EXHIBIT 10.1
PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT ("Agreement") is made as of the 15th day of
February, 2005 by and among Caprius, Inc., a Delaware corporation (the
"Company"), and the Investors set forth on the signature pages affixed hereto
(each an "Investor" and collectively the "Investors").
RECITALS
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended; and
B. The Investors wish to purchase from the Company, and the Company
wishes to sell and issue to the Investors, upon the terms and conditions stated
in this Agreement, (i) an aggregate of 45,000 shares of Series C Mandatory
Convertible Preferred Stock, stated value $100 per share (the "Preferred
Stock"), such Preferred Stock to have the relative rights, preferences and
designations set forth in the Certificate of Designations set forth in Exhibit A
hereto (the "Certificate of Designations"), at a purchase price of $100 per
share, (ii) Series A warrants to purchase an aggregate of 9,310,344 shares of
common stock, par value $0.01 per share, of the Company (together with any
securities into which the common stock may be reclassified, the "Common Stock")
(subject to adjustment) at an exercise price of $0.28 per share (subject to
adjustment) in the form attached hereto as Exhibit B (the "Series A Warrants"),
and (iii) Series B warrants to purchase an aggregate of 3,103,448 shares of
Common Stock (subject to adjustment) at an exercise price of $0.145 per share
(subject to adjustment) in the form attached hereto as Exhibit C (together with
the Series A Warrants, the "Warrants"); and
C. Contemporaneous with the sale of the Common Stock and Warrants, the
parties hereto will execute and deliver a Registration Rights Agreement, in the
form attached hereto as Exhibit D (the "Registration Rights Agreement"),
pursuant to which the Company will agree to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, and applicable state securities laws.
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere in
this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly through one or more intermediaries Controls, is
controlled by, or is under common control with, such Person.
"Business Day" means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
"Company's Knowledge" means the actual knowledge of the executive
officers (as defined in Rule 405 under the 0000 Xxx) of the Company, after due
inquiry.
"Confidential Information" means trade secrets, confidential
information and know-how (including but not limited to ideas, formulae,
compositions, processes, procedures and techniques, research and development
information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans,
and customer and supplier lists and related information).
"Control" (including the terms "controlling", "controlled by" or
"under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock.
"Effective Date" means the date on which the initial Registration
Statement is declared effective by the SEC.
"Effectiveness Deadline" means the date on which the initial
Registration Statement is required to be declared effective by the SEC under the
terms of the Registration Rights Agreement.
"Intellectual Property" means all of the following: (i) patents,
patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice); (ii) trademarks, service
marks, trade dress, trade names, corporate names, logos, slogans and Internet
domain names, together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).
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"Material Adverse Effect" means a material adverse effect on (i) the
assets, liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
"Purchase Price" means Four Million Five Hundred Thousand Dollars
($4,500,000).
"SEC Filings" has the meaning set forth in Section 4.6.
"Registration Statement" has the meaning set forth in the Registration
Rights Agreement.
"Reverse Split" means a one-for-20 reverse split of the Common Stock
which shall have the effect of reducing the outstanding shares of Common Stock
but which shall not affect the number of shares of Common Stock the Company is
authorized to issue.
"Securities" means the Shares, the Warrants, the Conversion Shares and
the Warrant Shares.
"Series B Preferred Stock" means the Company's Series B Convertible
Redeemable Preferred Stock, par value $0.01 per share.
"Shares" means the shares of Preferred Stock being purchased by the
Investors hereunder.
"Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Transaction Documents" means this Agreement, the Certificate of
Designations, the Warrants and the Registration Rights Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
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"1933 Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Shares and Warrants. Subject to the terms and
conditions of this Agreement, on the Closing Date, each of the Investors shall
severally, and not jointly, purchase, and the Company shall sell and issue to
the Investors, the Shares and Warrants in the respective amounts set forth
opposite the Investors' names on the signature pages attached hereto in exchange
for the Purchase Price as specified in Section 3 below.
3. Closing. Upon confirmation that the other conditions to closing
specified herein have been satisfied or duly waived by the Investors, the
Company shall file the Certificate of Designations with the Secretary of State
of Delaware. Upon confirmation that the Certificate of Designations has been
filed and has become effective, the Company shall deliver to Xxxxxxxxxx Xxxxxxx
PC, in trust, a certificate or certificates, registered in such name or names as
the Investors may designate, representing the Shares and Warrants, with
instructions that such certificates are to be held for release to the Investors
only upon payment in full of the Purchase Price to the Company by all the
Investors. Upon such receipt by Xxxxxxxxxx Xxxxxxx PC of the certificates, each
Investor shall promptly, but no more than one Business Day thereafter, cause a
wire transfer in same day funds to be sent to the account of the Company as
instructed in writing by the Company, in an amount representing such Investor's
pro rata portion of the Purchase Price as set forth on the signature pages to
this Agreement. On the date (the "Closing Date") the Company receives the
Purchase Price, the certificates evidencing the Shares and Warrants shall be
released to the Investors (the "Closing"). The Closing of the purchase and sale
of the Shares and Warrants shall take place at the offices of Xxxxxxxxxx Xxxxxxx
PC, 1251 Avenue of the Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at
such other location and on such other date as the Company and the Investors
shall mutually agree.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the "Disclosure Schedules"):
4.1 Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not and could not reasonably be expected to have a
Material Adverse Effect. The Company's Subsidiaries are listed on Schedule 4.1
hereto.
4.2 Authorization. The Company has full power and authority and ,
except for the preparation and delivery of the Information Statement
contemplated by Section 7.11, has taken all requisite action on the part of the
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Company, its officers, directors and stockholders necessary for (i) the
authorization, execution and delivery of the Transaction Documents, (ii) the
authorization of the performance of all obligations of the Company hereunder or
thereunder, (iii) the authorization, issuance (or reservation for issuance) and
delivery of the Securities and (iv) the consummation of the Reverse Split. The
Transaction Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors'
rights generally.
4.3 Capitalization. Schedule 4.3 sets forth (a) the authorized
capital stock of the Company on the date hereof; (b) the number of shares of
capital stock issued and outstanding; (c) the number of shares of capital stock
issuable pursuant to the Company's outstanding stock awards; (d) the number of
shares of capital stock issuable pursuant to future grants of awards eligible to
be made under the Company's stock plans; (e) the number of shares of Common
Stock issuable upon conversion of the outstanding Series B Preferred Stock; and
(f) the number of shares of capital stock issuable and reserved for issuance
pursuant to securities (other than the Series B Preferred Stock, the Shares and
the Warrants) exercisable for, or convertible into or exchangeable for any
shares of capital stock of the Company. All of the issued and outstanding shares
of the Company's capital stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of pre-emptive rights and were issued in
full compliance with applicable state and federal securities law and any rights
of third parties. Except as described on Schedule 4.3, all of the issued and
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive
rights, were issued in full compliance with applicable state and federal
securities law and any rights of third parties and are owned by the Company,
beneficially and of record, subject to no lien, encumbrance or other adverse
claim. Except as described on Schedule 4.3, no Person is entitled to pre-emptive
or similar statutory or contractual rights with respect to any securities of the
Company. Except as described on Schedule 4.3, there are no outstanding warrants,
options, convertible securities or other rights, agreements or arrangements of
any character under which the Company or any of its Subsidiaries is or may be
obligated to issue any equity securities of any kind and except as contemplated
by this Agreement, neither the Company nor any of its Subsidiaries is currently
in negotiations for the issuance of any equity securities of any kind. Except as
described on Schedule 4.3 and except for the Registration Rights Agreement,
there are no voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among the Company and any of
the securityholders of the Company relating to the securities of the Company
held by them. Except as described on Schedule 4.3 and except as provided in the
Registration Rights Agreement, no Person has the right to require the Company to
register any securities of the Company under the 1933 Act, whether on a demand
basis or in connection with the registration of securities of the Company for
its own account or for the account of any other Person.
Except as described on Schedule 4.3, the issuance and sale of the
Securities hereunder will not obligate the Company to issue shares of Common
Stock or other securities to any other Person (other than the Investors) and
will not result in the adjustment of the exercise, conversion, exchange or reset
price of any outstanding security.
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The Company does not have outstanding stockholder purchase rights or
"poison pill" or any similar arrangement in effect giving any Person the right
to purchase any equity interest in the Company upon the occurrence of certain
events.
4.4 Valid Issuance. The Shares have been duly and validly authorized
and, when issued and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws and will be entitled to the relative
rights, powers and preferences set forth in the Certificate of Designations. The
Warrants have been duly and validly authorized. Upon the due conversion of the
Shares in accordance with the Certificate of Designations, the Conversion Shares
will be validly issued, fully paid and nonassessable, and shall be free and
clear of all encumbrances and restrictions (other than those created by the
Investors), except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws. Upon the due exercise of the
Warrants, the Warrant Shares will be validly issued, fully paid and
non-assessable free and clear of all encumbrances and restrictions, except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws and except for those created by the Investors. Upon
the effectiveness of the Reverse Split, the Company will have reserved a
sufficient number of shares of Common Stock for the issuance of the Conversion
Shares and the Warrant Shares, free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws and except for those created
by the Investors.
4.5 Consents. Except for the preparation and delivery of the
Information Statement contemplated by Section 7.11, the execution, delivery and
performance by the Company of the Transaction Documents the consummation of the
Reverse Split and the offer, issuance and sale of the Securities require no
consent of, action by or in respect of, or filing with, any Person, governmental
body, agency, or official other than filings that have been made pursuant to
applicable state securities laws and post-sale filings pursuant to applicable
state and federal securities laws which the Company undertakes to file within
the applicable time periods. Subject to the accuracy of the representations and
warranties of each Investor set forth in Section 5 hereof, the Company has taken
all action necessary to exempt (i) the issuance and sale of the Securities, (ii)
the issuance of the Conversion Shares upon the due exercise of the Shares, (iii)
the issuance of the Warrant Shares upon due exercise of the Warrants, and (iv)
the other transactions contemplated by the Transaction Documents from the
provisions of any anti-takeover, business combination or control share law or
statute binding on the Company or to which the Company or any of its assets and
properties may be subject and any provision of the Company's Certificate of
Incorporation or By-laws that is or could reasonably be expected to become
applicable to the Investors as a result of the transactions contemplated hereby,
including without limitation, the issuance of the Securities and the ownership,
disposition or voting of the Securities by the Investors or the exercise of any
right granted to the Investors pursuant to this Agreement or the other
Transaction Documents.
4.6 Delivery of SEC Filings; Business. The Company has made available
to the Investors through the XXXXX system, true and complete copies of the
Company's most recent Annual Report on Form 10-KSB for the fiscal year ended
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September 30, 2003 (the "10-KSB"), and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the 10-K and prior to the date
hereof (collectively, the "SEC Filings"). The Company has also provided to the
Investors a true and complete copy of a February 4, 2005 draft of the Company's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 2004 (the
"Draft 10-KSB"). Except for the filing of a final version of the Draft 10-KSB
(the "Final 2004 10-KSB"), the SEC Filings are the only filings required of the
Company pursuant to the 1934 Act for such period. The Company and its
Subsidiaries are engaged in all material respects only in the business described
in the SEC Filings and the Draft 10-KSB and the SEC Filings and the Draft 10-KSB
contain a complete and accurate description in all material respects of the
business of the Company and its Subsidiaries, taken as a whole.
4.7 Use of Proceeds. The net proceeds of the sale of the Shares and
the Warrants hereunder shall be used by the Company for (i) the repayment of the
indebtedness listed on Schedule 4.7 and (ii) working capital and general
corporate purposes.
4.8 No Material Adverse Change. Since September 30, 2003, except for
the proposed Reverse Split and except as identified and described in the SEC
Filings or the Draft 10-KSB or as described on Schedule 4.8, there has not been:
(i) any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2004, except for changes in the ordinary course
of business which have not had and could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or its
Subsidiaries;
(iv) any waiver, not in the ordinary course of business, by the
Company or any Subsidiary of a material right or of a material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or a Subsidiary, except
in the ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the Company
and its Subsidiaries taken as a whole (as such business is presently conducted
and as it is proposed to be conducted);
(vi) any change or amendment to the Company's Certificate of
Incorporation or by-laws, or material change to any material contract or
arrangement by which the Company or any Subsidiary is bound or to which any of
their respective assets or properties is subject;
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(vii) any material labor difficulties or labor union organizing
activities with respect to employees of the Company or any Subsidiary;
(viii) any material transaction entered into by the Company or a
Subsidiary other than in the ordinary course of business;
(ix) the loss of the services of any key employee, or material
change in the composition or duties of the senior management of the Company or
any Subsidiary;
(x) the loss or threatened loss of any customer which has had or
could reasonably be expected to have a Material Adverse Effect; or
(xi) any other event or condition of any character that has had
or could reasonably be expected to have a Material Adverse Effect.
4.9 SEC Filings.
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(a) At the time of filing thereof, the SEC Filings complied as to
form in all material respects with the requirements of the 1934 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each registration statement and any amendment thereto filed
by the Company since January 1, 2001 pursuant to the 1933 Act and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the 1933 Act and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
4.10 No Conflict, Breach, Violation or Default. The execution,
delivery and performance of the Transaction Documents by the Company and the
issuance and sale of the Securities will not conflict with or result in a breach
or violation of any of the terms and provisions of, or constitute a default
under (i) the Company's Certificate of Incorporation (after giving effect to the
Reverse Split) or the Company's Bylaws, both as in effect on the date hereof
(true and complete copies of which have been made available to the Investors
through the XXXXX system), or (ii)(a) any statute, rule, regulation or order of
any governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company, any Subsidiary or any of their respective assets
or properties, or (b) any agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or a Subsidiary is bound or to
which any of their respective assets or properties is subject.
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4.11 Tax Matters. The Company and each Subsidiary has prepared and
filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown thereon or otherwise owed by it, except for the tax returns for the year
ended September 30, 2003 which shall be paid upon Closing and for the year ended
September 30, 2004 for which extensions have been sought. The charges, accruals
and reserves on the books of the Company in respect of taxes for all fiscal
periods are adequate in all material respects, and there are no material unpaid
assessments against the Company or any Subsidiary nor, to the Company's
Knowledge, any basis for the assessment of any additional taxes, penalties or
interest for any fiscal period or audits by any federal, state or local taxing
authority except for any assessment which is not material to the Company and its
Subsidiaries, taken as a whole. All taxes and other assessments and levies that
the Company or any Subsidiary is required to withhold or to collect for payment
have been duly withheld and collected and paid to the proper governmental entity
or third party when due. There are no tax liens or claims pending or, to the
Company's Knowledge, threatened against the Company or any Subsidiary or any of
their respective assets or property. Except as described on Schedule 4.11, there
are no outstanding tax payment or tax sharing agreements or other such
arrangements between the Company and any Subsidiary or other corporation or
entity.
4.12 Title to Properties. Except as disclosed in the SEC Filings or as
described on Schedule 4.12, the Company and each Subsidiary has good and
marketable title to all real properties and all other properties and assets
owned by it, in each case free from liens, encumbrances and defects that would
materially affect the value thereof or materially interfere with the use made or
currently planned to be made thereof by them; and except as disclosed in the SEC
Filings, the Company and each Subsidiary holds any leased real or personal
property under valid and enforceable leases with no exceptions that would
materially interfere with the use made or currently planned to be made thereof
by them.
4.13 Certificates, Authorities and Permits. Except as disclosed in the
Draft 10-KSB or as described on Schedule 4.13, the Company and each Subsidiary
possess adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now operated
by it, and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or such
Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
4.14 Labor Matters.
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(a) The Company has complied with the federal Worker Adjustment
and Retraining Notification Act of 1988, as amended, in connection with the
transactions contemplated by this Agreement and the Transaction Documents.
(b) Except as set forth on Schedule 4.14, the Company is not a
party to or bound by any collective bargaining agreements or other agreements
with labor organizations. The Company has not violated in any material respect
any laws, regulations, orders or contract terms, affecting the collective
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bargaining rights of employees, labor organizations or any laws, regulations or
orders affecting employment discrimination, equal opportunity employment, or
employees' health, safety, welfare, wages and hours.
(c) (i) There are no labor disputes existing, or to the Company's
Knowledge, threatened, involving strikes, slow-downs, work stoppages, job
actions, disputes, lockouts or any other disruptions of or by the Company's
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other federal, state or local labor commission relating
to the Company's employees, (iii) no demand for recognition or certification
heretofore made by any labor organization or group of employees is pending with
respect to the Company and (iv) to the Company's Knowledge, the Company enjoys
good labor and employee relations with its employees and labor organizations.
(d) The Company is, and at all times has been, in compliance in
all material respects with all applicable laws respecting employment (including
laws relating to classification of employees and independent contractors) and
employment practices, terms and conditions of employment, wages and hours, and
immigration and naturalization. There no claims are pending against the Company
before the Equal Employment Opportunity Commission or any other administrative
body or in any court asserting any violation of Title VII of the Civil Rights
Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. xx.xx. 1981 or 1983
or any other federal, state or local Law, statute or ordinance barring
discrimination in employment.
(e) The Company is not a party to, or bound by, any employment or
other contract or agreement that contains any severance, termination pay or
change of control liability or obligation, including, without limitation, any
"excess parachute payment," as defined in Section 2806(b) of the Internal
Revenue Code.
(f) Except as specified in Schedule 4.14, each of the Company's
employees is a Person who is either a United States citizen or a permanent
resident entitled to work in the United States. To the Company's Knowledge, the
Company has no liability for the improper classification by the Company of such
employees as independent contractors or leased employees prior to the Closing.
4.15 Intellectual Property.
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(a) All Intellectual Property of the Company and its Subsidiaries
is currently in compliance with all legal requirements (including timely
filings, proofs and payments of fees) and, to the Company's Knowledge, is valid
and enforceable. No Intellectual Property of the Company or its Subsidiaries
which is necessary for the conduct of Company's and each of its Subsidiaries'
respective businesses as currently conducted or as currently proposed to be
conducted has been or is now involved in any cancellation, dispute or
litigation, and, to the Company's Knowledge, no such action is threatened. No
patent of the Company or its Subsidiaries has been or is now involved in any
interference, reissue, re-examination or opposition proceeding.
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(b) All of the licenses and sublicenses and consent, royalty or
other agreements concerning Intellectual Property which are necessary for the
conduct of the Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound
(other than generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $10,000 per
license) (collectively, "License Agreements") are valid and binding obligations
of the Company or its Subsidiaries that are parties thereto and, to the
Company's Knowledge, the other parties thereto, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.
(c) The Company and its Subsidiaries own or have the valid right
to use all of the Intellectual Property that is necessary for the conduct of the
Company's and each of its Subsidiaries' respective businesses as currently
conducted or as currently proposed to be conducted and for the ownership,
maintenance and operation of the Company's and its Subsidiaries' properties and
assets, free and clear of all liens, encumbrances, adverse claims or obligations
to license all such owned Intellectual Property and Confidential Information,
other than licenses entered into in the ordinary course of the Company's and its
Subsidiaries' businesses. The Company and its Subsidiaries have a valid and
enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and
its Subsidiaries.
(d) To the Company's Knowledge, the conduct of the Company's and
its Subsidiaries' businesses as currently conducted does not infringe or
otherwise impair or conflict with (collectively, "Infringe") any Intellectual
Property rights of any third party or any confidentiality obligation owed to a
third party, and, to the Company's Knowledge, the Intellectual Property and
Confidential Information of the Company and its Subsidiaries which are necessary
for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently conducted or as currently proposed to be conducted are not being
Infringed by any third party. There is no litigation or order pending or
outstanding or, to the Company's Knowledge, threatened or imminent, that seeks
to limit or challenge or that concerns the ownership, use, validity or
enforceability of any Intellectual Property or Confidential Information of the
Company and its Subsidiaries and the Company's and its Subsidiaries' use of any
Intellectual Property or Confidential Information owned by a third party, and,
to the Company's Knowledge, there is no valid basis for the same.
(e) The consummation of the transactions contemplated hereby and
by the other Transaction Documents will not result in the alteration, loss,
impairment of or restriction on the Company's or any of its Subsidiaries'
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted.
11
(f) The Company and its Subsidiaries have taken reasonable steps
to protect the Company's and its Subsidiaries' rights in their Intellectual
Property and Confidential Information. Each employee, consultant and contractor
who has had access to Confidential Information which is necessary for the
conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company's standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company's or its
Subsidiaries' Confidential Information to any third party.
4.16 Environmental Matters. Neither the Company nor any Subsidiary is
in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws, is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending or, to the Company's Knowledge, threatened
investigation that might lead to such a claim.
4.17 Litigation. Except as described on Schedule 4.17, there are no
pending actions, suits or proceedings against or affecting the Company, its
Subsidiaries or any of its or their properties; and to the Company's Knowledge,
no such actions, suits or proceedings are threatened or contemplated.
4.18 Financial Statements. The financial statements included in each
SEC Filing present fairly, in all material respects, the consolidated financial
position of the Company as of the dates shown and its consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with United States generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as may be
disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-QSB under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or in the Draft 10-KSB or as described on
Schedule 4.18, neither the Company nor any of its Subsidiaries has incurred any
liabilities, contingent or otherwise, except those incurred in the ordinary
course of business, consistent (as to amount and nature) with past practices
since the date of such financial statements, none of which, individually or in
the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect.
4.19 Insurance Coverage. The Company and each Subsidiary maintains in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
12
against which it is customary for comparably situated companies to insure.
4.20 Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company, other than as
described in Schedule 4.20.
4.21 No Directed Selling Efforts or General Solicitation. Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.
4.22 No Integrated Offering. Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
4.23 Private Placement. Subject to the accuracy of the Investors'
representations in Section 5 of this Agreement, the offer and sale of the
Securities to the Investors as contemplated hereby is exempt from the
registration requirements of the 1933 Act.
4.24 Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company's Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
4.25 Transactions with Affiliates. Except as disclosed in the SEC
Filings or as disclosed on Schedule 4.25, none of the officers or directors of
the Company and, to the Company's Knowledge, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than as holders of stock options and/or warrants, and for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Company's Knowledge, any entity in which any officer, director, or any such
13
employee has a substantial interest or is an officer, director, trustee or
partner.
4.26 Internal Controls. The Company is in material compliance with the
provisions of the Xxxxxxxx-Xxxxx Act of 2002 currently applicable to the
Company. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in 1934
Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which the
Company's most recently filed period report under the 1934 Act, as the case may
be, is being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the end of the
period covered by the most recently filed periodic report under the 1934 Act
(such date, the "Evaluation Date"). The Company presented in its most recently
filed periodic report under the 1934 Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company's internal controls (as such
term is defined in Item 307(b) of Regulation S-K) or, to the Company's
Knowledge, in other factors that could significantly affect the Company's
internal controls. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
GAAP and the applicable requirements of the 0000 Xxx.
4.27 Disclosures. Neither the Company nor any Person acting on its
behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information, other than the Draft 10-KSB. The written materials delivered to the
Investors in connection with the transactions contemplated by the Transaction
Documents do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
5. Representations and Warranties of the Investors. Each of the Investors
hereby severally, and not jointly, represents and warrants to the Company that:
5.1 Organization and Existence. Such Investor is a validly existing
corporation, limited partnership or limited liability company and has all
requisite corporate, partnership or limited liability company power and
authority to invest in the Securities pursuant to this Agreement. Such Investor
was not formed solely for the purpose of investing in the Securities.
14
5.2 Authorization. The execution, delivery and performance by such
Investor of the Transaction Documents to which such Investor is a party have
been duly authorized and will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
5.3 Purchase Entirely for Own Account. The Securities to be received
by such Investor hereunder will be acquired for such Investor's own account, not
as nominee or agent, and not with a view to the resale or distribution of any
part thereof in violation of the 1933 Act, and such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same in violation of the 1933 Act without prejudice, however, to such
Investor's right at all times to sell or otherwise dispose of all or any part of
such Securities in compliance with applicable federal and state securities laws.
Nothing contained herein shall be deemed a representation or warranty by such
Investor to hold the Securities for any period of time. Neither such Investor
nor any Affiliate of such Investor is a broker-dealer registered with the SEC
under the 1934 Act or an entity engaged in a business that would require it to
be so registered.
5.4 Investment Experience. Such Investor acknowledges that it can
bear the economic risk and complete loss of its investment in the Securities and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. Such Investor has had an opportunity
to receive all information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities. Such
Investor acknowledges receipt of copies of the SEC Filings. Neither such
inquiries nor any other due diligence investigation conducted by such Investor
shall modify, amend or affect such Investor's right to rely on the Company's
representations and warranties contained in this Agreement.
5.6 Restricted Securities. Such Investor understands that the
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, except as provided below,
certificates evidencing the Securities may bear the following or any similar
legend:
(a) "The securities represented hereby may not be transferred
unless (i) such securities have been registered for sale pursuant to the
Securities Act of 1933, as amended, (ii) such securities may be sold pursuant to
Rule 144(k), or (iii) the Company has received an opinion of counsel reasonably
satisfactory to it that such transfer may lawfully be made without registration
15
under the Securities Act of 1933 or qualification under applicable state
securities laws."
(b) If required by the authorities of any state in connection
with the issuance of sale of the Securities, the legend required by such state
authority.
5.8 Accredited Investor. Such Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 0000 Xxx.
5.9 No General Solicitation. Such Investor did not learn of the
investment in the Securities as a result of any public advertising or general
solicitation.
5.10 Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.
5.11 Prohibited Transactions. During the last thirty (30) days prior
to the date hereof, neither such Investor nor any Affiliate of such Investor
which (x) had knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to such Investor's investments or trading or
information concerning such Investor's investments, including in respect of the
Securities, or (z) is subject to such Investor's review or input concerning such
Affiliate's investments or trading (collectively, "Trading Affiliates") has,
directly or indirectly, effected or agreed to effect (i) any purchase or long
sale of the Company's securities or (ii) any short sale, whether or not against
the box, established any "put equivalent position" (as defined in Rule 16a-1(h)
under the 0000 Xxx) with respect to the Common Stock, granted any other right
(including, without limitation, any put or call option) with respect to the
Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities (each of such transactions
specified in this clause (ii), a "Prohibited Transaction"). Prior to the
earliest to occur of (i) the termination of this Agreement, (ii) the Effective
Date or (iii) the Effectiveness Deadline, such Investor shall not, and shall
cause its Trading Affiliates not to, engage, directly or indirectly, in a
Prohibited Transaction. Such Investor acknowledges that the representations,
warranties and covenants contained in this Section 5.11 are being made for the
benefit of the Investors as well as the Company and that each of the other
Investors shall have an independent right to assert any claims against such
Investor arising out of any breach or violation of the provisions of this
Section 5.11.
6. Conditions to Closing.
---------------------
6.1 Conditions to the Investors' Obligations. The obligation of each
Investor to purchase the Shares and the Warrants at the Closing is subject to
the fulfillment to such Investor's satisfaction, on or prior to the Closing
Date, of the following conditions, any of which may be waived by such Investor
(as to itself only):
16
(a) The representations and warranties made by the Company in
Section 4 hereof qualified as to materiality shall be true and correct at all
times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct as of such earlier
date, and, the representations and warranties made by the Company in Section 4
hereof not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
material respects all obligations and conditions herein required to be performed
or observed by it on or prior to the Closing Date.
(b) The Company shall have obtained any and all consents,
permits, approvals, registrations and waivers necessary or appropriate for
consummation of the purchase and sale of the Securities and the consummation of
the other transactions contemplated by the Transaction Documents, all of which
shall be in full force and effect.
(c) The Company shall have executed and delivered the
Registration Rights Agreement.
(d) The holders of at least a majority of the outstanding capital
stock entitled to notice of and to vote on the Reverse Split immediately prior
to the Closing Date shall have irrevocably consented to the Reverse Split.
(e) The Company shall have filed the Final 2004 10-KSB with the
SEC and such Final 2004 10-KSB shall include an audit opinion from the Company's
independent public accountants that does not contain an explanatory paragraph
relating to the Company's ability to continue as a going concern.
(f) Total accounts payable of the Company and its Subsidiaries as
of the Closing Date that are more than 30 days past due shall be not more than
$613,146, as described on Schedule 6.1.
(g) Not less than $572,962 of indebtedness owed to the
individuals set forth in Schedule 6.1 (the "Inside Creditors") shall have been
converted into shares of Preferred Stock at a conversion price of $100 per
share, the remainder of such indebtedness ($72,962) shall have been repaid at a
price not greater than 100% of the face amount of such indebtedness plus accrued
and unpaid interest at the rate set forth in such indebtedness and all royalty
arrangements with the Inside Creditors shall have been terminated with the
effect that any such royalties shall be payable directly to the Company or a
Subsidiary.
(h) Each of Xxxxxx Xxxxx and Xxxxxxxx Xxxxx shall have entered
into lock-up agreements in form and substance reasonably satisfactory to the
Investors restricting their sales of Common Stock.
17
(i) No judgment, writ, order, injunction, award or decree of or
by any court, or judge, justice or magistrate, including any bankruptcy court or
judge, or any order of or by any governmental authority, shall have been issued,
and no action or proceeding shall have been instituted by any governmental
authority, enjoining or preventing the consummation of the transactions
contemplated hereby or in the other Transaction Documents.
(j) The Company shall have delivered a Certificate, executed on
behalf of the Company by its Chief Executive Officer or its Chief Financial
Officer, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in subsections (a), (b), (d), (e), (f), (g), (i) and (m) of
this Section 6.1.
(k) The Company shall have delivered a Certificate, executed on
behalf of the Company by its Secretary, dated as of the Closing Date, certifying
the resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents,
the Reverse Split, the filing and mailing of the Information Statement and the
issuance of the Securities, certifying the current versions of the Certificate
of Incorporation and Bylaws of the Company and certifying as to the signatures
and authority of persons signing the Transaction Documents and related documents
on behalf of the Company.
(l) The Investors shall have received an opinion from Xxxxxx Xxxx
& Priest LLP, the Company's counsel, dated as of the Closing Date, in form and
substance reasonably acceptable to the Investors and addressing such legal
matters as the Investors may reasonably request.
(m) No stop order or suspension of trading shall have been
imposed by Nasdaq, the SEC or any other governmental or regulatory body with
respect to public trading in the Common Stock.
6.2 Conditions to Obligations of the Company. The Company's
obligation to sell and issue the Shares and the Warrants at the Closing is
subject to the fulfillment to the satisfaction of the Company on or prior to the
Closing Date of the following conditions, any of which may be waived by the
Company:
(a) The representations and warranties made by the Investors in
Section 5 hereof, other than the representations and warranties contained in
Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the "Investment
Representations"), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date. The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date. The Investors
shall have performed in all material respects all obligations and conditions
herein required to be performed or observed by them on or prior to the Closing
Date.
18
(b) The Investors shall have executed and delivered the
Registration Rights Agreement.
(c) The Investors shall have delivered or caused to be delivered
the Purchase Price to the Company.
6.3 Termination of Obligations to Effect Closing; Effects.
-----------------------------------------------------
(a) The obligations of the Company, on the one hand, and the
Investors, on the other hand, to effect the Closing shall terminate as follows:
(i) Upon the mutual written consent of the Company and the
Investors;
(ii) By the Company if any of the conditions set forth in
Section 6.2 shall have become incapable of fulfillment, and shall not have been
waived by the Company;
(iii) By an Investor (with respect to itself only) if any of
the conditions set forth in Section 6.1 shall have become incapable of
fulfillment, and shall not have been waived by the Investor; or
(iv) By either the Company or any Investor (with respect to
itself only) if the Closing has not occurred on or prior to February 28, 2005;
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party's seeking to
terminate its obligation to effect the Closing.
(b) In the event of termination by the Company or any Investor
of its obligations to effect the Closing pursuant to this Section 6.3, written
notice thereof shall forthwith be given to the other Investors and the other
Investors shall have the right to terminate their obligations to effect the
Closing upon written notice to the Company and the other Investors. Nothing in
this Section 6.3 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.
7. Covenants and Agreements of the Company.
---------------------------------------
7.1 [Reserved]
7.2 Reports. The Company will furnish to the Investors and/or their
assignees such information relating to the Company and its Subsidiaries as from
time to time may reasonably be requested by the Investors and/or their
19
assignees; provided, however, that the Company shall not disclose material
nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides
the Investors, such advisors and representatives with the opportunity to accept
or refuse to accept such material nonpublic information for review and any
Investor wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.
7.3 No Conflicting Agreements. The Company will not take any action,
enter into any agreement or make any commitment that would conflict or interfere
in any material respect with the Company's obligations to the Investors under
the Transaction Documents.
7.4 Insurance. The Company shall not materially reduce the insurance
coverages described in Section 4.19.
7.5 Compliance with Laws. The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities.
7.6 Board Composition. Not later than sixty (60) days following the
Closing Date, the Company shall reconstitute its Board of Directors to consist
of not more than five persons, at least three of whom (including the two current
non-employee directors) shall be "independent directors" as defined in Nasdaq
Marketplace Rule 4200(a)(15). The new independent director shall be reasonably
satisfactory to the Investors. Thereafter, the Company shall maintain a Board of
Directors the majority of the members of which shall be "independent directors"
under such Rule and which shall otherwise meet the requirements of Nasdaq's
Marketplace Rules, including, without limitation, Rule 4350(d)(2) thereof.
7.7 Listing of Underlying Shares and Related Matters. As promptly as
practicable following the Closing, the Company shall use its best efforts to
cause its Common Stock, including the Conversion Shares and the Warrant Shares,
to be listed on the Nasdaq SmallCap Market. Further, if the Company applies to
have its Common Stock or other securities traded on any other principal stock
exchange or market, it shall include in such application the Conversion Shares
and the Warrant Shares and will take such other action as is necessary to cause
such Common Stock to be so listed. The Company will use commercially reasonable
efforts to effect and continue the listing and trading of its Common Stock on
the Nasdaq SmallCap Market or another principal stock exchange or market, and,
in accordance, therewith, will use commercially reasonable efforts to comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of such market or exchange, as applicable.
7.8 Board Observer Rights. So long as Special Situations Fund III,
L.P. ("SSF") or any of its Affiliates are the beneficial owners (as defined
under Rule 13d-3 promulgated under the 0000 Xxx) of at least 10% of the Common
Stock (as determined pursuant to such Rule 13d-3), the Company shall give SSF
written notice of each meeting of the Company's Board of Directors and each
committee thereof at least at the same time and in the same manner as notice is
given to the directors, and the Company shall permit a representative of SSF to
20
attend as an observer all meetings of the Company's Board of Directors and all
committees thereof; provided that in the case of telephonic meetings conducted
in accordance with the Company's bylaws and applicable law, the SSF
representative shall be given the opportunity to listen to such telephonic
meetings; and provided, further, that the Company shall have the right to
exclude the SSF representative from any portion of a meeting if, in the good
faith judgment of the Company's counsel, the inclusion of the SSF representative
therein would result in the waiver of any applicable privilege. The SSF
representative shall be entitled to receive all written materials and other
information (including without limitation copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the directors; provided, however, that the Company
shall have the right to provide information to the SSF representative if, in the
good faith judgment of the Company's counsel, the provision of such information
to the SSF representative would result in the waiver of any applicable
privilege. If the Company proposes to take any action by written consent in lieu
of a meeting of its Board of Directors or of any committee thereof, the Company
shall give written notice thereof to the SSF representative and each of the
Company's directors prior to the effective date of such consent describing in
reasonable detail the nature and substance of such action. The Company shall pay
the reasonable out-of-pocket expenses of the SSF representative incurred in
connection with attending such board and committee meetings.
7.9 Termination of Covenants. The provisions of Sections 7.2 through
7.8 shall terminate and be of no further force and effect on the date on which
the Company's obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.
7.10 Removal of Legends. Upon the earlier of (i) registration for
resale pursuant to the Registration Rights Agreement and receipt by the Company
of the Investor's written confirmation that such Securities will not be disposed
of except in compliance with the prospectus delivery requirements of the 1933
Act or (ii) Rule 144(k) becoming available the Company shall, upon an Investor's
written request, promptly cause certificates evidencing the Investor's
Securities to be replaced with certificates which do not bear such restrictive
legends, and Warrant Shares subsequently issued upon due exercise of the
Warrants shall not bear such restrictive legends provided the provisions of
either clause (i) or clause (ii) above, as applicable, are satisfied with
respect to such Warrant Shares. When the Company is required to cause unlegended
certificates to replace previously issued legended certificates, if unlegended
certificates are not delivered to an Investor within three (3) Business Days of
proper submission by that Investor of legended certificate(s) to the Company's
transfer agent together with a representation letter in customary form, the
Company shall be liable to the Investor for liquidated damages in an amount
equal to 1.5% of the aggregate purchase price of the Securities evidenced by
such certificate(s) for each thirty (30) day period (or portion thereof) beyond
such three (3) Business Day that the unlegended certificates have not been so
delivered.
7.11 Information Statement. Promptly following the Closing, the
Company shall take all action necessary to effectuate the Reverse Split. In
connection therewith, the Company will promptly prepare and file with the SEC an
information statement and, after receiving and promptly responding to any
comments of the SEC thereon, shall promptly mail such information statement to
21
the stockholders of the Company (as so mailed, the "Information Statement").
Each Investor shall promptly furnish in writing to the Company such information
relating to such Investor and its investment in the Company as the Company may
reasonably request for inclusion in the Information Statement and, if requested,
shall provide a stockholder consent to the Reverse Split. The Company will
comply with Section 14(c) of the 1934 Act and the rules promulgated thereunder
in relation to the Information Statement, and the Information Statement shall
not, on the date that the Information Statement (or any amendment thereof or
supplement thereto) is first mailed to stockholders, or at the time that the
Reverse Split is effectuated, contain any statement which, at the time and in
light of the circumstances under which it was made, is false or misleading with
respect to any material fact, or which omits to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
same subject matter which has become false or misleading. If the Company should
discover at any time prior to the effectuation of the Reverse Split, any event
relating to the Company or any of its Subsidiaries or any of their respective
affiliates, officers or directors that is required to be set forth in a
supplement or amendment to the Information Statement, in addition to the
Company's obligations under the 1934 Act, the Company will promptly inform the
Investors thereof.
7.12 Right of First Refusal on Future Financings. From the date hereof
until the second anniversary of the Closing Date, upon any issuance and sale by
the Company of its Common Stock or Common Stock Equivalents for cash (a
"Subsequent Financing"), each Investor investing $250,000 or more pursuant to
this Agreement (each, a "Qualifying Investor") shall have the right to
participate in such Subsequent Financing as provided herein. At least five (5)
Business Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Qualifying Investor a written notice of its intention to
effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such
Qualifying Investor if it wants to review the details of such financing (such
additional notice, a "Subsequent Financing Notice"). Upon the request of a
Qualifying Investor, and only upon a request by such Qualifying Investor, for a
Subsequent Financing Notice, the Company shall promptly, but no later than one
Business Day after such request, deliver a Subsequent Financing Notice to such
Qualifying Investor. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the Person with whom such Subsequent
Financing is proposed to be effected, and attached to which shall be a term
sheet or similar document relating thereto. Each Qualifying Investor shall
notify the Company by 6:30 p.m. (New York City time) on the fifth (5th) Business
Day after their receipt of the Subsequent Financing Notice of its willingness to
provide the Subsequent Financing on the terms described in the Subsequent
Financing Notice, subject to completion of mutually acceptable documentation. If
one or more Qualifying Investors shall fail to so notify the Company of their
willingness to participate in the Subsequent Financing, the Qualifying Investors
agreeing to participate in the Subsequent Financing (the "Participating
Investors") shall have the right to provide all of the Subsequent Financing. If
one or more Qualifying Investors fail to notify the Company of their willingness
to provide all of the Subsequent Financing and the Participating Investors do
not agree to provide all of the Subsequent Financing, the Company may effect the
remaining portion of such Subsequent Financing on the terms and to the Persons
set forth in the Subsequent Financing Notice; provided that the Company must
provide the Qualifying Investors with a second Subsequent Financing Notice, and
the Qualifying Investors will again have the right of first refusal set forth
22
above in this Section 7.12, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within 60 Business Days after the date
of the initial Subsequent Financing Notice with the Person identified in the
Subsequent Financing Notice. In the event the Company receives responses to
Subsequent Financing Notices from Qualifying Investors seeking to purchase more
than the financing sought by the Company in the Subsequent Financing such
Qualifying Investors shall have the right to purchase their Pro Rata Portion (as
defined below) of the Common Stock or Common Stock Equivalents to be issued in
such Subsequent Financing. "Pro Rata Portion" is the ratio of (x) the amount
invested by such Qualifying Investor pursuant to this Agreement (the
"Subscription Amount") and (y) the aggregate sum of all of the Subscription
Amounts of all Qualifying Investors wishing to provide a portion of the
Subsequent Financing. Notwithstanding the foregoing, this Section 7.12 shall not
apply in respect of the issuance of (a) shares of Common Stock or options to
employees, consultants, officers or directors of the Company pursuant to any
stock or option plan duly adopted by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose and (b)
securities upon the exercise of or conversion of any convertible securities,
options or warrants issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this
Agreement to increase the number of shares of Common Stock issuable thereunder
or to lower the exercise or conversion price thereof.
8. Survival and Indemnification.
----------------------------
8.1 Survival. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement; provided, however, that the
representations and warranties contained in this Agreement shall expire 18
months after the Closing.
8.2 Indemnification. Subject to the provisions of Section 8.1, the
Company agrees to indemnify and hold harmless each Investor and its Affiliates
and their respective directors, officers, employees and agents from and against
any and all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorney fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, "Losses") to which such Person may become subject as a result of
any breach of representation, warranty, covenant or agreement made by or to be
performed on the part of the Company under the Transaction Documents, and will
reimburse any such Person for all such amounts as they are incurred by such
Person.
8.3 Conduct of Indemnification Proceedings. Promptly after receipt by
any Person (the "Indemnified Person") of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
23
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
9. Miscellaneous.
-------------
9.1 Successors and Assigns. This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Investors,
as applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a private transaction without
the prior written consent of the Company or the other Investors, after notice
duly given by such Investor to the Company provided, that no such assignment or
obligation shall affect the obligations of such Investor hereunder. The
provisions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
9.2 Counterparts; Faxes. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.
9.3 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
24
9.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one Business Day after
delivery to such carrier. All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days' advance written notice to the other party:
If to the Company:
Caprius, Inc.
Xxx Xxxxxx Xxxxx
Xxxx Xxx, XX 00000
Attention: Xxxxxx Xxxxx, President
Fax: (000) 000-0000
With a copy to:
Xxxxxx Xxxx & Priest LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx, Esq.
Fax: (000) 000-0000
If to the Investors:
to the addresses set forth on the signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of Xxxxxxxxxx Xxxxxxx PC not to exceed $35,000.
Such expenses shall be paid not later than the Closing. The Company shall
reimburse the Investors for all reasonable out-of-pocket expenses incurred by
the Investors, including without limitation reimbursement of attorneys' fees and
disbursements, in connection with any amendment, modification or waiver of this
Agreement or the other Transaction Documents upon demand accompanied by
documentation of such expenses. In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement
in connection with this Agreement or the other Transaction Documents, the party
or parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys' fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in
such proceedings.
25
9.6 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investors. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Securities purchased under this Agreement at the time outstanding,
each future holder of all such Securities, and the Company.
9.7 Publicity. Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day immediately following the Closing Date, the Company
shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement. No later than the third trading day following
the Closing Date, the Company will file a Current Report on Form 8-K attaching
the press release described in the foregoing sentence as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and
notices in the manner and time required by the SEC or Nasdaq. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any Investor,
or include the name of any Investor in any filing with the SEC (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the 0000 Xxx)
or any regulatory agency or Nasdaq, without the prior written consent of such
Investor, except to the extent such disclosure is required by law or trading
market regulations, in which case the Company shall provide the Investors with
prior notice of such disclosure.
9.8 Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
9.9 Entire Agreement. This Agreement, including the Exhibits and the
Disclosure Schedules, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof, other than any written confidentiality agreement between the Company
and an Investor, which shall continue in full force and effect.
26
9.10 Further Assurances. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of New York without regard to the choice of law
principles thereof. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
9.12 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
[signature page follows]
27
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the date first
above written.
The Company: CAPRIUS, INC.
By: /s/ Xxxxxxxx Xxxxx
--------------------
Name: Xxxxxxxx Xxxxx
Title:
28
The Investors: SPECIAL SITUATIONS FUND III, L.P.
By: /s/ Xxxxx X. Greenhouse
-------------------------
Name: Xxxxx X. Greenhouse
Title: General Partner
Aggregate Purchase Price: $1,000,000
Number of Shares: 10,000
Number of Series A Warrants: 2,068,965
Number of Series B Warrants: 689,655
Address for Notice:
000 X. 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
with a copy to:
Xxxxxxxxxx Xxxxxxx PC
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx, Esq.
Telephone: 000.000.0000
Facsimile: 973.597.2400
SPECIAL SITUATIONS PRIVATE EQUITY
FUND, L.P.
By: /s/ Xxxxx X. Greenhouse
-------------------------
Name: Xxxxx X. Greenhouse
Title: General Partner
Aggregate Purchase Price: $3,000,000
Number of Shares: 30,000
Number of Series A Warrants: 6,206,896
Number of Series B Warrants: 2,068,965
000 X. 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
29
with a copy to:
Xxxxxxxxxx Xxxxxxx PC
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx, Esq.
Telephone: 000.000.0000
Facsimile: 973.597.2400
30
[other investors]
