any such rescinded
conversion or exercise notice.
5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such
replacement Securities.
5.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of
the Purchasers and the Company will be entitled to specific performance
under the Transaction Documents. The parties agree that monetary damages
may not be adequate compensation for any loss incurred by reason of any
breach of obligations described in the foregoing sentence and hereby agrees
to waive in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
5.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver
or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
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5.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefit or
advantage of, usury laws wherever enacted, now or at any time hereafter in
force, in connection with any claim, action or proceeding that may be
brought by any Purchaser in order to enforce any right or remedy under any
Transaction Document. Notwithstanding any provision to the contrary
contained in any Transaction Document, it is expressly agreed and provided
that the total liability of the Company under the Transaction Documents for
payments in the nature of interest shall not exceed the maximum lawful rate
authorized under applicable law (the "MAXIMUM RATE"), and, without limiting
the foregoing, in no event shall any rate of interest or default interest,
or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction
Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of
interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company
to any Purchaser with respect to indebtedness evidenced by the Transaction
Documents, such excess shall be applied by such Purchaser to the unpaid
principal balance of any such indebtedness or be refunded to the Company,
the manner of handling such excess to be at such Purchaser's election.
5.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of
any other Purchaser under any Transaction Document. Nothing contained
herein or in any Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Purchaser shall be entitled
to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal
counsel in their review and negotiation of the Transaction Documents. For
reasons of administrative convenience only, Purchasers and their respective
counsel have chosen to communicate with the Company through FW. FW does not
represent all of the Purchasers but only Midsummer. The Company has elected
to provide all Purchasers with the same terms and Transaction Documents for
the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents
is a continuing obligation of the Company and shall not terminate until all
unpaid partial liquidated damages and other amounts have been paid
notwithstanding the fact that the instrument or security pursuant to which
such partial liquidated damages or other amounts are due and payable shall
have been canceled.
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5.20 CONSTRUCTION. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction
Documents or any amendments hereto.
(SIGNATURE PAGES FOLLOW)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
SECURED SERVICES, INC. ADDRESS FOR NOTICE:
-------------------
By:________________________________________ 000 Xxxxxxxx Xxxxxx, 14th Floor,
Name: Xxx Xxxx, XX 00000
Title:
With a copy to (which shall not constitute notice):
Morse, Zelnick, Rose & Lander LLP
ATTN: Xxxxxxx Xxxxxxx, Esq.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
34
[PURCHASER SIGNATURE PAGES TO SSVC SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: _____________________________________________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ________________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Purchaser:_____________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
35
