EXHIBIT 10.18
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of October 9,
2003, is made by and among iSECUREtrac CORP., a corporation organized under the
laws of Delaware (the "Company"), and each of the purchasers (individually, a
"Purchaser" and collectively the "Purchasers") set forth on the execution pages
hereof (each, an "Execution Page" and collectively the "Execution Pages").
BACKGROUND
The Company and each Purchaser are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").
Upon the terms and conditions stated in this Agreement, the Company
desires to issue and sell to the Purchasers, and each Purchaser desires to
purchase units (each a "Unit") consisting of a convertible promissory note, in
the form attached hereto as Exhibit A (collectively the "Notes"), in the
principal face amount of one thousand dollars ($1,000.00), which Notes shall be
initially convertible into two thousand (2,000) shares of the Company's common
stock, $0.001 par value per share (the "Common Stock. The shares of Common Stock
issuable upon conversion of or otherwise pursuant to the Notes are referred to
herein as the "Conversion Shares." The Notes and the Conversion Shares are
collectively referenced herein as the "Securities" and each of them may
individually be referred to herein as a "Security."
Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit B (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws. This Agreement, the Notes and the
Registration Rights Agreement are collectively referred to herein as the
"Transaction Documents."
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Purchasers, intending to be
legally bound, hereby agree as follows:
PURCHASE AND SALE OF SECURITIES.
Purchase and Sale of Securities. Subject to the terms and conditions
hereof, at the Closing (as defined in Section 1(b) below), the Company shall
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
shall purchase from the Company, such number of Units as is set forth on such
Purchaser's Execution Page, for a purchase price (as to each Purchaser, the
"Purchase Price") per Unit equal to One Thousand Dollars ($1,000.00). The
aggregate amount of Units to be issued and sold by the Company to all Purchasers
pursuant to this Agreement shall not exceed One Million Dollars ($1,000,000.00).
The Closing. Subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, the closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of MicroCapital LLC at
000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx Xxxxxxxxxx, 00000 at 10:00 a.m.,
Pacific Time on the date hereof or such other time and place as the Company and
the Purchasers may mutually agree (the "Closing Date").
PURCHASER'S REPRESENTATIONS AND WARRANTIES.
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Each Purchaser severally, but not jointly, represents and warrants to the
Company as follows:
Purchase for Own Account, Etc. Such Purchaser is purchasing the Securities
for such Purchaser's own account for investment purposes only and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales that are exempt from the registration requirements of the Securities Act
and/or sales registered under the Securities Act. Such Purchaser understands
that such Purchaser must bear the economic risk of this investment indefinitely,
unless the Securities are registered pursuant to the Securities Act and any
applicable state securities or blue sky laws or an exemption from such
registration is available, and that the Company has no present intention of
registering the resale of any such Securities other than as contemplated by the
Registration Rights Agreement. Notwithstanding anything in this Section 2(a) to
the contrary, by making the representations herein, such Purchaser does not
agree to hold the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption from the registration
requirements under the Securities Act.
Accredited Investor Status. Such Purchaser is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D.
Reliance on Exemptions. Such Purchaser understands that the Securities are
being offered and sold to such Purchaser in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and such
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities.
Information. Such Purchaser and its counsel, if any, have been furnished
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities that have been
specifically requested by such Purchaser or its counsel. Neither such inquiries
nor any other investigation conducted by such Purchaser or its counsel or any of
its representatives shall modify, amend or affect such Purchaser's right to rely
on the Company's representations and warranties contained in Section 3 below.
Such Purchaser understands that such Purchaser's investment in the Securities
involves a high degree of risk.
Governmental Review. Such Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Purchaser and are valid and binding agreements of such Purchaser
enforceable against such Purchaser in accordance with their respective terms.
Residency. Such Purchaser is a resident of the jurisdiction set forth
under such Purchaser's name on the Execution Page hereto executed by such
Purchaser.
Transactions in the Company's Common Stock. Such Purchaser has not
effected any purchases or sales of the Company's Common Stock during the five
trading days (as hereinafter defined) prior to the date hereof. For purposes of
this subsection (h), the term "trading day" means any day on which the principal
United States securities exchange or trading market where the Common Stock is
then listed or traded, is open for trading.
Each Purchaser's representations and warranties made in this Article 2 are made
solely for the purpose of permitting the Company to make a determination that
the offer and sale of the Securities pursuant to this Agreement comply with
applicable U.S. federal and state securities laws and not for any other purpose.
Accordingly, the Company may not rely on such representations and warranties for
any other purpose. No Purchaser has made or hereby makes any other
representations or warranties, express or implied, to the Company in connection
with the transactions contemplated hereby.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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Except as set forth on the Disclosure Schedule attached hereto as Exhibit C
executed and delivered by the Company to each Purchaser dated the date hereof
(the "Disclosure Schedule"), the Company represents and warrants to each
Purchaser as follows:
Organization and Qualification. The Company and each of its direct and
indirect subsidiaries (collectively, the "Subsidiaries") is a corporation duly
organized and existing in good standing under the laws of the jurisdiction in
which it is incorporated or organized, and has the requisite corporate power to
own its properties and to carry on its business as now being conducted. The
Company and each of its Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted by it makes such qualification necessary and where the
failure so to qualify or be in good standing would have a Material Adverse
Effect. For purposes of this Agreement, "Material Adverse Effect" means any
effect which, individually or in the aggregate with all other effects,
reasonably would be expected to be materially adverse to (i) the Securities,
(ii) the ability of the Company to perform its obligations under this Agreement
or the other Transaction Documents or (iii) the business, operations,
properties, prospects, financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
Authorization; Enforcement. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents, to issue and sell the Units in
accordance with the terms hereof, to issue the Conversion Shares upon conversion
of the Notes in accordance with the terms thereof; (ii) the execution, delivery
and performance of this Agreement and the other Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Units and the
issuance and reservation for issuance of the Conversion Shares) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or any committee of the
Board of Directors is required, and (iii) this Agreement constitutes, and, upon
execution and delivery by the Company of the other Transaction Documents, such
Transaction Documents will constitute, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms. Neither the execution, delivery or performance by the Company of its
obligations under this Agreement or the other Transaction Documents, nor the
consummation by it of the transactions contemplated hereby or thereby
(including, without limitation, the issuance of the Units or the issuance or
reservation for issuance of the Conversion Shares) requires any consent or
authorization of the Company's stockholders (including, without limitation, any
consent under Rule 4350(i) of the National Association of Securities Dealers,
Inc.).
Capitalization. The capitalization of the Company as of the date hereof,
including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Notes) exercisable or
exchangeable for, or convertible into, any shares of capital stock and the
number of shares to be reserved for issuance upon conversion of the Notes is set
forth in Section 3(c) of the Disclosure Schedule. All of such outstanding shares
of capital stock have been, or upon issuance in accordance with the terms of any
such exercisable, exchangeable or convertible securities will be, validly
issued, fully paid and non-assessable. No shares of capital stock of the Company
(including the Conversion Shares) are subject to preemptive rights or any other
similar rights of the stockholders of the Company or any liens or encumbrances.
Except for the Securities and as set forth in Section 3(c) of the Disclosure
Schedule, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, nor are any such issuances,
contracts, commitments, understandings or arrangements contemplated, (ii) there
are no contracts, commitments, understandings or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the Securities Act (except the Registration Rights
Agreement); (iii) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem or otherwise acquire any security of the Company or any of its
Subsidiaries; and (iv) the Company does not have any shareholder rights plan,
"poison pill" or other anti-takeover plans or similar arrangements. Section 3(c)
of the Disclosure Schedule sets forth all of the securities or instruments
issued by the Company or any of its Subsidiaries that contain anti-dilution or
similar provisions, and, except as and to the extent set forth thereon, the sale
and issuance of the Securities will not trigger any anti-dilution adjustments to
any such securities or instruments. The Company has furnished to each Purchaser
true and correct copies of the Company's organizational documents
("Organizational Documents") as in effect on the date hereof and all other
instruments and agreements governing securities convertible into or exercisable
or exchangeable for capital stock of the Company, all of which instruments and
agreements are set forth in Section 3(c) of the Disclosure Schedule. The Company
or one of its Subsidiaries has the unrestricted right to vote, and (subject to
limitations imposed by applicable law) to receive dividends and distributions
on, all capital securities of its Subsidiaries as owned by the Company or any
such Subsidiary.
Issuance of Securities. The Units are duly authorized and, upon issuance
in accordance with the terms of this Agreement, (i) will be validly issued,
fully paid and non-assessable and free from all taxes, liens, claims and
encumbrances, (ii) will not be subject to preemptive rights, rights of first
refusal or other similar rights of stockholders of the Company or any other
person and (iii) will not impose personal liability on the holder thereof. The
Conversion Shares are duly authorized and reserved for issuance, and, upon
conversion of the Notes in accordance with the terms thereof, (x) will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances, (y) will not be subject to preemptive rights, rights of
first refusal or other similar rights of stockholders of the Company or any
other person and (III) will not impose personal liability upon the holder
thereof.
No Conflicts. The execution, delivery and performance of this Agreement
and the other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Units and the issuance and reservation for
issuance of the Conversion Shares) will not (i) result in a violation of the
Organizational Documents, (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment (including, without
limitation, the triggering of any anti-dilution provisions), acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including United States federal and
state securities laws, rules and regulations and rules and regulations of any
self-regulatory organizations to which either the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
(except, with respect to clauses (ii) and (iii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not, individually or in the aggregate, have a Material Adverse Effect).
Compliance. The Company is not in violation of the Organizational
Documents, and no Subsidiary is in violation of its organizational documents.
Neither the Company nor any of its Subsidiaries is in default (and no event has
occurred that with notice or lapse of time or both would put the Company or any
of its Subsidiaries in default) under, nor has there occurred any event giving
others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party
(including, without limitation, the Contracts (as defined in Section 3(g)
below)), except for actual or possible violations, defaults or rights that would
not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries are not being conducted, and
shall not be conducted so long as any Purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations the sanctions for which either individually or in the
aggregate have not had and would not have a Material Adverse Effect. Neither the
Company, nor any of its Subsidiaries, nor any director, officer, agent, employee
or other person acting on behalf of the Company or any Subsidiary has, in the
course of his actions for, or on behalf of, the Company or any Subsidiary, used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity, made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds, violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, provincial or foreign regulatory authorities that are material to the
conduct of its business, and neither the Company nor any of its Subsidiaries has
received any notice of proceeding relating to the revocation or modification of
any such certificate, authorization or permit. Except (i) as may be required
under the Securities Act in connection with the performance of the Company's
obligations under the Registration Rights Agreement, (ii) for the filing of a
Form D with the SEC, (iii) as may be required for compliance with applicable
state securities or "blue sky" laws, or (iv) as otherwise set forth in Section
3(f) of the Disclosure Schedule, the Company is not required to obtain any
consent, approval, authorization or order of, or make any filing or registration
with, any court or governmental agency or any regulatory or self-regulatory
agency or other third party in order for it to execute, deliver or perform any
of its obligations under this Agreement or any of the other Transaction
Documents.
SEC Documents, Financial Statements. Since January 1, 2000, the Company
has timely filed (within applicable extension periods) all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, the "SEC Documents").
The Company has delivered to each Purchaser true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the statements
made in any such SEC Documents is, or has been, required to be amended or
updated under applicable law (except for such statements as have been amended or
updated in subsequent filings made prior to the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP"),
consistently applied, during the periods involved (except as may be otherwise
indicated in such financial statements or the notes thereto or, in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, immaterial year-end audit adjustments). Except
as set forth in Section 3(g) of the Disclosure Statements, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of such financial statements
and (ii) obligations under contracts and commitments incurred in the ordinary
course of business and not required under GAAP to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company. To the extent required by the
rules and regulations of the SEC applicable thereto, the Section 3(g) of the
Disclosure Statements contains a complete and accurate list of all material
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of the properties or assets of the Company
or any Subsidiary is subject (each, a "Contract"). Except as set forth in
Section 3(g) of the Disclosure Statements, none of the Company, its Subsidiaries
or, to the best knowledge of the Company, any of the other parties thereto is in
breach or violation of any Contract, which breach or violation would have a
Material Adverse Effect.
Internal Accounting Controls. The Company and each of its Subsidiaries
maintains 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 a-14 and 15d-14) for the Company and designed such
disclosures 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 Annual Report on Form 10-K or Quarterly Report on Form 10-Q,
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 a
date within 90 days prior to the filing date of the 2002 Annual Report and the
Company's most recently filed Quarterly Report on Form 10-Q (each such date, an
"Evaluation Date"). The Company presented in the 2002 Annual Report and its most
recently filed Quarterly Report on Form 10-Q the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the respective Evaluation Date. Since the Evaluation
Date for the 2002 Annual Report, 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 Company's knowledge, in other
factors that could significantly affect the Company's internal controls.
Absence of Certain Changes. Except as set forth in Section 3(i) of the
Disclosure Schedule, since December 31, 2002, there has been no material adverse
change and no material adverse development in the business, properties,
operations, prospects, financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy or receivership law, nor does the Company or any of
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings with respect to the
Company or any of its Subsidiaries.
Transactions With Affiliates. Except as set forth in Section 3(j) of the
Disclosure Schedule, none of the officers, directors, or employees of the
Company or any of its Subsidiaries is presently a party to any transaction with
the Company or any of its Subsidiaries (other than for ordinary course services
solely in their capacity as officers, directors or employees), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such officer, director or
employee or any corporation, partnership, trust or other entity in which any
such officer, director, or employee has an ownership interest of five percent or
more or is an officer, director, trustee or partner.
Absence of Litigation. Except as disclosed in Section 3(k) of the
Disclosure Schedule, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body (including, without limitation, the SEC)
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, any of its Subsidiaries, or any of
their respective directors or officers in their capacities as such. There are no
facts which, if known by a potential claimant or governmental authority, could
give rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its Subsidiaries, could reasonably be
expected to have a Material Adverse Effect. The SEC 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 Securities Act or the Exchange
Act.
Intellectual Property. Each of the Company and its Subsidiaries owns or is
duly licensed (and, in such event, has the unfettered right to grant
sublicenses) to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, inventions, discoveries, processes, scientific, technical,
engineering and marketing data, object and source codes, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted and as presently contemplated to be
conducted in the future. Section 3(l) of the Disclosure Schedule sets forth a
list of all Intangibles owned and/or used by the Company in its business. To the
knowledge of the Company and its Subsidiaries, neither the Company nor any
Subsidiary of the Company infringes or is in conflict with any right of any
other person with respect to any third party Intangibles. Neither the Company
nor any of its Subsidiaries has received written notice of any pending conflict
with or infringement upon such third party Intangibles. Neither the Company nor
any of its Subsidiaries has entered into any consent agreement, indemnification
agreement, forbearance to xxx or settlement agreement with respect to the
validity of the Company's or its Subsidiaries' ownership of or right to use its
Intangibles and there is no reasonable basis for any such claim to be
successful. The Intangibles are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or canceled or is the
subject of cancellation or other adversarial proceedings, and all applications
therefor are pending and in good standing. The Company and its Subsidiaries have
complied, in all material respects, with their respective contractual
obligations relating to the protection of the Intangibles used pursuant to
licenses. No person is infringing on or violating the Intangibles owned or used
by the Company or its Subsidiaries.
Title. The Company and its Subsidiaries have good and marketable title in
fee simple to all real property and good and merchantable title to all personal
property owned by them that is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and its Subsidiaries. Any real property and facilities held under
lease by the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
Tax Status. Except as set forth in the Disclosure Schedule, the Company
and each of its Subsidiaries has made or filed all foreign, U.S. federal, state,
provincial and local income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the assessment or
collection of any foreign, federal, state, provincial or local tax. None of the
Company's tax returns is presently being audited by any taxing authority.
Key Employees. Each of the Company's directors and officers and any Key
Employee (as defined below) is currently serving the Company in the capacity
disclosed in the Company's current SEC filings. No Key Employee is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its Subsidiaries to any material liability with respect to any
of the foregoing matters. No Key Employee has, to the knowledge of the Company
and its Subsidiaries, any intention to terminate or limit his employment with,
or services to, the Company or any of its Subsidiaries, nor is any such Key
Employee subject to any constraints which would cause such employee to be unable
to devote his full time and attention to such employment or services. For
purposes of this Agreement, "Key Employee" means the persons listed in Section
3(o) of the Disclosure Schedule and any individual who assumes or performs any
of the duties of a Key Employee.
Employee Relations. (i) Neither the Company nor any of its Subsidiaries is
involved in any material union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. The Company
and its Subsidiaries believe that their relations with their employees are good;
(ii) no executive officer (as defined in Rule 501(f) of the Securities Act) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company; and (iii) the Company and
its Subsidiaries are in compliance with all federal, state, local and foreign
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, result in a
Material Adverse Effect.
Insurance. The Company and each of its Subsidiaries has in force fire,
casualty, product liability and other insurance policies, with extended
coverage, sufficient in amount to allow it to replace any of its material
properties or assets which might be damaged or destroyed or sufficient to cover
liabilities to which the Company may reasonably become subject, and such types
and amounts of other insurance with respect to its business and properties, on
both a per occurrence and an aggregate basis, as are customarily carried by
persons engaged in the same or similar business as the Company. No default or
event has occurred that could give rise to a default under any such policy.
Environmental Matters. There is no environmental litigation or other
environmental proceeding pending or, to the knowledge of the Company or any of
its Subsidiaries, threatened by any governmental regulatory authority or others
with respect to the current or any former business of the Company or any of its
Subsidiaries or any partnership or joint venture currently or at any time
affiliated with the Company or any of its Subsidiaries. No state of facts exists
as to environmental matters or Hazardous Substances (as defined below) that
involves the reasonable likelihood of a material capital expenditure by the
Company or any of its Subsidiaries that may otherwise have a Material Adverse
Effect. No Hazardous Substances have been treated, stored or disposed of, or
otherwise deposited, in or on the properties owned or leased by the Company or
any of its Subsidiaries or by any partnership or joint venture currently or at
any time affiliated with the Company or any of its Subsidiaries in violation of
any applicable environmental laws. The environmental compliance programs of the
Company and each of its Subsidiaries comply in all respects with all
environmental laws, whether foreign, federal, state, provincial or local,
currently in effect. For purposes of this Agreement, "Hazardous Substances"
means any substance, waste, contaminant, pollutant or material that has been
determined by any governmental authority to be capable of posing a risk of
injury to health, safety, property or the environment.
Solvency. The Company's ability to pay all outstanding indebtedness, after
the Closing Date, is dependent on its ability to secure additional capital and
increase its revenue as more fully described in Section 3(s) of the Disclosure
Schedule. 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).
Listing. The Common Stock is currently listed for trading on the OTC
Bulletin Board (the "Bulletin Board"). The Company is not in violation of the
listing requirements of the Bulletin Board, does not reasonably anticipate that
the Common Stock will be delisted from the Bulletin Board for the foreseeable
future, and has not received any notice regarding the possible delisting of the
Common Stock from the Bulletin Board. The Company will attempt to secure
(subject to the Registration Rights Agreement) the listing of the Conversion
Shares on the Bulletin Board and on each other national securities exchange,
automated quotation system or over-the-counter market upon which shares of
Common Stock are currently listed (subject to official notice of issuance).
Form S-3 Eligibility. The Company is eligible to register the resale of
its Common Stock on a registration statement on Form S-3 under the Securities
Act. There exist no facts or circumstances that would prohibit or delay the
preparation and filing of a registration statement on Form S-3 with respect to
the Registrable Securities (as defined in the Registration Rights Agreement).
The Company has no basis to believe that its past or present independent public
auditors will withhold their consent to the inclusion, or incorporation by
reference, of their audit opinion concerning the Company's financial statements
that are included in the Registration Statement required to be filed pursuant to
the Registration Rights Agreement.
Anti-Takeover Provisions. 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 its
Organizational Documents or the laws of the jurisdiction of its organization
which is or could become applicable to any Purchaser as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities or any other securities pursuant to the
terms of this Agreement and any and all Purchaser's ownership of the Securities
or any such other securities.
Acknowledgment Regarding Each Purchaser's Purchase of the Securities. The
Company acknowledges and agrees that each Purchaser is acting solely in the
capacity of arm's length purchaser with respect to this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby, and
that no Purchaser is (i) an officer or director of the Company, (ii) an
"affiliate" of the Company (as defined in Rule 144) or (iii) a "beneficial
owner" of more than 5% of the Common Stock (as defined for purposes of Rule
13d-3 of the Exchange Act). 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 or the other Transaction Documents and
the transactions contemplated hereby and thereby, and any advice given by a
Purchaser or any of its representatives or agents in connection with this
Agreement or the other Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Purchaser's purchase of the
Securities. The Company further represents to each Purchaser that the Company's
decision to enter into this Agreement and the other Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.
No General Solicitation or Integrated Offering. Neither the Company nor
any distributor participating on the Company's behalf in the transactions
contemplated hereby (if any) nor any person acting for the Company, or any such
distributor, has conducted any "general solicitation" (as such term is defined
in Regulation D) with respect to any of the Securities being offered hereby.
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 require registration of the Securities being offered hereby under the
Securities Act or cause this offering of Securities to be integrated with any
prior offering of securities of the Company for purposes of the Securities Act,
which result of such integration would require registration under the Securities
Act, or any applicable stockholder approval provisions.
No Brokers. The Company has taken no action that would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by any Purchaser relating to this Agreement or the transactions contemplated
hereby.
Acknowledgment Regarding Securities. The number of Conversion Shares
issuable upon conversion of the Notes may increase in certain circumstances. The
Company's directors and executive officers have studied and fully understand the
nature of the Securities being sold hereunder. The Company acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with the terms thereof is absolute and unconditional, regardless of the dilution
that such issuance may have on the ownership interests of other stockholders and
the availability of remedies provided for in any of the Transaction Documents
relating to a failure or refusal to issue Conversion Shares. Taking the
foregoing into account, the Company's Board of Directors has determined in its
good faith business judgment that the issuance of the Units hereunder and the
consummation of the other transactions contemplated hereby are in the best
interests of the Company and its stockholders.
Disclosure. All information relating to or concerning the Company and/or
any of its Subsidiaries set forth in this Agreement or provided to the
Purchasers pursuant to Section 2(d) hereof or otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial conditions, which has
not been publicly disclosed but, under applicable law, rule or regulation, would
be required to be disclosed by the Company in a registration statement filed on
the date hereof by the Company under the Securities Act with respect to a
primary issuance of the Company's securities.
COVENANTS.
Best Efforts. The parties shall use their respective best efforts timely
to satisfy each of the conditions described in Sections 6 and 7 of this
Agreement.
Form D; Blue Sky Laws. The Company shall file with the SEC a Form D with
respect to the Securities as required under Regulation D and provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to each Purchaser
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to each Purchaser on or prior to the
Closing Date. Within three days after the Closing Date, the Company shall file a
Form 8-K with the SEC concerning this Agreement and the transactions
contemplated hereby, which Form 8-K shall attach this Agreement and its Exhibits
as exhibits to such Form 0-X (xxx "0-X Xxxxxx"). From and after the 8-K Filing,
the Company hereby acknowledges that no Purchaser shall be in possession of any
material nonpublic information received from the Company, any of its
Subsidiaries or any of its respective officers, directors, employees or agents,
that is not disclosed in the 8-K Filing. The Company shall not, and shall cause
each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents not to, provide any Purchaser with any material
nonpublic information regarding the Company or any of its Subsidiaries from and
after the 8-K Filing without the express written consent of such Purchaser;
provided, however, that a Purchaser that exercises its rights under Section 4(m)
hereof shall be deemed to have given such express written consent. In the event
of a breach of the foregoing covenant by the Company, any of its Subsidiaries or
any of its or their respective officers, directors, employees and agents, in
addition to any other remedy provided herein or in the other Transaction
Documents, a Purchaser shall have the right to make a public disclosure, in the
form of a press release, public advertisement or otherwise, of such material
nonpublic information without the prior approval by the Company, its
Subsidiaries or any of its or their respective officers, directors, employees or
agents. No Purchaser shall have any liability to the Company, its Subsidiaries
or any of its or their respective officers, directors, employees, shareholders
or agents for any such disclosure. Subject to the foregoing, neither the Company
nor any Purchaser shall issue any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Purchaser, to
make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Purchaser shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release).
Reporting Status. So long as any Purchasers (or any of their respective
affiliates) beneficially own any of the Securities, the Company shall timely
file all reports required to be filed with the SEC pursuant to the Exchange Act,
and the Company shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination. In addition, the Company
shall take all actions necessary to meet the "registrant eligibility"
requirements set forth in the general instructions to Form S-3 or any successor
form thereto, to continue to be eligible to register the resale of its Common
Stock on a registration statement on Form S-3 under the Securities Act.
Participation Right. Subject to the terms and conditions specified in this
Section 4(d), until the third anniversary of the date hereof, the Purchasers
shall have a right to participate in any issuance by the Company of (i) equity
or equity-linked securities, or (ii) debt which is convertible into equity or in
which there is an equity component ("Additional Securities") on the same terms
and conditions as offered by the Company to the other purchasers of such
Additional Securities. Each time the Company proposes to offer any Additional
Securities, the Company shall make an offering of such Additional Securities to
each Purchaser in accordance with the following provisions:
The Company shall deliver a notice (the "Notice") to the Purchasers, at
least thirty (30) days prior to the date on which it proposes to offer such
Additional Securities, stating (A) its bona fide intention to offer such
Additional Securities, (B) the number of such Additional Securities to be
offered, (C) the price and terms, if any, upon which it proposes to offer such
Additional Securities, and (D) the anticipated closing date of the sale of such
Additional Securities.
Each Purchaser shall have the right, exercisable by delivering written
notice to such effect to the Company within twenty (20) days after such
Purchaser's receipt of the Notice, to purchase, at the price and on the terms
specified in the Notice, up to that portion of such Additional Securities which
equals the proportion that the number of Conversion Shares that such Purchaser
then owns or has the right to acquire (upon conversion of the Notes) bears to
the total number of shares of Common Stock then outstanding (assuming full
conversion, exercise or exchange of all convertible, exercisable or exchangeable
securities then outstanding). The Company shall promptly, in writing, inform
each Purchaser that elects to purchase all of the Additional Shares available to
it (each, a "Fully-Exercising Purchaser") of any other Purchaser's failure to do
likewise, and, during the five-day period commencing after such information is
given, each Fully-Exercising Purchaser shall be entitled to purchase up to that
portion of the Additional Securities for which the Purchasers were entitled to
subscribe but which were not subscribed for by the Purchasers which is equal to
the proportion that the number of shares of Conversion Shares that such
Fully-Exercising Purchaser then owns or has the right to acquire (upon
conversion of the Notes) bears to the total number of shares of Conversion
Shares that all Fully-Exercising Purchasers who wish to purchase some of the
unsubscribed shares then own or have the right to acquire (upon conversion of
the Notes).
If all Additional Securities which the Purchasers are entitled to purchase
pursuant to this Section 4(d) are not purchased as provided herein, the Company
may, during the 75-day period following the expiration of the 20-day period
(and, if necessary, such additional five-day period) provided in clause (ii),
offer the remaining unsubscribed portion of such Additional Securities to any
person at a price not less than, and upon terms no more favorable to the offeree
than, as specified in the Notice. If the Company does not consummate the sale of
such Additional Securities within such period, the right provided hereunder
shall be deemed to be revived and such Additional Securities shall not be
offered or sold unless first reoffered to the Purchasers in accordance herewith.
Notwithstanding the foregoing, the participation rights granted in this
Section 4(d) shall not be applicable to: (A) the issuance of shares of Common
Stock upon the exercise or conversion of the Company's options, warrants or
convertible securities outstanding as of the date hereof and disclosed in
Section 3(c) of the Disclosure Schedule in accordance with the terms of such
options, warrants or other securities as in effect on the date hereof; (B) the
grant of options to purchase Common Stock, with exercise prices not less than
the market price of the Common Stock on the date of grant, or the grant of
restricted shares of Common Stock, in each case which are issued to employees,
officers, directors or consultants of the Company for the primary purpose of
soliciting or retaining their employment or service pursuant to an equity
compensation plan approved by the Company's Board of Directors, and the issuance
of shares of Common Stock upon the exercise of any such options; (C) the
issuance of securities pursuant to a bona fide underwritten public offering; (D)
the issuance of the Notes, the Conversion Shares upon conversion of the Notes;
or (E) the issuance of securities in a bona fide business acquisition.
Use of Proceeds. The Company shall use the proceeds from the sale and
issuance of the Units for general corporate purposes and working capital. Such
proceeds shall not be used to (i) pay dividends; (ii) pay for any increase in
executive compensation or make any loan or other advance to any officer,
employee, shareholder, director or other affiliate of the Company, without the
express approval of the Board of Directors acting in accordance with past
practice; (iii) purchase debt or equity securities of any entity (including
redeeming the Company's own securities), except for (A) evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition, (B)
certificates of deposit, notes, acceptances and repurchase agreements having a
maturity of not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided profits of
at least $500,000,000, (C) the highest-rated commercial paper having a maturity
of not more than one year from the date of acquisition, and (D) "Money Market"
fund shares, or money market accounts fully insured by the Federal Deposit
Insurance Corporation and sponsored by banks and other financial institutions,
provided that the investments consist principally of the types of investments
described in clauses (A), (B), or (C) above; or (iv) make any investment not
directly related to the current business of the Company.
Financial Information. So long as any Purchasers (or any of their
respective affiliates) beneficially own any Securities, the Company shall send
(via electronic transmission or otherwise) the following reports to such
Purchaser: (i) within ten days after the filing with the SEC, a copy of its
Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy
statements and any Current Reports on Form 8-K; and (ii) within one day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries.
Reservation of Shares. The Company currently has authorized and reserved
for the purpose of issuance a minimum of 2,000,000 shares of Common Stock to
provide for the full conversion of the Notes and issuance of the Conversion
Shares in connection therewith and as otherwise required by the Notes and the
Registration Rights Agreement (collectively, the "Issuance Obligations"). In the
event such number of shares becomes insufficient to satisfy the Issuance
Obligations, the Company shall take all necessary action to authorize and
reserve such additional shares of Common Stock necessary to satisfy the Issuance
Obligations.
Listing. So long as any Purchasers (or any of their respective affiliates)
beneficially own any Securities, the Company shall maintain the listing of all
Conversion Shares from time to time issuable upon conversion of the Notes on
each national securities exchange, automated quotation system or electronic
bulletin board on which shares of Common Stock are currently listed. The Company
shall use its best efforts to continue the listing and trading of its Common
Stock on the OTC Bulletin Board, the Nasdaq SmallCap Market (the "SmallCap
Market"), or on the Nasdaq National Market (the "National Market"), the New York
Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") and
shall comply in all respects with the reporting, filing and other obligations
under the bylaws or rules of the National Association of Securities Dealers,
Inc. (the "NASD"), such exchanges, or such electronic system, as applicable. The
Company shall promptly provide to each Purchaser copies of any notices it
receives regarding the continued eligibility of the Common Stock for trading on
any securities exchange or automated quotation system on which securities of the
same class or series issued by the Company are then listed or quoted, if any.
Corporate Existence. So long as any Purchasers (or any of their respective
affiliates) beneficially owns any Securities, the Company shall maintain its
corporate existence, and in the event of a merger, consolidation or sale of all
or substantially all of the Company's assets, the Company shall ensure that the
surviving or successor entity in such transaction (i) assumes the Company's
obligations under this Agreement and the other Transaction Documents and the
agreements and instruments entered into in connection herewith and therewith
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to effect
the conversion of all the Notes outstanding as of the date of such transaction
and (ii) except in the event of a merger, consolidation of the Company into any
other corporation, or the sale or conveyance of all or substantially all of the
assets of the Company where the consideration consists solely of cash, the
surviving or successor entity is a publicly traded corporation whose common
stock is listed for trading on the SmallCap Market, the National Market, the
NYSE or the AMEX.
No Integrated Offerings. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of the Securities to be integrated with
any other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
Legal Compliance. The Company shall conduct its business and the business
of its Subsidiaries in compliance with all laws, ordinances or regulations of
governmental entities applicable to such businesses, except where the failure to
do so would not have a Material Adverse Effect.
Information. So long as any Purchasers (or any of their respective
affiliates) beneficially own any Securities, the Company shall furnish to each
such Purchaser:
concurrently with the filing with the SEC of its annual reports on
Form 10-K, a certificate of the President, a Vice President or a senior
financial officer of the Company stating that, based upon such examination or
investigation and review of this Agreement as in the opinion of the signer is
necessary to enable the signer to express an informed opinion with respect
thereto, neither the Company nor any of its Subsidiaries is or has during such
period been in default in the performance or observance of any of the terms,
covenants or conditions hereof, or, if the Company or any of its Subsidiaries
shall be or shall have been in default, specifying all such defaults, and the
nature and period of existence thereof, and what action the Company or such
Subsidiary has taken, is taking or proposes to take with respect thereto; and
the information the Company must deliver to any holder or to any
prospective transferee of Securities in order to permit the sale or other
transfer of such Securities pursuant to Rule 144A of the SEC or any similar rule
then in effect.
The Company shall keep at its principal executive office a true copy of this
Agreement (as at the time in effect), and cause the same to be available for
inspection at such office during normal business hours by any holder of
Securities or any prospective transferee of Securities designated by a holder
thereof.
Inspection of Properties and Books. So long as any Purchasers (or any of
their respective affiliates) beneficially own any Securities, each such
Purchaser and its representatives and agents (collectively, the "Inspectors")
shall have the right, at such Purchaser's expense, to visit and inspect any of
the properties of the Company and of its Subsidiaries, to examine the books of
account and records of the Company and of its Subsidiaries, to make or be
provided with copies and extracts therefrom, to discuss the affairs, finances
and accounts of the Company and of its Subsidiaries with, and to be advised as
to the same by, its and their officers, employees and independent public
accountants (and by this provision the Company authorizes such accountants to
discuss such affairs, finances and accounts, whether or not a representative of
the Company is present) all at such reasonable times and intervals and to such
reasonable extent as the Purchasers may desire; provided, however, that each
Inspector shall hold in confidence and shall not make any disclosure (except to
such Purchaser) of any such information which the Company determines in good
faith to be confidential, and of which determination the Inspectors are so
notified, unless (i) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement filed pursuant
to the Registration Rights Agreement, (ii) the release of such information is
ordered pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or (iii) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. Each Purchaser agrees that it shall, upon learning that
disclosure of such information is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the information
deemed confidential.
Shareholders Rights Plan. No claim shall be made or enforced by the
Company or any other person that any Purchaser is an "Acquiring Person" under
any shareholders 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 this Agreement or any other Transaction Documents or under any
other agreement between the Company and the Purchasers.
Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by any Purchaser in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Purchaser effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document. The Company shall execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Purchaser.
Variable Securities. So long as any Purchasers (or any of their respective
affiliates) beneficially own any Securities, the Company shall not, without
first obtaining the written approval of the holders of a majority of the
aggregate principal face amount of the Notes then outstanding (which approval
may be given or withheld by such holders in their sole and absolute discretion),
issue or sell any rights, warrants or options to subscribe for or purchase
Common Stock, or any other securities directly or indirectly convertible into or
exchangeable or exercisable for Common Stock, at an effective conversion,
exchange or exercise price that varies or may vary with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed price.
Expenses. At the Closing, the Company shall pay to MicroCapital LLC
("MicroCapital") reimbursement for the out-of-pocket expenses reasonably
incurred by MicroCapital, its affiliates and its or their advisors in connection
with the negotiation, preparation, execution and delivery of this Agreement and
the other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, XxxxxXxxxxxx'x
and its affiliates' and advisors' reasonable due diligence and attorneys' fees
and expenses (the "Expenses"); provided, however, that the aggregate amount of
the Expenses payable to MicroCapital shall not exceed $10,000 (the "Expense
Cap") unless prior approval is obtained from the Company.
SECURITIES TRANSFER MATTERS.
Conversion and Exercise. Upon conversion of the Notes by any person, (i)
if the DTC Transfer Conditions (as defined below) are satisfied, the Company
shall cause its transfer agent to electronically transmit all Conversion Shares
by crediting the account of such person or its nominee with the Depository Trust
Company ("DTC") through its Deposit Withdrawal Agent Commission system; or (ii)
if the DTC Transfer Conditions are not satisfied, the Company shall issue and
deliver, or instruct its transfer agent to issue and deliver, certificates
(subject to the legend and other applicable provisions hereof), registered in
the name of such person its nominee, physical certificates representing the
Conversion Shares. Even if the DTC Transfer Conditions are satisfied, any person
effecting a conversion of Notes may instruct the Company to deliver to such
person or its nominee physical certificates representing the Conversion Shares
in lieu of delivering such shares by way of DTC Transfer. For purposes of this
Agreement, "DTC Transfer Conditions" means that (A) the Company's transfer agent
is participating in the DTC Fast Automated Securities Transfer program and (B)
the certificates for the Conversion Shares required to be delivered do not bear
a legend and the person effecting such conversion or exercise is not then
required to return such certificate for the placement of a legend thereon.
Transfer or Resale. Each Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the sale or resale of the Securities have
not been and are not being registered under the Securities Act or any state
securities laws, and the Securities may not be transferred unless (A) the
transfer is made pursuant to and as set forth in an effective registration
statement under the Securities Act covering the Securities; or (B) such
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; or (C) sold under and in compliance with Rule 144; or (D) sold or
transferred to an affiliate of such Purchaser that is an Accredited Investor and
agrees to sell or otherwise transfer the Securities only in accordance with the
provisions of this Section 5(b); and (ii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws (other than pursuant to the terms of the
Registration Rights Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement,
provided such pledge is consistent with applicable laws, rules and regulations.
Legends. Each Purchaser understands that the Notes and, until such time as
the Conversion Shares have been registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by such Purchaser under
Rule 144, the certificates for the Conversion Shares may bear a restrictive
legend in substantially the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state of the United States or in any other jurisdiction. The
securities represented hereby may not be offered, sold or transferred in
the absence of an effective registration statement for the securities
under applicable securities laws unless offered, sold or transferred
pursuant to an available exemption from the registration requirements of
those laws.
The Company shall, immediately prior to a registration statement covering the
Securities (including, without limitation, the Registration Statement
contemplated by the Registration Rights Agreement) being declared effective,
deliver to its transfer agent an opinion letter of counsel, opining that at any
time such registration statement is effective, the transfer agent shall issue,
in connection with the issuance of the Conversion Shares, certificates
representing such Conversion Shares without the restrictive legend above,
provided such Conversion Shares are to be sold pursuant to the prospectus
contained in such registration statement. Upon receipt of such opinion, the
Company shall cause the transfer agent to confirm, for the benefit of the
holders, that no further opinion of counsel is required at the time of transfer
in order to issue such shares without such restrictive legend.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (i) the sale of
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder); (ii) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the Securities Act; or
(iii) such holder provides the Company with reasonable assurances that such
Security can be sold under Rule 144. In the event the above legend is removed
from any Security and thereafter the effectiveness of a registration statement
covering such Security is suspended or the Company determines that a supplement
or amendment thereto is required by applicable securities laws, then upon
reasonable advance written notice to such Purchaser the Company may require that
the above legend be placed on any such Security that cannot then be sold
pursuant to an effective registration statement or under Rule 144 and such
Purchaser shall cooperate in the replacement of such legend. Such legend shall
thereafter be removed when such Security may again be sold pursuant to an
effective registration statement or under Rule 144.
Transfer Agent Instructions. Upon compliance by any Purchaser with the
provisions of this Section 5 with respect to the transfer of any Securities, the
Company shall permit the transfer of such Securities and, in the case of the
transfer of Conversion Shares, promptly instruct its transfer agent to issue one
or more certificates (or effect a DTC Transfer) in such name and in such
denominations as specified by such Purchaser. The Company shall not give any
instructions to its transfer agent with respect to the Securities, other than
any permissible or required instructions provided in this Section 5, and the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement.
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
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The obligation of the Company hereunder to issue and sell the Units to each
Purchaser hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions as to such Purchaser, provided that
such conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
Execution of Transaction Documents. Each Purchaser shall have executed
such Purchaser's Execution Page to this Agreement and each other Transaction
Document to which such Purchaser is a party and delivered the same to the
Company.
Payment of Purchase Price. Each Purchaser shall have delivered the full
amount of such Purchaser's Purchase Price to the Company by wire transfer in
accordance with the Company's written wiring instructions.
Representations and Warranties True; Covenants Performed. The
representations and warranties of each Purchaser shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as of such date),
and such Purchaser shall have performed, satisfied and complied with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Purchaser at or prior to the Closing Date.
No Legal Prohibition. No statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which restricts or prohibits the consummation of
any of the transactions contemplated by this Agreement.
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
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The obligation of each Purchaser hereunder to purchase the Units for which it is
subscribing from the Company hereunder is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that such
conditions are for each Purchaser's individual and sole benefit and may be
waived by any Purchaser as to such Purchaser at any time in such Purchaser's
sole discretion:
Execution of Transaction Documents. The Company shall have executed such
Purchaser's Execution Page to this Agreement and each other Transaction Document
to which the Company is a party and delivered executed originals of the same to
such Purchaser.
Delivery of Securities. The Company shall have delivered to such Purchaser
duly executed Notes for the number of Units being purchased by such Purchaser
(each in such denominations as such Purchaser shall request), registered in such
Purchaser's name.
Listing. The Common Stock shall be authorized for quotation and listed on
the Bulletin Board and trading in the Common Stock (or on the Bulletin Board
generally) shall not have been suspended by the SEC or the Bulletin Board.
Representations and Warranties True; Covenants Performed. The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as of such date)
and the Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. Such Purchaser
shall have received a certificate, executed by the Chief Executive Officer of
the Company after reasonable investigation, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may reasonably be requested by
such Purchaser.
No Legal Prohibition. No statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which restricts or prohibits the consummation of
any of the transactions contemplated by this Agreement.
Legal Opinion. Such Purchaser shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in the form attached hereto as
Exhibit D.
Corporate Approvals. Such Purchaser shall have received a copy of
resolutions, duly adopted by the Board of Directors of the Company, which shall
be in full force and effect at the time of the Closing, authorizing the
execution, delivery and performance by the Company of this Agreement and the
other Transaction Documents and the consummation by the Company of the
transactions contemplated hereby and thereby, certified as such by the Secretary
or Assistant Secretary of the Company, and such other documents they reasonably
request in connection with the Closing.
GOVERNING LAW; MISCELLANEOUS.
Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company and
each Purchaser irrevocably consent to the jurisdiction of the United States
federal courts and the state courts located in the City and County of San
Francisco, California, in any suit or proceeding based on or arising under this
Agreement and irrevocably agree that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding
in such forum. The Company further agrees that service of process upon the
Company mailed by first class mail shall be deemed in every respect effective
service of process upon the Company in any such suit or proceeding. Nothing
herein shall affect the right of any Purchaser to serve process in any other
manner permitted by law. The Company agrees that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
Counterparts. This Agreement may be executed in two or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. This Agreement, once executed by a party, may be delivered to the
other parties hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement. In the event
any signature is delivered by facsimile transmission, the party using such means
of delivery shall cause the manually executed execution page(s) hereof to be
physically delivered to the other party within five days of the execution
hereof, provided that the failure to so deliver any manually executed execution
page shall not affect the validity or enforceability of this Agreement.
Construction. Whenever the context requires, the gender of any word used
in this Agreement includes the masculine, feminine or neuter, and the number of
any word includes the singular or plural. Unless the context otherwise requires,
all references to articles and sections refer to articles and sections of this
Agreement, and all references to schedules are to schedules attached hereto,
each of which is made a part hereof for all purposes. The descriptive headings
of the several articles and sections of this Agreement are inserted for purposes
of reference only, and shall not affect the meaning or construction of any of
the provisions hereof.
Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
Entire Agreement; Amendments. This Agreement and the other Transaction
Documents (including any schedules and exhibits hereto and thereto) contain the
entire understanding of the Purchasers, the Company, their affiliates and
persons acting on their behalf with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor the Purchasers make any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived other than by an instrument in writing signed by the party to be charged
with enforcement, and no provision of this Agreement may be amended other than
by an instrument in writing signed by the Company and each Purchaser.
Notices. Any notices required or permitted to be given under the terms of
this Agreement shall be in writing and sent by certified or registered mail
(return receipt requested) or delivered personally, by nationally recognized
overnight carrier or by confirmed facsimile transmission, and shall be effective
five days after being placed in the mail, if mailed, or upon receipt or refusal
of receipt, if delivered personally or by nationally recognized overnight
carrier or confirmed facsimile transmission, in each case addressed to a party
as provided herein. The initial addresses for such communications shall be as
follows, and each party shall provide notice to the other parties of any change
in such party's address:
If to the Company:
iSECUREtrac, CORP.
0000 Xxxxx 000xx Xxxxxx, Xxxxx 000
Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxx,
Chairman & Chief Executive Officer
If to any Purchaser, to the address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.
Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. Except as provided
herein, the Company shall not assign this Agreement or any rights or obligations
hereunder. Any Purchaser may assign or transfer the Securities pursuant to the
terms of this Agreement and of such Securities, or assign such Purchaser's
rights hereunder to any other person or entity.
Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.
Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 hereof shall
survive the Closing notwithstanding any due diligence investigation conducted by
or on behalf of any Purchaser. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies any Purchaser may have under applicable U.S. federal or state
securities laws.
Publicity. The Company and each Purchaser shall have the right to approve
before issuance any press releases, SEC or, to the extent applicable, NASD
filings, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of the Purchasers, to make any press release or SEC
or, to the extent applicable, NASD filings with respect to such transactions as
is required by applicable law and regulations (although the Purchasers shall be
consulted by the Company in connection with any such press release and filing
prior to its release and shall be provided with a copy thereof and must provide
specific consent to the use of their name in connection therewith).
Further Assurances. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
Indemnification. In consideration of each Purchaser's execution and
delivery of this Agreement and the other Transaction Documents and purchase of
the Securities hereunder, and in addition to all of the Company's other
obligations under this Agreement and the other Transaction Documents, from and
after the Closing, the Company shall defend, protect, indemnify and hold
harmless each Purchaser and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement, collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (i)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, any other Transaction Document or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
breach of any covenant, agreement or obligation of the Company contained in this
Agreement, any other Transaction Document or any other certificate, instrument
or document contemplated hereby or thereby or (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party (including for
these purposes a derivative action brought on behalf of the Company) and arising
out of or resulting from (A) the execution, delivery, performance or enforcement
of this Agreement, any other Transaction Document or any other certificate,
instrument or document contemplated hereby or thereby, (B) any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance and sale of the Securities, (C) any disclosure made by
such Purchaser pursuant to Section 4(b) or 4(m) hereof, or (D) the status of
such Purchaser or holder of the Securities as an investor in the Company. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities that is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 8(l)
shall be the same as those set forth in the Registration Rights Agreement.
Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser hereunder or pursuant to any of the other Transaction
Documents or any Purchaser enforces or exercises its rights hereunder or
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.
Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement and the other
Transaction Documents. As such, the language used herein and therein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
Remedies. No provision of this Agreement or any other Transaction Document
providing for any remedy to a Purchaser shall limit any other remedy which would
otherwise be available to such Purchaser at law, in equity or otherwise. Nothing
in this Agreement or any other Transaction Document shall limit any rights any
Purchaser may have under any applicable federal or state securities laws with
respect to the investment contemplated hereby. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations hereunder (including, but not limited to, its
obligations pursuant to Section 5 hereof) will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this
Agreement (including, but not limited to, its obligations pursuant to Section 5
hereof), that each Purchaser shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer of the Securities, without the necessity of
showing economic loss and without any bond or other security being required.
Knowledge. As used in this Agreement, the term "knowledge" of any person
or entity shall mean and include (i) actual knowledge and (ii) that knowledge
which a reasonably prudent business person could have obtained in the management
of his or her business affairs after making due inquiry and exercising due
diligence which a prudent business person should have made or exercised, as
applicable, with respect thereto.
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
iSECUREtrac, CORP.
By:
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Name: Xxxxxxx Xxx
Title: Chairman & Chief Executive Officer
PURCHASER:
MicroCapital Fund Ltd.
By:
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Name: Xxxxxxxxxxx X. Xxxxxxx
Title: Vice President
ADDRESS: 000 Xxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxxxxxx X. Xxxxxxx
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Units: 300
Purchase Price ($1000.00 per Unit): $300,000.00
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT - LTD]
