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SECURITIES PURCHASE AGREEMENT
Dated as of June 21, 2005
between
MYKONOS 6420 LP
and
ISECURETRAC CORP.
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TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions..............................................................................1
ARTICLE II.
PURCHASE AND SALE
Section 2.01. Purchase and Sale of the Purchased Securities............................................7
Section 2.02. Purchase Price...........................................................................7
Section 2.03. Closing..................................................................................7
Section 2.04. Closing Deliveries by the Company........................................................7
Section 2.05. Closing Deliveries by the Investor.......................................................7
Section 2.06. Payment of the Purchase Price............................................................8
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01. Organization and Qualification; Subsidiaries.............................................8
Section 3.02. Certificate of Incorporation and Bylaws..................................................9
Section 3.03. Capitalization...........................................................................9
Section 3.04. Authority...............................................................................11
Section 3.05. No Conflict; Required Filings and Consents..............................................11
Section 3.06. Permits; Compliance.....................................................................12
Section 3.07. SEC Filings; Financial Statements.......................................................13
Section 3.08. Absence of Certain Changes or Events....................................................14
Section 3.09. Absence of Litigation...................................................................15
Section 3.10. Employee Benefit Plans..................................................................15
Section 3.11. Labor Matters...........................................................................17
Section 3.12. Proxy Statement.........................................................................17
Section 3.13. Property and Leases.....................................................................18
Section 3.14. Intellectual Property...................................................................19
Section 3.15. Taxes...................................................................................20
Section 3.16. Environmental Matters...................................................................22
Section 3.17. Contracts; Debt Instruments.............................................................23
Section 3.18. Related Party Transactions..............................................................24
Section 3.19. Insurance...............................................................................24
Section 3.20. Controls................................................................................24
Section 3.21. Private Offering........................................................................25
Section 3.22. Vote Required...........................................................................25
Section 3.23. Section 203 of the DGCL; Takeover Statute...............................................25
Section 3.24. Brokers.................................................................................25
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Section 4.01. Organization............................................................................25
Section 4.02. Authority...............................................................................26
Section 4.03. No Conflict; Required Filings and Consents..............................................26
Section 4.04. Investment Purpose......................................................................26
Section 4.05. Status of Shares; Limitations on Transfer and Other Restrictions........................26
Section 4.06. Sophistication and Financial Condition of the Investor..................................27
Section 4.07. Available Funds.........................................................................27
Section 4.08. Proxy Statement.........................................................................27
Section 4.09. Ownership of Company Capital Stock......................................................27
Section 4.10. Brokers.................................................................................27
ARTICLE V.
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 5.01. Conduct of Business by the Company Pending the Closing..................................27
ARTICLE VI.
ADDITIONAL AGREEMENTS
Section 6.01. Access to Information; Confidentiality..................................................30
Section 6.02. Further Action; 14(f) Notice; Reasonable Best Efforts;
Consents; Filings.......................................................................31
Section 6.03. Public Announcements....................................................................32
Section 6.04. Board Representation....................................................................33
Section 6.05. Cooperation.............................................................................33
Section 6.06. Certain Notices.........................................................................33
Section 6.07. Amendment to the Certificate............................................................33
Section 6.08. "Required Minimum"......................................................................33
ARTICLE VII.
CONDITIONS
Section 7.01. Conditions to the Obligations of Each Party.............................................34
Section 7.02. Conditions to the Obligations of the Investor...........................................34
Section 7.03. Conditions to the Obligations of the Company............................................36
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ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
Section 8.01. Termination.............................................................................36
Section 8.02. Effect of Termination...................................................................37
Section 8.03. Fees and Expenses.......................................................................37
Section 8.04. Amendment...............................................................................38
Section 8.05. Waiver..................................................................................38
ARTICLE IX.
GENERAL PROVISIONS
Section 9.01. Survival of Representations and Warranties; Indemnification.............................38
Section 9.02. Special Provisions Relating to Indemnity for Breach of
Representations and Warranties regarding Patents........................................41
Section 9.03. Notices.................................................................................42
Section 9.04. Severability............................................................................42
Section 9.05. Entire Agreement........................................................................43
Section 9.06. Parties in Interest.....................................................................43
Section 9.07. Specific Performance....................................................................43
Section 9.08. Governing Law...........................................................................43
Section 9.09. Arbitration.............................................................................43
Section 9.10. Headings................................................................................44
Section 9.11. Counterparts............................................................................44
EXHIBITS
Exhibit A.........Certificate of Designation
Exhibit B.........Form of Investor Series B Warrant Agreement
Exhibit C.........Form of Registration Rights Agreement
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This Securities Purchase Agreement (this "Agreement") is made as of
June 21, 2005, between Mykonos 6420 LP, a Texas limited partnership (the
"Investor"), and iSecureTrac Corp., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Investor wishes to purchase from the Company, upon the
terms and subject to the conditions of this Agreement, one million (1,000,000)
shares (the "Shares") of preferred stock of the Company, par value $.01 per
share (the "Preferred Stock"), with such Preferred Stock being as described in
the Certificate of Designation, Preferences and Rights of Series C 8%
Cumulative, Compounding Exchangeable Preferred Stock (the "Certificate of
Designation") in the form attached hereto as Exhibit A; and
WHEREAS, prior to the filing of the Certificate of Designation, the
Company intends to amend (the "Amendment") its Restated Certificate of
Incorporation as amended; and
WHEREAS, the Investor wishes to also purchase from the Company, upon
the terms and subject to the conditions of this Agreement, warrants (the
"Investor Series B Warrants" and, together with the Shares, the "Purchased
Securities") to purchase 32,342,315 shares of Common Stock, par value $.001 per
share, of the Company (the "Common Stock"); and
WHEREAS, concurrently with the closing of the sale and purchase of
the Purchased Securities contemplated by this Agreement, the Company will enter
into (i) an investor warrant agreement with respect to the Investor Series B
Warrants in substantially the form attached hereto as Exhibit B (the "Investor
Series B Warrant Agreement"), and (ii) a registration rights agreement with the
Investor with respect to the Shares and the shares of Common Stock issuable upon
exercise of the Investor Series B Warrants in substantially the form attached
hereto as Exhibit C (the "Registration Rights Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Investor and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions.
(a) For purposes of this Agreement:
"Affiliate" of a specified person means a person who, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such specified person.
1
"Ancillary Agreements" means the Investor Series B Warrant Agreement
and the Registration Rights Agreement.
"Beneficial Owner" (and related terms such as "beneficially owned"
or "beneficial ownership") has the meaning ascribed to such term under Rule
13d-3 of the Exchange Act.
"Bylaws" means the Restated Bylaws of the Company, dated November
30, 2001.
"Business Day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in New York City.
"Board" means the Board of Directors of the Company.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company, dated June 3, 2005, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" means any agreement, contract, lease, power of attorney,
note, loan, evidence of indebtedness, purchase order, letter of credit,
settlement agreement, franchise agreement, undertaking, covenant not to compete,
employment agreement, license agreement, instrument, obligation, commitment,
understanding, policy which constitutes an executory obligation, purchase and
sales order, quotation which constitutes an executory commitment, and other
executory commitments to which a person is a party or to which any of the assets
of such person are subject, whether oral or written, express or implied.
"Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract, credit arrangement or otherwise; including,
without limitation, the ownership, directly or indirectly, of securities having
the power to elect a majority of the board of directors or similar body
governing the affairs of such person.
"Disclosure Schedule" means the disclosure schedule attached hereto
and incorporated by reference herein.
"DGCL" means the General Corporation Law of the State of Delaware.
"Environmental Laws" means any United States federal, state, local
or foreign Laws in existence on the date hereof relating to pollution or the
protection, investigation or restoration of the environment or human health due
to exposure to Hazardous Substances.
"Equity Interest" means any share, capital stock, partnership,
member or similar interest in any person, and any option, warrant, right or
security (including, without limitation, debt securities) convertible,
exchangeable or exercisable therefor.
2
"Expenses" includes all reasonable and documented out-of-pocket
costs, fees and expenses (including, without limitation, all fees and expenses
of counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation and execution of
this Agreement and the Ancillary Agreements and the performance of the
Transactions contemplated by this Agreement, including, without limitation, all
expenses incurred to obtain all consents, approvals and authorizations of any
third party with respect to the Transactions.
"Hazardous Substances" means (i) those substances defined in or
regulated under the following federal statutes and their state counterparts, as
each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Solid Waste Disposal Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking
Water Act, the Atomic Energy Act, the Toxic Substances Control Act, the Federal
Insecticide, Fungicide, and Rodenticide Act, the Occupational Health and Safety
Act, and the Clean Air Act; (ii) petroleum and petroleum products, including
crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any
mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon; and (v)
any substance, material, or waste defined as toxic or hazardous or as a
pollutant or contaminant, or regulated by any Governmental Authority pursuant to
any Environmental Law.
"Intellectual Property" means United States and non-United States
(a) inventions and discoveries (whether or not patentable and whether or not
reduced to practice), improvements thereto, and patents, patent applications,
invention disclosures, and other rights of invention, worldwide, including
without limitation any reissues, divisions, continuations and
continuations-in-part, provisionals, reexamined patents or other applications or
patents claiming the benefit of the filing date of any such application or
patent; (b) trademarks, service marks, trade names, trade dress, logos, Internet
domain names, product names and slogans, including any common law rights,
registrations, and applications for registration for any of the foregoing, and
the goodwill associated with all of the foregoing, worldwide; (c) copyrightable
works, all rights in copyrights, including moral rights, copyrights, website
content, packaging design and art work, and other rights of authorship and
exploitation, and any applications, registrations and renewals in connection
therewith, worldwide; (d) confidential and proprietary information, including
without limitation, customer and supplier lists and related information, pricing
and cost information, business and marketing plans, research and development,
advertising statistics, any other financial, marketing and business data,
technical data, databases, specifications, designs, drawings, methods,
schematics and know-how (collectively, "Trade Secrets"); (e) to the extent not
covered by subsections (a) through (d), above, software and website content; (f)
all claims, causes of action and rights to xxx for past, present and future
infringement, misappropriation or unconsented use of any of the Intellectual
Property, the right to file applications and obtain registrations, and all
products, proceeds and revenues arising from or relating to any and all of the
foregoing, throughout the world; and (g) the rights to use the names and
likenesses of natural persons and any other proprietary, intellectual property
and other rights relating to any or all of the foregoing anywhere in the world.
3
"Knowledge of the Company" means the actual knowledge of the
executive officers and other employees of the Company identified on Section
1.01(a)(2) of the Disclosure Schedule, in each case, after reasonable inquiry.
"Liens" means any charge, mortgage, pledge, deed of trust,
hypothecation, right of others, claim, security interest, encumbrance, burden,
title defect, title retention agreement, lease, sublease, license, occupancy
agreement, easement, covenant, condition, encroachment, voting trust agreement,
interest, option, right of first offer, negotiation or refusal, proxy, lien or
other similar restrictions or limitations.
"Material Adverse Effect" means any event, circumstance, change or
effect that, either individually or combined with all other events,
circumstances, changes or effects, (i) has or would have a material adverse
effect on the business, operations, assets, liabilities (including contingent
liabilities), financial condition or results of operations of the Company and
the Subsidiaries, taken as a whole or (ii) materially impairs or would
materially impair the ability of the Company to consummate the Transactions and
perform its other obligations under this Agreement; provided, however, that
"Material Adverse Effect" shall not include any event, circumstance, change or
effect arising out of or attributable to (i) any decrease in the market price of
the shares of the Common Stock (but not any event, circumstance, change or
effect underlying such decrease to the extent that such event, circumstance,
change or effect would otherwise constitute a Material Adverse Effect), (ii) any
events, circumstances, changes or effects that affect the electronic monitoring
equipment business generally and that do not disproportionately impact the
Company and its Subsidiaries, (iii) any changes in the securities markets
generally that do not disproportionately impact the Company and its
Subsidiaries, (iv) any changes in general economic, legal, regulatory or
political conditions in the geographic regions in which the Company and its
Subsidiaries operate that do not disproportionately impact the Company and its
Subsidiaries.
"Other Filings" means all filings made by, or required to be made
by, the Company with the SEC other than the Proxy Statement.
"Permitted Liens" means (i) liens for current Taxes not yet due and
payable and Liens for Taxes being contested in good faith through proper
proceedings (for which contested Taxes adequate reserves have been made), (ii)
inchoate mechanics' and materialmen's liens for construction in progress, and,
(iii) such (A) inchoate workmen's, repairmen's, warehousemen's and carriers'
liens arising in the ordinary course of business of the Company or any
Subsidiary consistent with past practice, and (B) zoning restrictions, survey
exceptions, utility easements, rights of way and similar Liens that are typical
for the applicable property type and locality (excluding, in each case, any
mortgages or other Liens securing borrowed money) which do not materially
interfere with the current use of such Owned Real Property or Leased Real
Property.
"Person" includes, without limitation, an individual, corporation,
partnership, limited partnership, limited liability company, syndicate, person
(including, without limitation, a "person" or "group" each within the meaning of
Section 13(d)(3) of the Exchange Act), trust, association or entity or
government, political subdivision, agency or instrumentality of a government.
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"Release" shall have the meaning given to such term in the United
States Comprehensive Environmental Response, Compensation and Liability Act, 42
USC Section 9601 et seq.
"Subsidiary" or "subsidiaries" of the Company, the Investor or any
other person means an affiliate controlled by such person, directly or
indirectly, through one or more intermediaries.
"Tax Returns" means any return, report or other form filed with or
submitted to, or required to be filed with or submitted to, any Governmental
Authority in respect of Taxes.
"Taxes" means any and all taxes, fees, levies, duties, tariffs,
imposts and other similar charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority or taxing authority,
including, without limitation: taxes or other charges on or with respect to
income, franchise, windfall or other profits, gross receipts, property (real or
personal), sales, use, capital stock, payroll, employment, occupation,
severance, disability, premium, environmental (including taxes under Code
Section 59A), social security, workers' compensation, estimated, unemployment
compensation or net worth; alternative or add-on minimum; taxes or other charges
in the nature of excise, withholding, ad valorem, stamp, transfer, value-added
or gains taxes; license, registration and documentation fees; and customers'
duties, tariffs and similar charges.
"Transactions" shall mean execution and delivery of this Agreement
and the Ancillary Agreements, the purchase and sale of the Purchased Securities
as contemplated by this Agreement, the issuance of the Purchased Securities by
the Company, and the performance of the obligations contemplated by this
Agreement and the Ancillary Agreements.
(b) The following terms have the meaning set forth in the
Sections set forth below:
Defined Term Location of Definition
------------ ----------------------
14(f) Notice ss. 6.02(b)
Action ss. 3.09
Agreement Preamble
Amendment Recitals
Blue Sky Laws ss. 3.05(b)
Certificate of Designation Recitals
Claim Notice ss. 9.01(e)
Code ss. 3.10(a)
Closing ss. 2.03
Company Preamble
Common Stock Recitals
Company Material Contract ss. 3.17
Company Options ss. 3.03(a)
Company Stock Option Plans ss. 3.03(a)
5
Disclosure Schedule Article III
Dispute Notice ss. 9.01(h)
ERISA ss. 3.10(a)
Exchange Act ss. 3.05(b)
GAAP ss. 3.07(b)
Governmental Authority ss. 3.05(b)
Indemnified Party ss. 9.01(e)
Indemnifying Party ss. 9.01(e)
Indemnity Notice ss. 9.01(h)
Investor Preamble
Investment Percentage ss. 9.02(c)
Investor Director Designees ss. 6.04(a)
Investor Series B Warrant Agreement Recitals
Investor Series B Warrants Recitals
IRS ss. 3.10(a)
Law ss. 3.05(a)
Leased Real Property ss. 3.13(a)
Losses ss. 9.01(b)
Multiemployer Plan ss. 3.10(a)
Open Years ss. 3.15(c)
Owned Real Property ss. 3.13(a)
Permits ss. 3.06
Plans ss. 3.10(a)
Preferred Stock Recitals
Proxy Statement ss. 3.05(b)
Purchase Price ss. 2.02
Purchased Securities Recitals
Registered IP ss. 3.14(a)
Registration Rights Agreement Recitals
Reporting Day ss. 6.06
Resigning Directors ss. 6.04
SEC ss. 3.05(b)
SEC Reports ss. 3.07(a)
Securities Act ss. 3.07(a)
Shares Recitals
SOX ss. 3.06
Subsidiary ss. 3.01(a)
Tenant Leases ss. 3.13(a)
Termination Date ss. 8.01
Third Party Claim ss. 9.01(e)
Title IV Plan ss. 3.10(d)
Warrant Shares ss. 4.04
6
ARTICLE II.
PURCHASE AND SALE
Section 2.01. Purchase and Sale of the Purchased Securities. Upon the
terms and subject to the conditions of this Agreement, at the Closing, the
Company shall issue to Investor, and Investor shall purchase, accept and acquire
from the Company, one million (1,000,000) shares of Preferred Stock and an
Investor Warrant to purchase 32,342,315 shares of Common Stock.
Section 2.02. Purchase Price. The purchase price for the Purchased
Securities shall be eleven million dollars ($11,000,000.00) in the aggregate
(the "Purchase Price") payable in the manner set forth in Section 2.06.
Section 2.03. Closing. Unless this Agreement shall have been terminated in
accordance with Section 8.01, and subject to the satisfaction or waiver of the
conditions set forth in Article VII, the closing of the issuance, purchase and
sale of the Purchased Securities (the "Closing") will take place at 11:00 a.m.,
New York time, on the second business day after the satisfaction or waiver of
the conditions set forth in Article VII (other than those that by their terms
are to be satisfied or waived at the Closing), at the offices of Mykonos 6420
LP, 0000 Xxxxxx Xxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000 unless another time, date
or place is agreed to in writing by the Investor and the Company.
Section 2.04. Closing Deliveries by the Company. At the Closing, the
Company shall deliver or cause to be delivered to the Investor:
(a) duly executed certificates evidencing the Shares and the
Investor Series B Warrants registered in the name of the Investor;
(b) executed counterparts of each Ancillary Agreement to which
the Company is a party;
(c) a receipt for the Purchase Price; and
(d) the documents, instruments, writings and payments
contemplated or required to be delivered by the Company at the Closing pursuant
to Section 7.02.
Section 2.05. Closing Deliveries by the Investor. At the Closing, the
Investor shall deliver to the Company:
(a) the Purchase Price paid in accordance with the provisions
of Section 2.06 hereof;
(b) executed counterparts of each Ancillary Agreement to which
the Investor is a party;
7
(c) the original of each of the following (i) $1,000,000
promissory note dated January 31, 2005 and executed by the Company, IST
Services, Inc., and Tracking Systems, jointly and severally as Maker in favor of
Opus 5949 LLC as Payee (the "First Opus Note"); (ii) 400,000 promissory note
dated April 26, 2005 and executed by the Company, IST Services, Inc., and
Tracking Systems, jointly and severally as Maker in favor of Opus 5949 LLC as
Payee (the "Second Opus Note"); (iii) that certain $300,000 promissory note
dated May 20, 2005 and executed by the Company, IST Services, Inc., and Tracking
Systems, jointly and severally as Maker in favor of Opus 5949 LLC as Payee (the
"Third Opus Note," and together with the First Opus Note and Second Opus Note,
the "Opus Notes"), in each case marked as "cancelled" (such notes being repaid
and offset against the Purchase Price) and (iv) releases of all security
interests that Opus 5949 LLC (or any affiliate thereof) has in the assets of the
Company, including but not limited to the release of all patent security
interests and the filing of UCC termination statements; and
(d) the documents, instruments and writings contemplated or
required to be delivered by the Investor at the Closing pursuant to Section
7.03.
Section 2.06. Payment of the Purchase Price. At the Closing the Investor
shall pay:
(a) on behalf of the Company, to Opus 5949 LLC an amount equal
to the outstanding principal indebtedness under the Opus Notes plus accrued and
unpaid interest by wire transfer of immediately available funds to an account
specified by Opus 5949 LLC in writing no less than 3 business days prior to
Closing; and
(b) to the Company an amount equal to the excess of the
Purchase Price over the amount paid to Opus 5949 LLC pursuant to Section 2.06(a)
above by wire transfer of immediately available funds to an account specified by
the Company in writing no less than 3 business days prior to Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to the Investor to enter into this Agreement,
except as set forth in the Disclosure Schedule, which identifies exceptions by
specific Section references (it being understood that the listing or setting
forth of any matter in one Section shall be deemed to be a listing or setting
forth in another Section if such matter is disclosed in such a way as to make
its relevance to the information called for by such other Section reasonably
apparent on its face), dated as of the date hereof delivered by the Company to
the Investor (the "Disclosure Schedule"), the Company hereby represents and
warrants to the Investor that:
Section 3.01. Organization and Qualification; Subsidiaries.
(a) The Company and each Subsidiary of the Company is an
entity duly organized, validly existing and in good standing under the Laws of
the jurisdiction of its incorporation or organization and has the requisite
corporate or other power and authority to carry on its business as it is now
being conducted. The Company and each Subsidiary is duly qualified or licensed
as a foreign corporation or other entity to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification,
licensing or good standing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
8
(b) A true and complete list of each Subsidiary, together with
the jurisdiction of incorporation of each Subsidiary and the percentage of the
outstanding capital stock of each Subsidiary owned by the Company and each other
Subsidiary, is set forth in Section 3.01(b) of the Disclosure Schedule. The
Company does not directly or indirectly own any Equity Interest, or any interest
convertible into or exchangeable or exercisable for any Equity Interest in any
other entity.
Section 3.02. Certificate of Incorporation and Bylaws. The Company has
heretofore made available to the Investor a complete and correct copy of the
Certificate of Incorporation and the Bylaws or equivalent organizational
documents, each as amended to date, of the Company and each Subsidiary. As of
the date hereof, such Certificate of Incorporation and Bylaws of the Company are
in full force and effect and, as of the Closing, the Certificate of
Incorporation and the Bylaws shall be in full force and effect. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
Certificate of Incorporation, Bylaws or equivalent organizational documents.
True and complete copies of all minute books of the Company and each Subsidiary
containing minutes for the five-year period preceding the date of this Agreement
have been made available by the Company to the Investor.
Section 3.03. Capitalization.
(a) The authorized capital stock of the Company consists of
150,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock.
(b) As of the date hereof, (i) 90,556,867 shares of Common
Stock (other than treasury shares) were issued and outstanding, all of which
were validly issued, fully paid, nonassessable and free of preemptive rights,
(ii) no shares of Common Stock were held in the treasury of the Company, and
(iii) no shares of Common Stock were held by the Subsidiaries. As of the date
hereof, (x) 11,208,563 shares of Common Stock were issuable (and such number was
reserved for issuance) upon exercise of outstanding employee stock options or
stock incentive rights granted pursuant to the 2001 Omnibus Equity Incentive
Plan and executive employment agreements, in each case as amended through the
date of this Agreement (collectively, the "Company Stock Option Plans"), (y)
17,956,468 shares of Common Stock were issuable (and such number was reserved
for issuance) upon exercise of outstanding warrants (the "Existing Warrants")
and (z) 19,000,722 shares of Common Stock are issuable (and such number was
reserved for issuance) upon conversion of outstanding convertible debt
instruments issued by the Company (the "Convertible Debt"), of which 15,798,626
shares of Common Stock will be issued at Closing in conversion of certain
outstanding convertible debt instruments and 3,202,096 shares of Common Stock
may be issued in conversion of the remaining convertible debt instruments after
the Closing.
(c) As of the date hereof, no shares of Preferred Stock are
issued and outstanding.
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(d) Except as set forth in this Section 3.03 and Section 3.10,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary is bound relating to the issued or
unissued capital stock or other Equity Interests of the Company or any
Subsidiary, or securities convertible into or exchangeable for such capital
stock or other Equity Interests, or obligating the Company or any Subsidiary to
issue or sell any shares of its capital stock or other Equity Interests, or
securities convertible into or exchangeable for such capital stock of, or other
Equity Interests in, the Company or any Subsidiary.
(e) The Company has not issued any shares of its capital
stock, or securities convertible into or exchangeable for such capital stock or
other Equity Interests, other than those shares of capital stock reserved for
issuance as set forth in this Section 3.03 or in Section 3.03(e) of the
Disclosure Schedule.
(f) Section 3.03(f) of the Disclosure Schedule is a true and
complete list, as of June 15, 2005, of each outstanding option issued under the
Company Stock Option Plans (the "Company Options") and of each of the Existing
Warrants, in each case setting forth (i) the name of the holder of such Company
Option or Existing Warrant, (ii) the price at which such Company Option or
Existing Warrant may be exercised, (iii) the termination date of such Company
Option or Existing Warrant and, (iv) in the case of Company Options, the
applicable vesting schedule for any unvested Company Options. None of the
Company Options are "incentive stock options" within the meaning of Section 422
of the Code. All shares of Common Stock issuable upon exercise of Company
Options or Existing Warrants and upon the conversion of Convertible Debt, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable.
(g) Except as set forth in Section 3.03(g) of the Disclosure
Schedule, there are no outstanding contractual obligations of the Company or any
Subsidiary (A) restricting the transfer of, (B) affecting the voting rights of,
(C) requiring the repurchase, redemption or disposition of, or containing any
right of first refusal with respect to, (D) requiring the registration for sale
of, or (E) granting any preemptive or antidilutive right with respect to, any
shares of Common Stock or any capital stock of, or other Equity Interests in,
the Company or any Subsidiary.
(h) There are no outstanding contractual obligations of the
Company or any Subsidiary to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any Subsidiary or any
other person, other than guarantees by the Company of any indebtedness or other
obligations of any wholly-owned Subsidiary.
(i) Each outstanding share of capital stock of, or other
Equity Interest in, each Subsidiary is duly authorized, validly issued, and, if
applicable, fully paid and, in the case of corporations, nonassessable and free
of preemptive rights, and is owned, beneficially and of record, by the Company
or another Subsidiary free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on the
Company's or such other Subsidiary's voting rights, charges and other
encumbrances of any nature whatsoever.
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(j) The Shares, when issued, paid for and delivered in
accordance with the terms of this Agreement will be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. The
Investor Warrants will be duly authorized, validly issued, and enforceable
against the Company.
(k) As of the Closing, the Shares represent a majority of the
voting power held by all shareholders of the Company.
(l) Section 3.03(l) of the Disclosure Schedule is a true and
complete list, as of the date hereof and the Closing, of each outstanding
convertible debt instrument issued by the Company (the "Company Convertible
Debt"), in each case setting forth (i) the name of the holder of such Company
Convertible Debt, (ii) the price at which such Company Convertible Debt may be
exercised, (iii) the rate at which such Company Convertible Debt may be
converted, (iv) the total number of Common Stock each holder of the Company
Convertible Debt may obtain upon conversion of their respective Company
Convertible Debt; and (v) which of the convertible debts will be converted to
equity at Closing pursuant to Section 3.03(b).
Section 3.04. Authority. The Company has all necessary power and authority
to execute and deliver this Agreement and the Ancillary Agreements to which it
is a party, to perform its obligations hereunder and thereunder, and to
consummate the Transactions. The Company's execution and delivery of this
Agreement and the Ancillary Agreements to which it is a party and the
consummation by the Company of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or the
Ancillary Agreements to which the Company is a party or to consummate the
Transactions (other than with respect to the approval of the Amendment). The
Board has approved this Agreement, the Amendment, each Ancillary Agreement and
the issuance of the Purchased Securities and has directed that the Amendment be
submitted to the Company's stockholders for approval at a meeting of such
stockholders. This Agreement has been, and at the Closing each of other
Ancillary Agreements to which it is a party will be, duly authorized and validly
executed and delivered by the Company. Assuming due authorization, execution and
delivery by the Investor, this Agreement constitutes, and at the Closing each of
the other Ancillary Agreements to which the Company is a party will constitute,
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.
Section 3.05. No Conflict; Required Filings and Consents.
(a) The execution and delivery by the Company of this
Agreement and the Ancillary Agreements to which it is a party do not, and the
performance of its obligations hereunder and thereunder will not, (i) conflict
with or violate the Certificate of Incorporation, as amended by the Amendment,
or Bylaws or equivalent organizational documents of the Company or any
Subsidiary, (ii) assuming that all consents, approvals, authorizations and other
actions described in subsection (b) have been obtained and all filings and
obligations described in subsection (b) have been made, conflict with or violate
any foreign or domestic statute, law, ordinance, regulation, rule, code,
executive order, injunction, judgment, decree or other order ("Law") applicable
to the Company or any Subsidiary or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) require any consent or
approval by a non-governmental entity, or (iv) result in any breach of or
constitute a default under, or give to others any right of termination,
amendment, acceleration or cancellation of, or give to others a right to require
any payment to be made under, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any Subsidiary pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation.
11
(b) The execution and delivery by the Company of this
Agreement and the Ancillary Agreements, and the performance of the Company under
this Agreement and the Ancillary Agreements will not require any consent,
approval, authorization or permit of, or filing with or notification to, any
United States federal, state, county or local or any foreign government,
governmental, Tax, regulatory or administrative authority, agency,
instrumentality or commission or any court, tribunal, or judicial or arbitral
body (a "Governmental Authority"), except (i) for (A) applicable requirements,
if any, of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act"), state securities or
"blue sky" laws ("Blue Sky Laws"), (B) the filing with the Securities and
Exchange Commission (the "SEC") of a proxy statement relating to the amendment
of the Certificate of Incorporation to be sent to the Company's stockholders (as
amended or supplemented from time to time, the "Proxy Statement"), and (C) any
filings required under the rules and regulations of the principal national
securities exchange on which the shares of Common Stock are listed (the
"Exchange"). Prior to or at Closing any required Governmental Authority approval
or consent will have been obtained and any required filings with a Governmental
Authority will have been properly and timely made.
Section 3.06. Permits; Compliance.
(a) Each of the Company and the Subsidiaries is in possession
of all franchises, grants, authorizations, licenses, permits, easements,
variances, exceptions, consents, certificates, approvals and orders of any
Governmental Authority necessary for each of the Company or the Subsidiaries to
own, lease and operate its properties and assets or to carry on its business as
it is now being conducted as described in the Company's SEC Reports filed prior
to the date hereof (the "Permits"), and all such Permits are valid, and in full
force and effect, except where the failure to have, or the suspension or
cancellation of, or failure to be valid or in full force and effect of, any of
the Permits would not, individually or in the aggregate, reasonably be expected
to (A) prevent or materially delay consummation of the Transactions, (B)
otherwise prevent or materially delay performance by the Company of any of its
material obligations under this Agreement or any Ancillary Agreement or (C) have
a Material Adverse Effect. As of the date hereof, no suspension or cancellation
of any of the Permits is pending or, to the knowledge of the Company,
threatened, except where the failure to have, or the suspension or cancellation
of, any of the Permits would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary is in conflict with, or in default, breach or violation of, (i) any
Law applicable to the Company or any Subsidiary or by which any property or
asset of the Company or any Subsidiary is bound or affected, or (ii) any
Permits, except for any such conflicts, defaults or violations that would not,
individually or in the aggregate, reasonably be expected to (A) prevent or
materially delay consummation of the Transactions, (B) otherwise prevent or
materially delay performance by the Company of any of its material obligations
under this Agreement or any Ancillary Agreement or (C) have a Material Adverse
Effect.
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(b) Since the enactment of the Xxxxxxxx-Xxxxx Act of 2002
("SOX"), the Company and each of its officers and directors have been and are in
compliance in all material respects with (A) the applicable provisions of SOX
and the related rules and regulations promulgated thereunder and under the
Exchange Act and (B) the applicable listing and corporate governance rules and
regulations of the Exchange.
Section 3.07. SEC Filings; Financial Statements.
(a) The Company has timely filed all forms, reports and
documents (including all exhibits) required to be filed by it with the SEC since
February 1, 2002 (the "SEC Reports"). The SEC Reports (i) were prepared in
accordance with the requirements of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act") or the
Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder, and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary is required to file any form, report or other document with the SEC.
As of the date hereof, the Company is eligible to register securities for resale
by selling shareholders on Form S-3 of the Securities Act.
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the SEC Reports was prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto). The Company's books and records fairly and
accurately present the consolidated financial position, results of operations
and cash flows of the Company and its consolidated Subsidiaries as at the
respective dates thereof and for the respective periods indicated therein except
as otherwise noted therein (subject, in the case of unaudited statements, to
normal year-end adjustments which individually or in the aggregate did not have,
and would not reasonably be expected to have, a Material Adverse Effect). The
books and records of the Company and each Subsidiary have been, and are being,
maintained in accordance with applicable legal and accounting requirements in
all material respects.
(c) Except as set forth on Sections 3.03(l) and Section 3.17
of the Disclosure Schedules, as of the Closing the Company shall have no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent or otherwise) except for current liabilities
incurred in the ordinary course of business.
(d) The Company has previously made available to the Investor
a complete and correct copy of any amendment or modification which has not yet
been filed with the SEC to any agreement, document or other instrument which
previously had been filed by the Company with the SEC pursuant to the Securities
Act or the Exchange Act.
13
(e) As of the date hereof, neither the Company nor, to the
knowledge of the Company, any of the Company's or any Subsidiary's employees, is
the subject of any formal or informal investigation by the SEC, and, to the
knowledge of the Company, no such investigation has been threatened or fact
exists which would reasonably be expected to result in the institution of any
such investigation. Written correspondence (other than any transmittal letter or
other correspondence that does not address substantively any comments or
questions from, or ongoing discussions with, the SEC), with the SEC since
February 1, 2002 until the date hereof has been made available to the Investor.
The audit committee of the Board has established "whistleblower" procedures that
meet the requirements of Exchange Act Rule 10A-3, and has made available to the
Investor true, complete and correct copies of such procedures. Neither the
Company nor any Subsidiary has received any "complaints" (within the meaning of
Exchange Act Rule 10A-3) in respect of any accounting, internal accounting
controls or auditing matters. To the knowledge of the Company, no complaints
seeking relief under Section 806 of SOX have been filed with the United States
Secretary of Labor and no employee has threatened to file any such complaint.
(f) The Company has made available to the Investor true and
complete copies of (i) any written communications or presentations, however
transmitted, delivered to the Board or the Audit Committee of the Board or the
Company's external auditor that discusses any potential material weakness or
potential significant deficiency in the Company's or any Subsidiary's disclosure
controls and procedures or internal control over financial reporting or the
Company's compliance, or ability to timely comply, with Section 404 of SOX, (ii)
formal documentation of their internal controls over financial reporting, in
each case as in effect as of January 31, 2005, (iii) all notices received from
its external auditor prior to the date hereof of any significant deficiencies or
material weaknesses in the Company's internal control over financial reporting
since December 31, 2004 and any other management letter or similar
correspondence from any independent auditor of the Company or any of its
Subsidiaries received since December 31, 2003 and prior to the date hereof.
Section 3.08. Absence of Certain Changes or Events. Since March 31, 2005
through the date hereof, except as set forth in Section 3.08 of the Disclosure
Schedule, each of the Company and the Subsidiaries has conducted its business in
the ordinary course. Since March 31, 2005 through the date hereof, except as set
forth in Section 3.08 of the Disclosure Schedule, (i) there has not been any
event or development that would have a Material Adverse Effect on the Company
(or the Subsidiaries) and (ii) there has been no development that is reasonably
expected to prevent or materially delay the performance of this Agreement or any
Ancillary Agreement by the Company, and (iii) the Company and the Subsidiaries
have not (A) pledged or encumbered any shares of any class of capital stock or
other Equity Interests in or of the Company or any Subsidiary, (B) sold,
pledged, disposed, transferred, leased, licensed, guaranteed or encumbered any
material property or assets of the Company or any Subsidiary, except in the
ordinary course of business consistent with past practice, and excepting the
following loans: (i) that certain $400,000 promissory note dated April 26, 2005
and executed by the Company, IST Services, Inc., and Tracking Systems, jointly
and severally as Maker in favor of Opus 5949 LLC as Payee; and (ii) that certain
$300,000 promissory note dated May 20, 2005 and executed by the Company, IST
Services, Inc., and Tracking Systems, jointly and severally as Maker in favor of
Opus 5949 LLC as Payee (C) acquired (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or any
14
division thereof, (D) incurred any indebtedness for borrowed money which,
individually or together with all such other indebtedness, exceeds $50,000,
except the specific loans identified in this Section 3.08, (E) granted any
security interest in any of their material assets except for such security
interests as would constitute a Permitted Lien or security interests for the
specific loans identified in this Section 3.08, (F) made or authorized any
capital expenditure or purchase of fixed assets other than in the ordinary
course of business, (G) increased the compensation or benefits payable to or to
become payable to its directors, officers or employees, except for increases in
accordance with past practices in salaries or wages of employees of the Company
or any Subsidiary which are not across-the-board increases, or granted any
rights to severance or termination pay to, or entered into any employment or
severance agreement with, any director, officer or other employee (other than
severance for employees other than officers, in accordance with past practice,
in connection with such employee's termination of employment with the Company)
of the Company or any Subsidiary, or taken any affirmative action to amend or
waive any performance or vesting criteria or accelerate vesting, exercisability
or funding under any Plan, (H) made or changed any material election in respect
of Taxes, adopted or changed any material accounting method in respect of Taxes
or settled or compromised any material claim, notice, audit report or assessment
in respect of Taxes, (I) made any material change, other than changes required
by GAAP or in the ordinary course of business, with respect to accounting
policies or procedures of the Company or any of its Subsidiaries, (J) pre-paid
any long-term debt or paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), except for such
payments, discharges or satisfaction of claims as were in the ordinary course of
business consistent with past practice, or (K) written up, written down or
written off the book value of any material assets, or a material amount of any
other assets, other than in the ordinary course of business or except as
required by GAAP.
Section 3.09. Absence of Litigation. Except as disclosed on Section 3.09
of the Disclosure Schedule, there is no litigation, suit, claim, action, formal
complaint, prosecution, indictment, formal investigation, arbitration or
proceeding (whether civil, criminal or administrative, an "Action") pending or,
to the knowledge of the Company, threatened against the Company or any
Subsidiary. Likewise, there is no Action pending or threatened for which the
Company or any Subsidiary is obligated to indemnify a third party. Neither the
Company nor any Subsidiary nor any property or asset of the Company or any
Subsidiary, is subject to any order, consent decree, writ, judgment, injunction,
decree, ruling, determination or award of any Governmental Authority that would,
individually or in the aggregate, reasonably be expected to (A) prevent or
materially delay consummation of the Transactions, (B) otherwise prevent or
materially delay performance by the Company of any of its material obligations
under this Agreement or any Ancillary Agreement or (C) result in a Material
Adverse Effect.
15
Section 3.10. Employee Benefit Plans.
(a) Section 3.10(a)(i) of the Disclosure Schedule lists (i)
all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
incentive, stock option, stock purchase, restricted stock, phantom stock, or
other stock-based compensation, deferred compensation, retiree medical or life
insurance, supplemental executive retirement, severance or other benefit plans,
programs, trusts or arrangements, and all employment, termination, severance,
compensation or other contracts or agreements, to which the Company or any of
its affiliates is a party, or which are sponsored by the Company or any of its
affiliates for the benefit of any employee, officer or director of the Company
or any Subsidiary, and (ii) any material contracts, arrangements, agreements,
policies, practices or understandings between the Company or any of its
affiliates and any employee of the Company or of any Subsidiary, including,
without limitation, any contracts, arrangements or understandings or change in
control arrangements relating to a sale of the Company (collectively, the
"Plans"). Section 3.10(a)(ii) of the Disclosure Schedule lists each
"multiemployer plan" (as defined in Section 3(37) or 4001(a)(3) of ERISA) in
which any employee of the Company or any Subsidiary participates (the
"Multiemployer Plans"). All Plans are in writing and the Company has made
available to the Investor true, correct and complete copies of (i) such Plans,
(ii) the most recent annual report (Form 5500) filed with the Internal Revenue
Service (the "IRS"), if any, with respect to any Plan and, to the extent in the
Company's possession, any Multiemployer Plan, (iii) the most recent summary plan
description for each Plan for which a summary plan description is available or
is required by applicable Law, (iv) the most recent actuarial report or
valuation, if any, relating to a Plan and, to the extent in the Company's
possession, any Multiemployer Plan, and (v) the most recent determination
letter, if any, issued by the IRS with respect to any Plan that is intended to
qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
(b) Each Plan has been operated and administered in all
material respects in accordance with its terms and the requirements of all
applicable Laws, including, without limitation, ERISA and the Code. As of the
date hereof, no action, claim or proceeding is pending or, to the knowledge of
the Company, threatened with respect to any Plan (other than claims for benefits
in the ordinary course) that would result in any material liability to the
Company and, to the knowledge of the Company, no fact or event exists that would
give rise to any such action, claim or proceeding.
(c) Each Plan that is intended to be qualified under Section
401(a) of the Code has timely received a favorable determination letter from the
IRS and each trust established in connection with any Plan which is intended to
be exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and, to the
knowledge of the Company, no fact or event has occurred since the date of such
determination letter or letters from the IRS that would reasonably be expected
to adversely affect the qualified status of any such Plan or the exempt status
of any such trust.
(d) With respect to any Plan which is an "employee pension
benefit plan" as defined in Section 3(2) of ERISA and which is subject to Part 3
of Title I or to Title IV of ERISA (a "Title IV Plan"): (i) there is no lien
under Section 412(n) of the Code by reason of an accumulated funding deficiency,
whether or not waived, under Section 412 of the Code; (ii) no liability (other
than liability for premiums) to Pension Benefit Guaranty Corporation ("PBGC").
has been incurred and all premiums required to be paid to the PBGC have been
paid by or on behalf of such Title IV Plan; (iii) the assets of each Title IV
Plan equal or exceed the benefit liabilities of such Title IV Plan determined on
a termination basis; and (iv) as of the date hereof, the Company has received no
actual notice from PBGC that an event or condition exists which (A) would
constitute grounds for termination of such Title IV Plan by PBGC or (B) has
caused a partial termination of such Title IV Plan.
16
(e) None of the Plans provides medical, health or life
insurance or any other welfare-type benefits for current or future retired or
terminated employees of the Company or its Subsidiaries or their spouses of
dependents (other than in accordance with Part 6 of Title I of ERISA or Code
Section 4980B).
(f) The Transactions contemplated hereby will not entitle any
employee, officer or director of the Company and its Subsidiaries to any amount
(whether in cash or property) that would be received under any Plan, or increase
the amount of or accelerate the time of payment of vesting thereof.
(g) No amount or acceleration referred to in subsection (f)
above would (i) be characterized as an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code) or (ii) not be deductible under Section
162(a)(1) or 404 of the Code.
(h) As of the date hereof, (i) all of the options issued under
the Company Stock Option Plans are either (A) unvested or (B) were issued at no
less than 85% of the fair market value of the Company's Common Stock on the date
of issue and (ii) no shares of restricted Common Stock issued by the Company
provide for a deferral opportunity beyond vesting.
Section 3.11. Labor Matters.
(a) Neither the Company nor any Subsidiary is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any Subsidiary, nor, to the knowledge of the
Company as of the date hereof, are there any activities or proceedings of any
labor union to organize any such employees; and
(b) Neither the Company nor any Subsidiary has materially
breached or otherwise failed to comply with any material provision of any labor
agreement or contract, and, to the knowledge of the Company as of the date
hereof, there are no material grievances outstanding against the Company or any
Subsidiary under such agreement or contract. Except as would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect,
(i) there are no controversies pending or, to the knowledge of the Company,
threatened between the Company or any Subsidiary and any of their respective
employees; and (ii) there is no organized strike, slowdown, work stoppage or
lockout by or with respect to any employees of the Company or any Subsidiary.
Section 3.12. Proxy Statement. The Proxy Statement did not, at the date
the Proxy Statement (or any amendment or supplement thereto) was first mailed to
stockholders of the Company and at the time of the Stockholders' Meeting, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading except that no representation or warranty is made by the
Company with respect to any information supplied by the Investor for inclusion
in the Proxy Statement. The Proxy Statement, and any amendments or supplements
thereto, when filed by the Company with the SEC, or when distributed or
otherwise disseminated to the Company's stockholders, as applicable, complied as
to form in all material respects with the requirements of the Exchange Act, the
rules and regulations thereunder and other applicable Laws.
17
Section 3.13. Property and Leases.
(a) As of the date hereof, Section 3.13 of the Disclosure
Schedule contains a true, correct and complete list of (i) all real property
owned by the Company or its Subsidiaries ("Owned Real Property"), (ii) all
leases, subleases or other occupancy agreements relating to all real property
that any of the Company or its Subsidiaries owns, leases or subleases or
otherwise has any right, title or interest in or to and sets forth the Company
or applicable Subsidiary that leases, subleases or otherwise has an interest in
same (the property demised thereunder herein referred to as the "Leased Real
Property") and (iii) with respect to each of the Owned Real Properties and
Leased Real Properties, all existing leases, subleases, licenses or other
occupancy agreements to which the Company or any of its Subsidiaries is a party
as landlord, lessor or lessee thereunder or by which the Company or any of its
Subsidiaries is bound as landlord, lessor or lessee thereunder, and all
amendments, modifications, extensions and supplements thereto (collectively, the
"Tenant Leases"), regardless of whether the terms thereof have commenced.
Section 3.13 of the Disclosure Schedule briefly describes the current use or
non-use, as the case may be, of such Owned Real Property and Leased Real
Property, and neither the Company nor any of its Subsidiaries has any interest
in any other real property.
(b) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, (i) each of the
Company and its Subsidiaries is the record owner of, and has good and marketable
fee title to (including all improvements located thereon) the Owned Real
Property, and valid and enforceable leasehold interests in all Leased Real
Property and (ii) none of the Owned Real Property or Leased Real Property is
subject to any Liens (other than Permitted Liens) or any other easements, rights
of way, licenses, grants, building or use restrictions, exceptions,
reservations, limitations or other impediments. There are no options or rights
to purchase or lease all or any part of the Owned Real Property or any interest
therein of any other person other than as set forth in the Tenant Leases. No
person other than the Company or a Subsidiary leases, has a tenancy or otherwise
occupies, or has the right to occupy or use, the Owned Real Property and Leased
Real Property other than pursuant to a Tenant Lease.
(c) With respect to each Leased Real Property and Tenant
Lease, except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect: (i) such lease or sublease is legal,
valid, binding, enforceable and in full force and effect; (ii) there exists no
default under any such lease or sublease by the Company or any Subsidiary which
has not been cured, and, to the knowledge of the Company, there has not occurred
any event that (with the lapse of time or the giving of notice or both) would
constitute, and no party to any such lease has given the Company or any
Subsidiary written notice of or made a claim with respect to, a default on the
part of the Company or any of its Subsidiaries under any such lease or sublease;
(iii) to the knowledge of the Company, no party (other than the Company or any
Subsidiary) is in default, and there has not occurred any event that (with the
lapse of time or giving of notice or both) would constitute a default by any
such party under any such lease or sublease; (iv) all leasing, brokerage, finder
and other similar fees and commissions that are due and payable by the Company
or any of its Subsidiaries with respect to such leases and subleases have been
paid in full; and (v) a true, correct and complete copy of each such lease and
sublease (including any renewal notices delivered thereunder) and any guaranty
given with respect thereto has been furnished or made available to the Investor.
18
(d) Except in each case as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, all Owned
Real Property and Leased Real Property is in good and usable condition, subject
to normal wear and tear and normal industry practice with respect to
maintenance, and has such rights of egress and ingress, and such easements,
rights of way and grants, as are necessary to allow such real property to be
operated, and the business of the Company and each of its Subsidiaries conducted
with respect thereto to be conducted, as now operated and conducted. Except in
each case as would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect, to the Company's knowledge, no improvement on
any Owned Real Property or any Leased Real Property encroaches on an adjacent
property owner's property, and no property owner's property encroaches on any
Owned Real Property or Leased Real Property. The Owned Real Property and Leased
Real Property are all of the material real property assets which are used in or
necessary to the continued conduct of the Company's business as it is currently
operated.
(e) Except in each case as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, (i) neither
the Company nor any of its Subsidiaries, with respect to the Owned Real Property
and the Leased Real Property, has violated (or will violate with notice or the
passing of time or both) any zoning, subdivision or building Law applicable
thereto, including all applicable health, fire and safety Laws, ordinances and
administrative regulations; and (ii) neither the Company nor any of its
Subsidiaries has violated (or will violate with notice or the passing of time or
both) any covenants, conditions or restrictions contained in any easement,
restrictive covenant or other similar instrument or agreement affecting the
Owned Real Property or Leased Real Property. As of the date hereof, neither the
Company nor any Subsidiary has received from any Governmental Authority or any
other person any written notice of any current or potential material violation
of or material noncompliance with any of the matters set forth in clauses (i)
and (ii) of the immediately preceding sentence.
(f) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, there is no pending
or, to the knowledge of the Company, threatened condemnation or eminent domain
proceeding or changes in zoning affecting the Owned Real Property or Leased Real
Property that would adversely affect the use, operation, maintenance, enjoyment
or value thereof in any material respect.
Section 3.14. Intellectual Property.
(a) Section 3.14(a) of the Disclosure Schedule lists all of
the (i) registered trademarks and service marks and applications therefor, (ii)
registered copyrights and applications therefor, (iii) issued patents and patent
applications, and (iv) domain names, in each case, that are owned by the Company
or any Subsidiary and are material to the conduct of the business of the Company
and the Subsidiaries (collectively, the "Registered IP").
19
(b) The Company and the Subsidiaries have used reasonable
measures to maintain and protect the proprietary nature of the trade secrets and
confidential information and Registered IP that they own or use.
(c) The patents listed in Section 3.14(a) of the Disclosure
Schedule are valid.
(d) The Company or the Subsidiaries own all right, title and
interest in and to the Registered IP, and such Registered IP is free and clear
of all Liens (other than Permitted Liens and Liens created by the loans
identified in Section 3.08 hereof).
(e) The Company or the Subsidiaries have granted license(s)
for Registered IP only to the entities listed in Section 3.17 of the Disclosure
Schedule.
(f) The conduct of the Company and the Subsidiaries, and the
conduct of the business of the Company and the Subsidiaries as currently
conducted, do not conflict with, infringe upon, misappropriate, violate or
interfere with the Intellectual Property rights of any third party.
(g) The execution and delivery by the Company of this
Agreement and the Ancillary Agreements to which it is a party do not, and the
performance of its obligations hereunder and thereunder will not, adversely
affect the validity of, or the Company or the Subsidiaries rights in, any
Registered IP, or any other Intellectual Property of the Company.
Section 3.15. Taxes.
(a) Filing of Tax Returns. Each of the Company and the
Subsidiaries has timely filed with the appropriate taxing authority all Tax
Returns required to be filed through the date hereof (after giving effect to any
filing extension properly granted by a Governmental Authority having authority
to do so or otherwise permitted by applicable Law). All such Tax Returns are
complete and accurate in all material respects. All Taxes due and owing by any
of the Company and the Subsidiaries on or before the date hereof (whether or not
shown on any Tax Return) have been paid subject to such exceptions as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. No claim has ever been made in writing by a Governmental
Authority in a jurisdiction where any of the Company and the Subsidiaries does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction, except for such claims as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(b) Reserves for Taxes. The unpaid Taxes of the Company and
the Subsidiaries (i) did not, as of the dates of the financial statements
contained in the SEC Reports filed with the SEC prior to the date of the
Agreement, exceed the reserve for Tax liability (excluding any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) included in the balance sheets contained in such financial statements,
and (ii) will not exceed that reserve as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of the Company and the Subsidiaries in filing their Tax Returns,
subject to such exceptions as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Since the date of the
most recent financial statement contained in the SEC Reports filed with the SEC
prior to the date of this Agreement, neither the Company nor any of the
Subsidiaries has incurred any liability for Taxes outside the ordinary course of
business or otherwise inconsistent with past custom and practice subject to such
exceptions as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
20
(c) Claims and Provisions of Tax Returns. No deficiencies for
Taxes against any of the Company and the Subsidiaries have been claimed or
assessed in writing by a Governmental Authority, subject to such exceptions as
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. There are no pending or, to the knowledge of any of the
Company or the Subsidiaries, threatened audits, assessments or other Actions for
or relating to any liability in respect of Taxes of any of the Company and the
Subsidiaries, and there are no matters under discussion with any Governmental
Authority, or known to any of the Company and the Subsidiaries, with respect to
Taxes that are likely to result in any additional liability for Taxes with
respect to any of the Company and the Subsidiaries. The Company has delivered or
made available to the Investor complete and accurate copies of all federal
income and material state income Tax Returns of each of the Company and the
Subsidiaries and their predecessors for the ended years for which the applicable
statute of limitations has not yet expired taking into account any extensions
thereof (the "Open Years") and complete and accurate copies of all examination
reports and statements of deficiencies assessed against or agreed to by any of
the Company and the Subsidiaries or any predecessors during the applicable Open
Years. The Company has delivered or made available to the Investor complete and
accurate copies of local and other material Tax Returns of each of the Company
and the Subsidiaries and their predecessors for the Open Years and complete and
accurate copies of all examination reports and statements of deficiencies
assessed against or agreed to by any of the Company and the Subsidiaries or any
predecessors during the applicable Open Years. None of the Company, any of the
Subsidiaries or any of their respective predecessors has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency (other than as a result of a valid extension
of time to file a Tax Return).
(d) Tax Liens. There are no Liens for Taxes other than
Permitted Liens on any assets of the Company or the Subsidiaries.
(e) Tax Sharing Agreements. Other than customary contractual
provisions in financing and commercial agreements entered into in the ordinary
course of business consistent with past practice, there are no Tax sharing
agreements or similar arrangements (including indemnity arrangements) with
respect to or involving any of the Company and the Subsidiaries other than
agreements solely between the Company and the Subsidiaries, and, after the
Closing Date, none of the Company and the Subsidiaries shall be bound by any
such Tax sharing agreements or similar arrangements or have any liability
thereunder for amounts due in respect of periods prior to the Closing Date.
(f) Other Entity Liability. None of the Company and the
Subsidiaries has been a member of an affiliated group filing a consolidated
federal income Tax Return (other than a group the common parent of which is the
Company). None of the Company and the Subsidiaries has any liability for the
Taxes of any Person (other than Taxes of the Company and the Subsidiaries) (i)
under Treasury Regulation Section 1.1502-6 (or any similar provision of state or
local law), (ii) as a transferee or successor, (iii) by contract, or (iv)
otherwise, except, in the case of clauses (ii), (iii) and (iv), pursuant to
customary contractual provisions in financing and commercial agreements entered
into in the ordinary course of business consistent with past practice.
21
(g) Withholding Taxes. Each of the Company and the
Subsidiaries has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
(h) Spin-Offs. Neither the Company nor any of the Subsidiaries
has distributed the stock of any corporation in a transaction satisfying the
requirements of Section 355 of the Code, and neither the stock of the Company
nor the stock of any of the Subsidiaries has been distributed in a transaction
satisfying the requirements of Section 355 of the Code.
(i) Tax Shelters. Neither the Company nor any of the
Subsidiaries has entered into any transaction identified as a "listed
transaction" for purposes of Treasury Regulations Sections 1.6011-4(b)(2) or
301.6111-2(b)(2).
Section 3.16. Environmental Matters. Except as set forth in the SEC
Reports filed with the SEC prior to the date of this Agreement, (i) neither the
Company nor any Subsidiary is in violation of, and is not subject to any
liability with respect to, any Environmental Law; (ii) there has not been a
Release of any Hazardous Substances at any properties owned or operated by the
Company or any Subsidiary; (iii) to the knowledge of the Company, neither the
Company nor any Subsidiary is liable for any off-site Releases of Hazardous
Substances; (iv) the Company and its Subsidiaries have all permits, licenses and
other authorizations required for their current operations under any
Environmental Law and are in compliance with all such permits, licenses and
authorizations; (v) none of the Company or, to the knowledge of the Company, any
Subsidiary has received any written notice, demand, letter, claim or request for
information alleging that the Company, any Subsidiary, any property owned or
operated by the Company or any Subsidiary, or any of their current operations is
in violation of, or liable under, any Environmental Law; (vi) none of the
Company or any Subsidiary (A) has entered into or agreed to any consent decree
or order or is subject to any judgment, decree or judicial order relating to
compliance with Environmental Laws, any permits, licenses or authorizations
under Environmental Laws, or the investigation, remediation or removal of
Hazardous Substances and, to the knowledge of the Company, no investigation,
litigation or other proceeding is pending or threatened with respect thereto, or
(B) is an indemnitor in connection with any claim asserted in writing by any
third-party indemnitee for any liability under any Environmental Law or relating
to any Hazardous Substances; and (vii) to the knowledge of the Company, the
execution and delivery by the Company of this Agreement and the Ancillary
Agreements to which it is a party, and the performance of its obligations
hereunder, does not require any action with regard to, any property owned or
operated by the Company or any Subsidiary, pursuant to any so called property
transfer law.
22
Section 3.17. Contracts; Debt Instruments. Except as set forth in Section
3.17 of the Disclosure Schedule, none of the Company or any Subsidiary are a
party to or bound by any contract:
(a) which contains any non-compete provisions with respect to
any line of business or any or geographic area with respect to the Company, any
Subsidiary or any of the Company's current or future affiliates, or restricts
the conduct of any line of business by the Company, any Subsidiary or any of the
Company's current or future affiliates or any geographic area in which the
Company, any Subsidiary or any of the Company's current or future affiliates may
conduct business, in each case in any material respect,
(b) which would prohibit or materially delay the consummation
of the Transactions,
(c) which, as of the date hereof, is a "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC), or
(d) which, as of the date hereof,
(i) involves aggregate annual expenditures or other
payments in excess of $100,000, except (1) those contracts cancelable
(without material penalty, cost or other liability) within ninety (90)
days and (2) purchase orders for inventory entered into in the ordinary
course of business consistent with past practice,
(ii) contain minimum purchase conditions or requirements
or other terms that restrict or limit the purchasing relationships of the
Company or any Subsidiary, except (1) those contracts cancelable (without
material penalty, cost or other liability) within ninety (90) days and (2)
purchase orders for inventory entered into in the ordinary course of
business consistent with past practice, or
(iii) is a license to or from the Company or any
Subsidiary relating to any Intellectual Property, except for such licenses
as are disclosed in Section 3.17 of the Disclosure Schedule.
Each contract of the type described above in this Section
3.17, whether or not filed as an exhibit to any SEC Report or set forth in
Section 3.17 of the Disclosure Schedule, is referred to herein as a "Company
Material Contract." Each Company Material Contract is valid and binding on the
Company and each Subsidiary party thereto and, to the Company's knowledge, each
other party thereto, and in full force and effect, and the Company and each
Subsidiary has in all material respects performed all obligations required to be
performed by it to the date hereof under each Company Material Contract and, to
the Company's knowledge, each other party to each Company Material Contract has
in all material respects performed all obligations required to be performed by
it under such Company Material Contract, except as would not, individually or in
the aggregate, reasonably be expected to (1) prevent or materially delay
consummation of the Transactions, (2) otherwise prevent or materially delay
performance by the Company of any of its material obligations under this
Agreement or any Ancillary Agreement or (3) result in a Material Adverse Effect.
None of the Company or any Subsidiary knows of, or has received notice of, any
violation or default under (or any condition which with the passage of time or
the giving of notice would cause such a violation of or default under) any
Company Material Contract or any other contract to which it is a party or by
which it or any of its properties or assets is bound, except for violations or
defaults that would not, individually or in the aggregate, reasonably be
expected to (1) prevent or materially delay consummation of the Transactions,
(2) otherwise prevent or materially delay performance by the Company of any of
its material obligations under this Agreement or any Ancillary Agreement or (3)
result in a Material Adverse Effect.
23
Section 3.18. Related Party Transactions. Except as set forth in Section
3.18 of the Disclosure Schedule, neither the Company nor any Subsidiary is a
party to any agreement or arrangement with or for the benefit of any person who,
to the Company's knowledge, based on a review of Schedule 13Ds and Schedule 13Gs
filed under the Exchange Act, is a holder of 5% or more of the outstanding
equity securities of the Company or any officer, director, partner or affiliate
of any such person.
Section 3.19. Insurance. The Company and the Subsidiaries maintain, with
reputable insurers or through self-insurance, insurance in such amounts,
including deductible arrangements, and of such a character as is customary for
companies engaged in the same or similar business. All policies of title, fire,
liability, casualty, business interruption, workers' compensation and other
forms of insurance including, but not limited to, directors and officers
insurance, held by the Company and its Subsidiaries as of the date hereof, are
in full force and effect in accordance with their terms. Neither the Company nor
any of its Subsidiaries is in default under any provisions of any such policy of
insurance and neither the Company nor any of its Subsidiaries has received
notice of cancellation of any such insurance.
Section 3.20. Controls. The Company has established and maintains, to the
extent required by Rule 13a-15 of the Exchange Act, (i) a system of internal
control over financial reporting that is sufficient to ensure that (A)
transactions are executed in accordance with management's general or specific
authorizations, (B) transactions are recorded as necessary to permit preparation
of financial statements in accordance with GAAP and to maintain asset
accountability, (C) access to assets is permitted only in accordance with
management's general or specific authorization, (D) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences, and (E) records are
maintained that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the Company's and its Subsidiaries' assets, and
(ii) a system of disclosure controls and procedures (as defined in the Exchange
Act) that is sufficient to ensure that all material information required to be
disclosed by the Company in the SEC Reports is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company in the SEC Reports is
accumulated and communicated to the Company's management, as appropriate to
allow timely decisions regarding required disclosure. The chief executive
officer and the chief financial officer of the Company have disclosed, and will
continue to disclose, based on their most recent evaluations, to the Company's
external auditors and the Audit Committee of the Board (i) any significant
deficiencies and potential material weaknesses in the design or operation of its
or its Subsidiaries' systems of internal control over financial reporting which
are reasonably likely to adversely affect in any material respect the Company's
or any of its Subsidiaries' ability to record, process, summarize and report
financial information and (ii) any fraud or allegation of fraud, whether or not
material, that involves management or other employees who have a significant
role in the Company's or any Subsidiary's internal controls over financial
reporting. Except as disclosed in the Company's SEC Reports filed on or prior to
the date hereof, there have been no changes in the Company's disclosure controls
and procedures or internal control over financial reporting. The Company is
currently implementing such programs and is taking such steps as it believes are
necessary to effect compliance (not later than the relevant statutory and
regulatory deadline therefor) with all applicable provisions of Section 404 of
SOX.
24
Section 3.21. Private Offering. Except the obligations of the Company
under the attached Exhibit "C" Registration Rights Agreement, neither the
Company, nor any of the Subsidiaries, nor anyone acting on their behalf, has
offered or sold or will offer or sell any securities, or has taken or will take
any other action, which would reasonably be expected to subject the offer,
issuance or sale of the Purchased Securities, as contemplated hereby, to the
registration provisions of the Securities Act.
Section 3.22. Vote Required. The affirmative vote of a majority in voting
power of the outstanding shares of Common Stock at the Stockholders' Meeting is
the only vote of the holders of any class or series of capital stock or other
Equity Interests of the Company necessary to approve the Amendment.
Section 3.23. Section 203 of the DGCL; Takeover Statute. The Board of
Directors has taken all actions necessary or advisable to ensure that Section
203 of the General Corporation Law of the State of Delaware does not apply to
any of the Transactions contemplated by this Agreement or the Ancillary
Agreements (including, but not limited to, the purchase of the Shares hereunder
and any exercise of the Investor Series B Warrants). The execution, delivery and
performance of this Agreement and the Ancillary Agreements will not cause to be
applicable to the Company any "fair price," "moratorium," "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state or federal laws.
Section 3.24. Brokers. Except for the $250,000 finder's fee to be paid by
the Company to Balanced Financial Securities Corporation, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Company.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
As an inducement to the Company to enter into this Agreement,
the Investor hereby represents and warrants to the Company that:
Section 4.01. Organization. The Investor is a limited partnership duly
organized, validly existing and in good standing under the Laws of the State of
Texas. The sole general partner of the Investor is Sponsor Investments LLC, a
Texas limited liability company and the limited partners of the Investor are
Consolidated Investment Services, Inc., a Nevada corporation and Beta GPS
Tracking LLC, a Texas limited liability company.
25
Section 4.02. Authority. The Investor has all necessary power and
authority to execute and deliver this Agreement and the Ancillary Agreements to
which it is a party, to perform its obligations hereunder and thereunder and to
consummate the Transactions. The Investor's execution and delivery of this
Agreement and the Ancillary Agreements to which it is a party and the
consummation by it of the Transactions have been duly and validly authorized by
all necessary limited partnership action, and no other limited partnership
proceedings on the part of the Investor are necessary to authorize this
Agreement or the Ancillary Agreements to which it is a party or to consummate
the Transactions. This Agreement has been, and at the Closing each of the
Ancillary Agreements to which the Investor is a party will be, duly and validly
executed and delivered by it and, assuming due authorization, execution and
delivery by the Company and, in the case of the Ancillary Agreements, any other
party thereto, this Agreement constitutes, and at the Closing each of the
Ancillary Agreements to which the Investor is a party will constitute, a legal,
valid and binding obligation of the Investor, enforceable against it in
accordance with its terms.
Section 4.03. No Conflict; Required Filings and Consents.
(a) The execution and delivery by the Investor of this
Agreement and the Ancillary Agreements to which it is a party do not, and the
performance of its obligations hereunder and thereunder will not, (i) conflict
with or violate its organizational documents, (ii) assuming that all consents,
approvals, authorizations and other actions described in subsection (b) have
been obtained and all filings and obligations described in subsection (b) have
been made, conflict with or violate any Law applicable to it.
(b) The execution and delivery by the Investor of this
Agreement and the Ancillary Agreements to which it is a party do not, and the
performance of its obligations hereunder and thereunder will not, require any
consent, approval, authorization or permit of, or filing with, or notification
to, any Governmental Authority, except (i) for (A) applicable requirements, if
any, of the Exchange Act, Blue Sky Laws, (B) the filing with the SEC of the
Proxy Statement, and (C) any filings required under the rules and regulations of
the Exchange, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, reasonably be expected to (1) prevent or
materially delay consummation of the Transactions, (2) otherwise prevent or
materially delay its performance of any of its material obligations under this
Agreement or any Ancillary Agreement, or (3) have a material adverse effect on
such Investor.
Section 4.04. Investment Purpose. Such Investor is acquiring the Purchased
Securities for its own account solely for the purpose of investment and not with
a view to, or for resale in connection with, any distribution of the Purchased
Securities, the shares of Common Stock issuable upon exercise of the Investor
Series B Warrants (the "Warrant Shares") or any interest therein.
Section 4.05. Status of Shares; Limitations on Transfer and Other
Restrictions. The Investor acknowledges and understands that the Purchased
Securities and the Warrant Shares have not been and will not be registered under
the Securities Act or any under any state securities laws (other than in
accordance with the Registration Rights Agreement) and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering.
26
Section 4.06. Sophistication and Financial Condition of the Investor. Such
Investor is an "accredited investor" as defined in Rule 501 of Regulation D
promulgated under the Securities Act, a sophisticated investor and, by virtue of
its business or financial experience, is capable of evaluating the merits and
risks of the investment in the Purchased Securities. Such Investor has been
provided an opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of this
Agreement and the purchase of the Purchased Securities contemplated hereby.
Section 4.07. Available Funds. Such Investor has, or will have on or prior
to the Closing, sufficient funds in its possession to permit it to acquire and
pay for the Purchased Securities to be purchased by it and to perform its
obligations under this Agreement.
Section 4.08. Proxy Statement. None of the information supplied by such
Investor in writing for inclusion in the Proxy Statement shall, at the date the
Proxy Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Company and at the time of the Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
Section 4.09. Ownership of Company Capital Stock. As of the date of this
Agreement, the Investor and its affiliates, taken together, are the beneficial
owners of no more than one hundred shares of capital stock of the Company.
Section 4.10. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of such Investor.
ARTICLE V.
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 5.01. Conduct of Business by the Company Pending the Closing. The
Company agrees that, between the date of this Agreement and the Closing, except
as set forth in Section 5.01 of the Disclosure Schedule or as contemplated by
any other provision of this Agreement, except as provided below, the businesses
of the Company and the Subsidiaries shall be conducted in, and the Company and
the Subsidiaries shall not take any action except in, the ordinary course of
business consistent with past practice; and the Company shall use its reasonable
efforts to preserve substantially intact the business organization of the
Company and the Subsidiaries, to keep available the services of the current
officers, employees and consultants of the Company and the Subsidiaries and to
preserve the current relationships of the Company and the Subsidiaries with
customers, suppliers and other persons with which the Company or any Subsidiary
has significant business relations. Except as contemplated by this Agreement and
Section 5.01 of the Disclosure Schedule, neither the Company nor any Subsidiary
shall, between the date of this Agreement and the Closing, directly or
indirectly, do, or propose to do, any of the following without the prior written
consent of the Investor:
27
(a) amend or otherwise change its Certificate of Incorporation
or Bylaws or equivalent organizational documents, except in accordance with the
Amendment.
(b) (1) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance of, any
shares of any class of capital stock or other Equity Interests in or of the
Company or any Subsidiary, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of such capital stock or other
Equity Interests, or any other ownership interest (including, without
limitation, any phantom interest or other interest represented by contract), of
the Company or any Subsidiary (except for the issuance of shares of Company
Common Stock issuable pursuant to the Company Stock Option Plans), or (2) sell,
pledge, dispose of, transfer, lease, license, guarantee or encumber, or
authorize the sale, pledge, disposition, transfer, lease, license, guarantee or
encumbrance of, any material property or assets of the Company or any
Subsidiary, except (A) pursuant to existing contracts or commitments or the sale
or purchase of goods in the ordinary course of business consistent with past
practice, (B) for sales, transfers, leases, licenses, mortgages, pledges,
dispositions or encumbrances in the ordinary course of business consistent with
past practice that, in the case of the Owned Real Property and Leased Real
Property, are in an amount not to exceed $5,000 in the aggregate, and (C)(i) the
payment of any dividend or the making of any other distributions by any
Subsidiary to the Company or another Subsidiary, (ii) the payment by any
Subsidiary of any indebtedness owed to the Company; (iii) the making of any
loans by, or advances from, any Subsidiary to the Company, or (iv) the transfer
by any Subsidiary of any of its property or assets to the Company;
(c) declare, set aside, make or pay any dividend or other
distribution (except by a wholly-owned Subsidiary to the Company or to another
wholly-owned Subsidiary of the Company), payable in cash, stock, property or
otherwise, with respect to any of its capital stock or enter into any agreement
with respect to the voting of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, or
purchase or otherwise acquire, directly or indirectly, any of its capital stock
or other Equity Interests;
(e) (1) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or any
division thereof; (2) except for borrowings in the ordinary course of business,
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or advances,
or grant any security interest in any of its assets except in the ordinary
course of business; (3) (A) terminate, cancel or request or agree to any
material change in any Company Material Contract other than in the ordinary
course of business consistent with past practice, or (B) enter into any material
contract or agreement other than in the ordinary course of business consistent
with past practice, except, in each case, for any contract that is terminable
without penalty upon not more than 90 days notice; (4) make or authorize any
capital expenditure or purchases of fixed assets other than as set forth on the
capital expenditure plan attached in Section 5.01(e)(4) of the Disclosure
Schedule; or (5) enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this Section 5.01(e);
28
(f) except as may be required by contractual commitments or
corporate policies with respect to severance or termination pay in existence on
the date of this Agreement as disclosed in Section 3.10 of the Disclosure
Schedule, (1) increase the compensation payable to or to become payable to its
directors, officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any Subsidiary
which are not across-the-board increases, (2) grant any rights to severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer or other employee of the Company or any Subsidiary, or
establish, adopt, enter into or amend any collective bargaining, bonus,
profit-sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee, except to the extent required by applicable Law
or the terms of a collective bargaining agreement in existence on the date of
this Agreement, or (3) take any affirmative action to amend or waive any
performance or vesting criteria or accelerate vesting, exercisability or funding
under any Plan;
(g) (1) make or change any material election in respect of
Taxes, (2) adopt or change any material accounting method in respect of Taxes,
(3) enter into any Tax allocation agreement, Tax-sharing agreement, Tax
indemnity agreement or closing agreement, (4) settle or compromise any material
claim, notice, audit report or assessment in respect of Taxes, or (5) surrender
any right to claim a refund of Taxes;
(h) take any action, other than actions required by GAAP or in
the ordinary course of business, with respect to accounting policies or
procedures;
(i) (1) pre-pay any long-term debt, except for the
indebtedness set forth in Schedule 5.01(i) (1) which will be paid in full at
Closing and except for payments in the ordinary course of business in an amount
not to exceed $5,000 in the aggregate for the Company and the Subsidiaries taken
as a whole, or pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), except in the ordinary course of
business consistent with past practice, (2) accelerate or delay collection of
notes or accounts receivable in advance of or beyond their regular due dates,
except in the ordinary course of business consistent with past practice, (3)
delay or accelerate payment of any account payable in advance of its due date,
except in the ordinary course of business consistent with past practice, or (4)
vary the Company's or any Subsidiary's inventory practices in any material
respect from its past practices;
(j) waive, release, assign, settle or compromise any material
claims, litigation or arbitration to which the Company or any of its
Subsidiaries is a party; which waiver, release, assignment, settlement or
compromise involves the payment of amounts, or assumptions of liabilities, by
the Company or any of its Subsidiaries of an amount in excess of $5,000, or
which results in material restrictions on the use of any material Owned Real
Property or material Leased Real Property or otherwise enjoins or restricts the
Company from conducting the business as currently conducted in any material
respect;
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(k) adopt, or propose to adopt, or maintain any shareholders'
rights plan, "poison pill" or other similar plan or agreement, unless the
Investor are exempted from the provisions of such shareholders' rights plan,
"poison pill," or other similar plan or agreement
(l) write up, write down, or write off the book value of any
material assets, individually or in the aggregate, for the Company and the
Subsidiaries taken as a whole, other than in the ordinary course of business
consistent with past practice, or except as required by GAAP applied on a
consistent basis throughout such period;
(m) to the extent required or applicable, take any action to
exempt or make not subject to (1) the provisions of Section 203 of the DGCL or
(2) any other state takeover law or state law that purports to limit or restrict
business combinations or the ability to acquire or vote shares, any person
(other than the Investor or any of their affiliates) or any action taken
thereby, which person or action would have otherwise been subject to the
restrictive provisions thereof and not exempt therefrom; or
(n) announce an intention, enter into any agreement or
otherwise make a commitment, to do any of the foregoing.
ARTICLE VI.
ADDITIONAL AGREEMENTS
Section 6.01. Access to Information; Confidentiality.
(a) From the date hereof to the Closing and in compliance with
applicable Laws, the Company shall, and shall cause the Subsidiaries and the
officers, directors, employees, auditors and agents of the Company and the
Subsidiaries to, afford the officers, employees, accountants, counsel,
investment bankers and other agents of the Investor reasonable access at all
reasonable times to the officers, employees, agents, properties, offices and
other facilities, books and records of the Company and each Subsidiary, and
shall furnish the Investor with such financial, operating and other data and
information as the Investor, through their officers, employees or agents, may
reasonably request. The Investor shall maintain such information in confidence
from the date hereof until Closing. Furthermore, the Investor acknowledges that
it may acquire material nonpublic information as a preferred stockholder of the
Company and agrees that it shall not disclose such information without the prior
written consent of the Company or use such information in connection with the
purchase or sale of any class of securities issued by the Company which are
registered under Section 12 of the Exchange Act until public disclosure thereof
has been made in compliance with Regulation FD under the Exchange Act.
(b) No investigation or review of information pursuant to this
Section 6.01 shall affect any representation or warranty in this Agreement of
any party hereto or any condition to the obligations of the parties hereto.
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Section 6.02. Further Action; 14(f) Notice; Reasonable Best Efforts;
Consents; Filings.
(a) Upon the terms and subject to the conditions hereof, each
of the parties hereto shall use its reasonable best efforts to (i) take, or
cause to be taken, all appropriate action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to consummate and
make effective the Transactions, (ii) obtain from any Governmental Authorities
any consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by the Investor or the Company or any of their
respective Subsidiaries, or to avoid any action or proceeding by any
Governmental Authority, in connection with the authorization, execution and
delivery of this Agreement and each Ancillary Agreement and the consummation of
the Transactions contemplated herein and therein, including, without limitation,
the Transactions, and (iii) make promptly its respective filings, and thereafter
make any other submissions, required under (x) the Exchange Act, and any other
applicable federal or state securities Laws and (y) any other applicable Law;
provided, however, that the Investor and the Company shall cooperate with each
other in connection with the making of all such filings, including providing
copies of all such documents to the non-filing party and its advisors prior to
filing and, if requested, to accept all reasonable additions, deletions or
changes suggested in connection therewith.
(b) If the Company has not already done so, as promptly as
practicable after the date of this Agreement, the Company shall prepare an
information statement in accordance with Section 14(f) of the Exchange Act and
Rule 14f-1 thereunder (the "14(f) Notice"), file the 14(f) Notice with the SEC
under the Exchange Act and mail the 14(f) Notice to the stockholders of the
Company. The Investor and Company shall cooperate with each other in the
preparation of the 14(f) Notice and any Other Filings, and the Company shall
promptly notify the Investor of the receipt of any comments of the SEC with
respect to the 14(f) Notice or any Other Filings and of any requests by the SEC
for any amendment or supplement thereto or for additional information and shall
provide to Investor copies of all correspondence between the Company and any
representative of the Company and the SEC. The Company shall give the Investor,
and its counsel the opportunity to review the 14(f) Notice and any Other Filings
for a reasonable time period prior to their being filed with the SEC and shall
give Investor and its counsel the opportunity to review all amendments and
supplements to the 14(f) Notice and all responses to requests for additional
information and replies to comments for a reasonable time prior to their being
filed with, or sent to, the SEC. The Company shall in good faith consider the
Investor's comments on any such documents. Each of the Company and the Investor
agrees to use its reasonable best efforts, to respond promptly to all such
comments of and requests by the SEC and the Company agrees to use its reasonable
best efforts to cause the 14(f) Notice and all required amendments and
supplements thereto to be mailed to the holders of shares of Common Stock
entitled to vote at a meeting for election of directors at the earliest
practicable time. If at any time prior to the Closing, any event or
circumstances relating to the Company or any Subsidiary, or their respective
officers or directors, should be discovered by the Company, which should be set
forth in an amendment or supplement to the 14(f) Notice or any Other Filing, the
Company shall promptly inform the Investor. All documents that the Company is
responsible for filing in connection with the transactions contemplated herein
will comply as to form and substance in all material respects with the
applicable requirements of the Exchange Act, the rules and regulations
thereunder and other applicable Laws.
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(c) The parties hereto shall cooperate and assist one another
in the preparation and making of any required governmental filings, including,
providing copies of all related documents to the non-filing party and their
advisors prior to filing, and to the extent practicable none of the parties will
file any such document or have any communication with any Governmental Authority
without prior consultation with the other parties. Each party shall keep the
others apprised of the content and status of any communications with, and
communications from, any Governmental Authority with respect to the
Transactions. To the extent practicable and permitted by a Governmental
Authority, each party hereto shall permit representatives of the other party to
participate in meetings (whether by telephone or in person) with such
Governmental Authority.
(d) Each of the parties hereto agrees to cooperate and use its
reasonable best efforts to defend through litigation on the merits any Action,
including any administrative or judicial Action, asserted by any party in order
to avoid the entry of, or to have vacated, lifted, reversed, terminated or
overturned any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) that in whole or in part restricts, prevents or
prohibits consummation of the Transactions by June 27, 2005, including, without
limitation, by vigorously pursuing all available avenues of administrative and
judicial appeal.
(e) The Company, the Subsidiaries and the Investor shall give
any notices to third parties, and use all reasonable efforts to obtain any third
party consents, (i) necessary, proper or advisable to consummate the
Transactions contemplated in this Agreement and each Ancillary Agreement or (ii)
required to be disclosed in the Disclosure Schedule. In the event that either
party shall fail to obtain any third party consent described in the first
sentence of this Section 6.02(d), such party shall use all reasonable efforts,
and shall take any such actions reasonably requested by the other party hereto,
to minimize any adverse effect upon the Company, the Subsidiaries and the
Investor, and their respective businesses resulting, or which would reasonably
be expected to result after the Closing, from the failure to obtain such
consent.
(f) From the date of this Agreement until the Closing, the
Company shall promptly notify the Investor in writing of any pending or, to the
knowledge of the Company, threatened Action by any Governmental Authority or any
other person (i) challenging or seeking material damages in connection with the
Transactions or (ii) seeking to restrain or prohibit the consummation of the
Transactions, which in either case would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect prior to or after the
Closing.
Section 6.03. Public Announcements. The Investor and the Company agree
that no public release or announcement concerning the Transactions shall be
issued by either party without the prior consent of the other party (which
consent shall not be unreasonably withheld), except as such release or
announcement may be required by Law or the rules or regulations of the Exchange,
in which case the party required to make the release or announcement shall use
its best efforts to allow the other party reasonable time to comment on such
release or announcement in advance of such issuance.
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Section 6.04. Board Representation. Prior to the Closing, the Company and
the Board shall take all actions necessary to increase the authorized number of
directors to seven and Xxxxxx X. Xxxxxxx, Xxxxxx X. Xxxxxx and Xxxxxx X.
Xxxxxxxxx (the "Resigning Directors") will submit their written resignations
from the Board effective as of the Closing. Effective at Closing, Xxxxxx X.
Xxxxx, Xxxxx Xxxxxxxxxx, X.X. Xxx and Xxxxxx X. Xxxxxxxx (or such substitutes as
the Investor may designate at Closing) (the "Investor Director Designees") will
be elected to the Board.
Section 6.05. Cooperation. The Company and the Investor shall coordinate
and cooperate in connection with (i) the preparation of the Proxy Statement and
any Other Filings, (ii) determining whether any action by or in respect of, or
filing with, any Governmental Authority is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any Company
Material Contracts, in connection with the consummation of the Transactions and
(iii) seeking any such actions, consents, approvals or waivers or making any
such filings, furnishing information required in connection therewith or with
the Proxy Statement or any Other Filings and timely seeking to obtain any such
actions, consents, approvals or waivers.
Section 6.06. Certain Notices. From and after the date of this Agreement
until the Closing, the Company shall promptly notify the Investor of (i) the
occurrence of any Material Adverse Effect with respect to it, (ii) the
occurrence, or non-occurrence, of any event or any breach or misrepresentation
that would reasonably be expected to cause any condition to the obligations of
the Company to effect the Transactions not to be satisfied, or (iii) the failure
of such party to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it pursuant to this Agreement or any Ancillary
Agreement that would reasonably be expected to result in any condition to the
obligations of such party to effect the Transactions not to be satisfied;
provided, however, that the delivery of any notice pursuant to this Section 6.03
shall not cure any breach of any representation or warranty requiring disclosure
of such matter prior to the date of this Agreement or otherwise limit or affect
the remedies available hereunder to the party receiving such notice. From and
after the date of this Agreement, the Company shall notify the Investor yearly
after January 1 st but not later than January 31st of the exercise of any of the
Existing Warrants or Company Options during the period from January 1st to
December 31st of the prior calendar year.
Section 6.07. Amendment to the Certificate. If, on any date, including the
date of the Closing, 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 its best efforts to
amend the Company's certificate 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.
Section 6.08. "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 this Agreement, including any shares of Common Stock
issuable upon conversion or exercise of the Preferred Stock and the Investor
Series B Warrants, ignoring any conversion or exercise limits set forth therein.
33
ARTICLE VII.
CONDITIONS
Section 7.01. Conditions to the Obligations of Each Party. The obligations
of each party to effect the Transactions shall be subject to the satisfaction or
written waiver, at or prior to the Closing, of the following conditions:
(a) Amendment and Certificate of Designation. The Amendment
shall have been approved by Board of Directors and the requisite affirmative
vote of the stockholders of the Company in accordance with the DGCL, the
Certificate of Incorporation and the Bylaws shall have been duly filed with the
Delaware Secretary of State. The Certificate of Designation shall have been
approved by Board of Directors in accordance with the DGCL, the Certificate of
Incorporation and the Bylaws and has been duly filed with the Delaware Secretary
of State.
(b) No Order. No Governmental Authority in the United States
shall have enacted, issued, promulgated, enforced or entered any Law (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making the Transactions illegal or otherwise restricting, preventing or
prohibiting consummation of the Transactions;
(c) Court Proceedings. No Action shall be pending or
threatened before any Governmental Authority wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would reasonably be expected to (A)
(1) prevent consummation of any of the Transactions contemplated by this
Agreement or any Ancillary Agreement, (2) cause any of the Transactions
contemplated by this Agreement or any Ancillary Agreement to be rescinded
following consummation thereof, (3) materially adversely affect the rights and
powers of the Investor to own the Purchased Securities, and exercise all of
their rights as stockholders of the Company and as parties to the Ancillary
Agreements, and in each case, no such injunction, judgment, order, decree,
ruling or charge shall be in effect or (B) cause or require the payment by the
Company (including as the result of the acceleration, or other obligation to
repay prior to scheduled maturity, any indebtedness) or, to the extent such
Action relates to the Company or the Transactions contemplated by this Agreement
or any Ancillary Agreement, the Investor, of damages, fines or other penalties
or awards that would, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect; provided, however that, in each case, any
such threatened Action would reasonably be expected to be adversely determined
against the Company, the Investor or their respective affiliates.
Section 7.02. Conditions to the Obligations of the Investor. The
obligations of the Investor to consummate the Transactions are subject to the
satisfaction or written waiver of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties of the Company contained in this Agreement and
each Ancillary Agreement that are qualified by materiality or Material Adverse
Effect shall be true and correct as of the date hereof and as of the Closing as
though made on and as of the Closing (except that those representations and
warranties which address matters only as of a particular date need only be true
and correct as of such date), and all representations and warranties which are
not so qualified shall be true and correct in all material respects (except that
those representations and warranties which address matters only as of a
particular date need only remain true and correct in all material respects as of
such date).
34
(b) Agreements and Covenants. Each of the Company and each
Subsidiary shall have performed, in all material respects, all obligations and
complied with, in all material respects, its agreements and covenants to be
performed or complied with by it under this Agreement and the Ancillary
Agreements to which it is a party on or prior to the Closing.
(c) Officer Certificate. The Company shall have delivered to
the Investor a certificate, dated the date of the Closing, signed by the
President of the Company, certifying as to the satisfaction of the conditions
specified in Sections 7.02(a), (b), (d), and (g) and the number of authorized
and outstanding shares of capital stock of the Company, including the number of
shares of Common Stock issuable (i) upon exercise of outstanding employee stock
options or stock incentive rights granted pursuant to the 2001 Omnibus Equity
Incentive Plan and executive employment agreements, in each case amended through
the Closing, (ii) upon exercise of outstanding warrants and (iii) upon
conversion of outstanding convertible debt instruments issued by the Company.
(d) Material Adverse Effect. No Material Adverse Effect shall
have occurred since the date of this Agreement.
(e) Ancillary Agreements. Each of the Ancillary Agreements to
which the Company is a party shall have been duly executed and delivered by the
Company,
(f) Board Representation. The Investor Director Designees
shall have been duly appointed, effective concurrently with the Closing, to the
Board and to all applicable committees of the Board in accordance with the
provisions of this Agreement and the resignation of the Resigning Directors
shall have become effective.
(g) Certified Resolutions. Certified copies of resolutions
duly adopted by the Board and stockholders of the Company authorizing the
execution, delivery and performance of this Agreement, the Ancillary Agreements
to which it is a party and the Transactions.
(h) Incumbency Certificate. A certificate of the Secretary of
the Company, as to the incumbency of the officer(s) (who shall not be such
Secretary) executing this Agreement, the Ancillary Agreements to which the
Company is a party and the other instruments, documents, certificates and
agreements contemplated hereby or thereby.
(i) Good Standings. A short form certificate of good standing
of each of the Company and each Subsidiary, certified by the Secretary of State
or Clerk of the State Corporation Commission of each state or commonwealth in
which it is incorporated or organized or qualified to do business, in each case
as of a date not more than two business days prior to the Closing.
(j) Consents and Approvals. All consents, approvals and
authorizations of any person (including Governmental Authorities) with respect
to the Transactions shall have been obtained (and a copy delivered to the
Investor) and all SEC filings shall have been properly and timely made.
35
(k) 14(f) Notice. Ten (10) days or such longer period as
required by applicable Law shall have elapsed from the date the 14(f) Notice is
mailed to the stockholders of the Company and filed with the SEC.
Section 7.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Transactions are subject to the
satisfaction or written waiver of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties of the Investor contained in this Agreement and
each Ancillary Agreement that are qualified by materiality or material adverse
effect shall be true and correct as of the date hereof and as of the Closing as
though made on and as of the Closing (except that those representations and
warranties which address matters only as of a particular date need only be true
and correct as of such date), and all representations and warranties which are
not so qualified shall be true and correct in all material respects (except that
those representations and warranties which address matters only as of a
particular date need only remain true and correct in all material respects as of
such date).
(b) Agreements and Covenants. The Investor shall have
performed, in all material respects, all obligations or complied with, in all
material respects, all agreements and covenants to be performed or complied with
by it under this Agreement on or prior to the Closing.
(c) Officer Certificate. The Investor shall have delivered to
the Company a certificate, dated the date of the Closing, signed by the
President or any Vice President of such Investor, certifying as to the
satisfaction of the conditions specified in Sections 7.03(a) and 7.03(b).
(d) Ancillary Agreements. Each of the Ancillary Agreements to
which the Investor is a party shall have been duly executed and delivered by the
Investor.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
Section 8.01. Termination. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to the Closing, whether or not
the Stockholder Approval has been obtained (the date of any such termination,
the "Termination Date"):
(a) By mutual written consent of the Investor and the Company;
or
(b) By either the Investor or the Company if (i) the Closing
shall not have occurred on or before August 31, 2005; provided, however, that
the right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date or (ii) any Governmental Authority in the United
States shall have enacted, issued, promulgated, enforced or entered any order,
decree, judgment, injunction or ruling which is then in effect and is final and
nonappealable and has the effect of making consummation of the Transactions
illegal or otherwise preventing or prohibiting consummation of the Transactions;
provided, however, that the party seeking to terminate this Agreement shall have
fulfilled its obligations pursuant to Section 6.05 of this Agreement to lift
such injunction, order, decree or ruling; or
36
(c) By the Investor or the Company if the Stockholder Approval
is not obtained at the Stockholders' Meeting;
(d) By the Investor, if since the date of this Agreement,
there shall have been any event, development or change of circumstance that
constitutes, has had or would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect and such Material Adverse Effect is not
cured within 20 days after the Company receives written notice thereof from the
Investor; or
(e) By the Investor, if (i) the Company shall have breached
any representation, covenant or agreement set forth in this Agreement, (ii) such
breach or misrepresentation is not cured within 20 days after the Company
receives written notice thereof from the Investor and (iii) such breach or
misrepresentation would cause the conditions set forth in Section 7.02(a) or
Section 7.02(b) not to be satisfied.
(f) By the Company, if (i) the Investor shall have breached
any representation, covenant or agreement set forth in this Agreement, (ii) such
breach or misrepresentation is not cured within 20 days after the Investor
receives written notice thereof from the Company and (iii) such breach or
misrepresentation would cause the conditions set forth in Section 7.03(a) or
Section 7.03(b) not to be satisfied.
Section 8.02. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.01, this Agreement shall forthwith become
void, and there shall be no liability or obligation on the part of any party
hereto, except (i) with respect to Article VIII and Article IX, which shall
survive any such termination and remain in full force and effect and (ii) with
respect to any liabilities or damages incurred or suffered by a party as a
result of the material breach by the other party of any of its representations,
warranties, covenants or other agreements set forth in this Agreement or any
Ancillary Agreement.
Section 8.03. Fees and Expenses.
(a) Expenses. Except as set forth in this Section 8.03, all
Expenses incurred in connection with this Agreement and the Transactions shall
be paid by the party incurring such Expenses, whether or not the Transactions
are consummated, provided, however, that the Company shall pay all of the
Expenses related to printing, filing and mailing the Proxy Statement and all SEC
and other regulatory filing fees incurred. The Investor and the Company agree
that if this Agreement is terminated pursuant to Section 8.01(e), then the
Company shall pay the Investor an amount equal to the sum of the Investor's
Expenses. The Investor and the Company also agree that if the Transactions are
consummated, then the Company shall pay the Investor an amount equal to the sum
of the Investor's Expenses up to an amount equal to $90,000.00. Payment of
Expenses pursuant to this Section 8.03 shall be made not later than two business
days after delivery, from time to time, to the Company of notice of demand for
payment and a documented itemization setting forth in reasonable detail the
Expenses of the Investor.
37
(b) Payments. All payments under this Section 8.3 shall be
made by wire transfer of immediately available funds (in U.S. dollars) to an
account designated in writing by the Investor.
(c) Costs of Enforcement. The Company acknowledges that the
agreements contained in this Section 8.03 are an integral part of the
Transactions contemplated by this Agreement. In the event that the Company shall
fail to pay any amounts required by this Section 8.03 when due, the Company
shall reimburse the Investor for all reasonable fees and expenses incurred by
the Investor and its affiliates (including fees and expenses of counsel) in
connection with the collection under and enforcement of this Section 8.03.
Section 8.04. Amendment. This Agreement may be amended by the parties
hereto by an instrument in writing signed by the parties hereto at any time
prior to closing.
Section 8.05. Waiver. At any time prior to the Closing, any party hereto
may (i) extend the time for the performance of any obligation or other act of
any other party hereto, (ii) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
ARTICLE IX.
GENERAL PROVISIONS
Section 9.01. Survival of Representations and Warranties; Indemnification.
(a) All representations and warranties contained in this
Agreement shall be deemed made at the Closing as if made at such time and shall
survive the Closing for three years other than the representations and
warranties in Sections 3.14(c) and 3.14(f) which shall survive the Closing for
seven years.
(b) The Company agrees to indemnify and hold harmless the
Investor, its partners, affiliates, officers, directors, employees and duly
authorized agents and each of their affiliates and each other person controlling
the Investor or any of its affiliates within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act and any partner of any of
them from and against all losses, claims, damages, diminution in value of the
Purchased Securities, expenses (including reasonable counsel fees and
disbursements) or liabilities ("Losses") which are related to or arise out of
(1) any breach by the Company of any of its representations or warranties in
this Agreement or (2) failure to perform any of the covenants or agreements made
by the Company in this Agreement. The term "Losses" as used in this Section 9.01
is not limited to matters asserted by third parties against an Indemnified
Party, but includes Losses incurred or sustained by an Indemnified Party in the
absence of third party claims, and shall be net of any Tax benefit available to
the Indemnified Party.
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(c) The Investor agrees to indemnify and hold harmless the
Company, its Subsidiaries and each of their respective officers, directors,
employees, duly authorized agents and affiliates from and against all Losses
which are related to or arise out of (1) any breach by the Investor of any of
its representations or warranties in this Agreement or (2) failure to perform
any of the covenants or agreements made by the Investor in this Agreement.
(d) A party claiming indemnification under this Agreement (an
"Indemnified Party") with respect to any claims asserted against the Indemnified
Party by a third party ("Third Party Claim") that would give rise to a right of
indemnification under this Agreement shall promptly (i) notify the party from
whom indemnification is sought (the "Indemnifying Party") of the Third Party
Claim, and (ii) transmit to the Indemnifying Party a written notice ("Claim
Notice") describing in reasonable detail the nature of the Third Party Claim, a
copy of all papers served with respect to such claim (if any), and the basis of
the Indemnified Party's request for indemnification under this Agreement.
Failure to provide such Claim Notice shall not affect the right of the
Indemnified Party's indemnification hereunder, except to the extent the
Indemnifying Party demonstrates actual and material prejudice as a result of
such failure. The Indemnifying Party shall have the right to defend the
Indemnified Party against such Third Party Claim provided that such Indemnifying
Party has acknowledged in writing its obligation to fully indemnify the
Indemnified Party with respect to such Third Party Claim pursuant to this
Section 9.01.
(e) If the Indemnifying Party notifies the Indemnified Party
that the Indemnifying Party elects to assume the defense of the Third Party
Claim, then the Indemnifying Party shall have the right to defend such Third
Party Claim with counsel selected by the Indemnifying Party, who is reasonably
acceptable to the Indemnified Party, by all appropriate proceedings, which
proceedings shall be prosecuted reasonably diligently by the Indemnifying Party
to a final conclusion or settled at the discretion of the Indemnifying Party in
accordance with this Section 9.01(d). The Indemnifying Party shall have full
control of such defense and proceedings, including, any compromise or settlement
thereof, provided, however, that the Indemnifying Party shall not consent to the
entry of a judgment or enter into any settlement with respect to the matter (i)
which does not contain a complete release of the Indemnified Party, contains a
finding of responsibility or liability on the part of the Indemnified Party or
the violation of any applicable legal requirement, provides any material
sanction or material restriction upon the conduct of any business by the
Indemnified Party, or provides for any relief other than monetary damages which
are paid in full by the Indemnifying Party, or (ii) without the prior written
consent of the Indemnified Party, which consent shall not be unreasonably
conditioned, withheld or delayed. If requested by the Indemnifying Party, the
Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim which the Indemnifying Party elects to contest, including
the making of any related counterclaim against the Person asserting the Third
Party Claim or any cross complaint against any person. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant to this Section 9.01, and
the Indemnified Party shall bear its own costs and expenses with respect to such
participation; provided, however, if in the opinion of counsel of the
Indemnified Party there is a reasonable likelihood of a conflict of interest
between the Indemnifying Party and the Indemnified Party, the Indemnifying Party
shall bear the reasonable costs and expenses of one counsel to represent the
Indemnified Party and all similarly situated Indemnified Parties with whom a
conflict of interest exists with the Indemnifying Party in connection with such
defense.
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(f) If the Indemnifying Party fails to notify the Indemnified
Party within the thirty (30) days after receipt of any Claim Notice that the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
9.01(e), or if the Indemnifying Party elects to defend the Indemnified Party
pursuant to Section 9.01(e) but fails to reasonably diligently defend or settle
the Third Party Claim, then the Indemnified Party shall have the right to defend
the Third Party Claim by all appropriate proceedings, which proceedings shall be
promptly and vigorously defended by the Indemnified Party to a final conclusion
or settled (with the reasonable costs and expenses of such defense borne by the
Indemnifying Party). The Indemnified Party shall have full control of such
defense and proceedings; provided, however, that the Indemnified Party may not
enter into any compromise or settlement of such Third Party Claim if
indemnification is to be sought hereunder, without the Indemnifying Party's
consent, which shall not be unreasonably withheld or delayed. The Indemnifying
Party may participate in, but not control, any defense or settlement controlled
by the Indemnified Party pursuant to this Section 9.01(g), and the Indemnifying
Party shall bear its own costs and expenses with respect to such participation.
(g) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder which does not involve a Third Party
Claim, the Indemnified Party shall promptly transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, the Indemnified Party's best estimate of the amount of
Losses attributable to such claim and the basis of the Indemnified Party's
request for indemnification under this Agreement. If the Indemnifying Party does
not notify the Indemnified Party within thirty (30) days from its receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim (the "Dispute
Notice"), the Indemnifying Party shall be deemed to have accepted and agreed
with such claim. If the Indemnifying Party has disputed such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good faith to
negotiate a resolution to such dispute. If the Indemnifying Party and the
Indemnified Party cannot resolve such dispute in thirty (30) days after delivery
of the Dispute Notice, such dispute shall be resolved by arbitration pursuant to
Section 9.10 hereof.
(h) The parties agree to treat all indemnification payments
made under this Article IX or otherwise under this Agreement as an adjustment to
the Purchase Price or as capital contributions for Tax purposes. The maximum
aggregate amount of indemnity that will be paid by the Company under this
Section 9.01 for any Losses is $11,000,000 plus the amount of any accrued and
unpaid dividends on the Preferred Stock. The limitation on the aggregate amount
of Losses payable by the Company for Losses under this Section 9.01 shall not
limit the Company's liability to pay Invalidation Losses and/or Infringement
Losses under Section 9.02 of this Agreement.
40
Section 9.02. Special Provisions Relating to Indemnity for Breach of
Representations and Warranties regarding Patents.
(a) In the event it is determined by a final judgment of a
court of competent jurisdiction and not subject to further appeal, (or should
the Company agree in a settlement of any litigation), that any of the patents
listed in Section 3.14(a) of the Disclosure Schedule are not valid, then the
Company and the Investor shall first attempt in good faith to quantify the net
present value of estimated future earnings, if any, that are reasonably likely
to be foregone as a direct result of the invalidation of such patent
("Invalidation Losses"). The directors elected by the Investor shall recuse
themselves from all deliberations and votes with respect the determination of
Invalidation Losses. If the Company and the Investor are unable to agree as to
the amount of Invalidation Losses, then such issue shall be submitted to
arbitration pursuant to Section 9.09. The amount of any such Invalidation Losses
times the Investment Percentage shall be the amount of damages agreed to be
suffered by the Investor for breach of the representation/warranty contained in
Section 3.14(c) for which the Investor is entitled to indemnity under Section
9.01 hereof.
(b) In the event it is determined by a final judgment of a
court of competent jurisdiction and not subject to further appeal, (or should
the Company agree in a settlement of any litigation), that the conduct of the
Company's business as conducted as of the Closing Date, is infringing upon any
valid patent held by a third party, then the Company and the Investor shall
first attempt in good faith to quantify the net present value of (i) estimated
future earnings, if any, that are reasonably likely to be foregone as a direct
result of the finding of infringement, (ii) the estimated future costs, if any,
that are reasonably likely to be incurred by the Company as a direct result of
the finding of infringement, and (iii) any liquidated damages imposed on the
Company (collectively, "Infringement Losses"). The directors elected by the
Investor shall recuse themselves from all deliberations and votes with respect
the determination of Infringement Losses. If the Company and the Investor are
unable to agree as the amount of Infringement Losses, then such issue shall be
submitted to arbitration pursuant to Section 9.09. The amount of any such
Infringement Losses times the Investment Percentage shall be the amount of
damages agreed to be suffered by the Investor for breach of the
representation/warranty contained in Section 3.14(f) for which the Investor is
entitled to indemnity under Section 9.01 hereof.
(c) For purposes of Section 9.02, the term "Investment
Percentage" means a percentage equal to the total number of shares of Common
Stock owned by the Investor (assuming the exchange of Preferred Stock for Common
Stock, but excluding the shares of Common Stock underlying Warrants which have
not been exercised) divided by the total number of shares of Common Stock then
outstanding.
(d) The maximum aggregate amount of indemnity that will be
paid by the Company under this Section 9.02 for Infringement Losses and/or
Invalidation Losses is $11,000,000 plus the amount of any accrued and unpaid
dividends on the Preferred Stock. The limitation on the aggregate amount of
Losses payable by the Company for Infringement Losses and/or Invalidation Losses
under this Section 9.02 shall not limit the Company's liability to pay the
amount of Losses that may be payable by the Company under Section 9.01 of this
Agreement.
41
Section 9.03. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy,
by a recognized overnight courier service or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 9.03):
if to the Investor:
Mykonos 6420 LP
0000 Xxxxxx Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx Xxxxxxx
With a copy to:
Mykonos 6420 LP
5420 LBJ Freeway
Xxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxxxxxxx
if to the Company:
iSecureTrac Corp.
0000 X. 000xx Xxxxxx
Xxxxx, XX 00000
Attention: Xxx Xxxxxxx
With a copy to:
Xxxxx Xxxx LLP
0000 Xxxxxx Xxxxxx
Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxx, Esq.
Section 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the Transactions contemplated hereby be consummated as
originally contemplated to the fullest extent possible.
42
Section 9.05. Entire Agreement. This Agreement and the Ancillary
Agreements constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof and supersede, all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof and thereof.
Section 9.06. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, except as provided in Section 9.01(b).
Section 9.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
Section 9.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Texas.
Section 9.09. Arbitration.
(a) Any dispute, controversy or claim arising out of or in
relation to or in connection with this Agreement, including without limitation
any dispute as to the construction, validity, interpretation, enforceability or
breach of this Agreement, shall be exclusively and finally settlement by
arbitration in accordance with this Section 9.09. Any party may submit such a
dispute, controversy or claim to arbitration by written notice to the other
party.
(i) The arbitration shall be heard and determined by one
(1) arbitrator if the dispute relates to less than $100,000 otherwise three (3)
arbitrators will be used. In the case of three (3) arbitrators each side shall
appoint an arbitrator of its choice within thirty (30) days of the submission of
a notice of arbitration. The party-appointed arbitrators shall in turn appoint a
presiding arbitrator of the tribunal within thirty (30) days following the
appointment of both party-appointed arbitrators. If the party-appointed
arbitrators cannot reach agreement on a presiding arbitrator of the tribunal
and/or one party refuses to appoint its party-appointed arbitrator within said
thirty (30) day period, the appointing authority for the implementation of such
procedure shall be the American Arbitration Association ("AAA") who shall
appoint an independent arbitrator who does not have any financial interest in
the dispute, controversy or claim or prior business or personal relationship
with either party. If an arbitrator should die, withdraw or otherwise become
incapable of serving, or refuse to serve, a successor arbitrator shall be
selected and appointed in the same manner as the original arbitrator.
(b) Unless otherwise expressly agreed in writing by the
parties to the arbitration proceedings:
(i) The arbitration proceedings shall be held in Dallas,
Texas;
(ii) The arbitrator(s) shall be and remain at all times
wholly independent and impartial;
43
(iii) The arbitration proceedings shall be conducted
under the Arbitration Rules of the AAA, as amended from time to time;
(iv) The costs of the arbitration proceedings (including
attorneys' fees and costs) shall be borne in the manner determined by the
arbitrator(s);
(v) All decisions and awards by the arbitration tribunal
shall be made by majority vote. The award of a majority of the arbitrators shall
be reduced to writing. The award shall be final and binding and shall be the
sole and exclusive remedy regarding any claims, counterclaims, issues or
accounts presented to the arbitration tribunal.
(vi) Judgment upon the award may be entered in any court
having jurisdiction over the person or the assets of the party owing the
judgment, or application may be made to such court for judicial acceptance of
the award and an order of enforcement, as the case may be. Any costs or fees
incident to enforcing the award shall be charged to the party resisting such
enforcement, including post-award interest in an amount equal to the maximum
post- judgment interest allowed under Texas law.
(c) If an indemnification amount is fixed, by arbitration or
otherwise, prior to December 31, 2006, and full payment of such indemnification
amount would affect the Company's status as a going concern, the arbitrator
shall have discretion to structure the arbitration award to provide for level
payments in installments over a four year period from the date of the award. If
an indemnification amount is fixed during calendar year 2007, and full payment
of such indemnification amount would affect the Company's status as a going
concern, the arbitrator shall have discretion to structure the arbitration award
to provide for level payments in installments over a three year period from the
date of the award. If an indemnification amount is fixed during calendar year
2008, and full payment of such indemnification amount would affect the Company's
status as a going concern, the arbitrator shall have discretion to structure the
arbitration award to provide for level payments in installments over a two year
period from the date of the award. The solvency of the Company shall not affect
the amount of any indemnification award.
Section 9.10. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
Section 9.11. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
44
IN WITNESS WHEREOF, the Investor and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
MYKONOS 6420 LP
By: Sponsor Investments LLC
Its: General Partner
By: Herakles Investments, Inc.
Its: Manager
/s/ Xxxxxxx Xxxxxxx
-------------------
Name: Xxxxxxx Xxxxxxx
Title: Vice President
ISECURETRAC CORP.
/s/ Xxxxxx X. Xxxxxxx, Xx.
----------------------------------
Name: Xxxxxx X. Xxxxxxx, Xx.
Title: President & CEO
45
