EXHIBIT 10.1
FORM OF SECURITIES PURCHASE AGREEMENT DATED AS OF
DECEMBER 22, 2004 BETWEEN CIROND CORPORATION AND
THE PURCHASER NAMED THEREIN
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
December 22, 2004, among Cirond Corporation, a Nevada corporation (the
"COMPANY"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "PURCHASER" and collectively the
"PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "SECURITIES ACT") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:
"ACTION" shall have the meaning ascribed to such term in
Section 3.1(j).
"ADDITIONAL INVESTMENT RIGHT" means the Additional Investment
Rights as described in Section 2.2(a)(iv), in the form of EXHIBIT E
attached hereto.
"ADDITIONAL INVESTMENT RIGHT SECURITIES" means the Preferred
Stock and Warrants issuable upon exercise of the Additional Investment
Right.
"ADDITIONAL INVESTMENT RIGHT SHARES" means the shares of
Common Stock issuable upon conversion of the Additional Investment
Right Securities.
"AFFILIATE" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"CERTIFICATE OF DESIGNATION" means the Certificate of
Designation to be filed prior to the Closing by the Company with the
Secretary of State of Nevada, in the form of EXHIBIT A attached hereto.
"CLOSING" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"CLOSING DATE" means the Trading Day when all of the
Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) the
Purchasers' obligations to pay the Subscription Amount and (ii) the
Company's obligations to deliver the Securities have been satisfied or
waived.
"CLOSING PRICE" means on any particular date (a) the last
reported closing bid price per share of Common Stock on such date on
the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York
time), or (b) if there is no such price on such date, then the closing
bid price on the Trading Market on the date nearest preceding such date
(as reported by Bloomberg L.P. at 4:15 PM (New York time) for the
closing bid price for regular session trading on such day), or (c) if
the Common Stock is not then listed or quoted on the Trading Market and
if prices for the Common Stock are then reported in the "pink sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported, or (d) if the shares of Common Stock are not then publicly
traded the fair market value of a share of Common Stock as determined
by a qualified independent appraiser selected in good faith by the
Purchasers of a majority in interest of the Preferred Stock then
outstanding.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par
value $0.001 per share, and any securities into which such common stock
shall hereinafter have been reclassified.
"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 COUNSEL" means Dill Dill Carr Stonbraker & Hutchings,
P.C. with offices at 455 Sherman Street, Suite 300, Denver, Colorado
80203.
"CONVERSION PRICE" shall have the meaning ascribed to such
term in the Certificate of Designation.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
term in Section 3.1 hereof.
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"EFFECTIVE DATE" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXEMPT ISSUANCE" means the issuance of (a) shares of Common
Stock or options to employees, 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, (b) securities upon the exercise of or
conversion of any securities issued hereunder (including the warrants
issued to Ascendiant Securities, LLC and the Additional Investment
Right Securities), 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 such securities and (c) securities issued
pursuant to acquisitions or strategic transactions, provided any such
issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business
is investing in securities.
"FW" means Feldman Weinstein LLP with offices at 420 Lexington
Avenue, Suite 2620, New York, New York 10170-0002.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h) hereof.
"LIENS" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to
such term in Section 3.1(b) hereof.
"MATERIAL PERMITS" shall have the meaning ascribed to such
term in Section 3.1(m).
"PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"PREFERRED STOCK" means the up to 6,000 shares of the
Company's Series B 5% Convertible Preferred Stock issued hereunder
having the rights, preferences and privileges set forth in the
Certificate of Designation
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"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of EXHIBIT B attached hereto.
"REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale of the Underlying Shares and the Additional
Investment Right Shares by each Purchaser as provided for in the
Registration Rights Agreement.
"REQUIRED APPROVALS" shall have the meaning ascribed to such
term in Section 3.1(e).
"REQUIRED MINIMUM" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants, Preferred Stock and Additional Investment Rights,
ignoring any conversion or exercise limits set forth therein, and
assuming that the Conversion Price is at all times on and after the
date of determination 75% of the then Conversion Price on the Trading
Day immediately prior to the date of determination.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h) hereof.
"SECURITIES" means the Preferred Stock, the Warrants, the
Underlying Shares, the Additional Investment Rights, the Additional
Investment Right Securities and the Additional Investment Right Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STATED VALUE" means $1,000 per share of Preferred Stock.
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the amounts
set forth below such Purchaser's signature block on the signature pages
hereto, in United States Dollars and in immediately available funds.
"SUBSEQUENT FINANCING" shall have the meaning ascribed to such
term in Section 4.13.
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"SUBSIDIARY" means any subsidiary of the Company as set forth
on SCHEDULE 3.1(A).
"TRADING DAY" means a day on which the Common Stock is traded
on a Trading Market.
"TRADING MARKET" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq SmallCap Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"TRANSACTION DOCUMENTS" means this Agreement, the Certificate
of Designation, the Warrants, the Registration Rights Agreement, the
Additional Investment Right and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of the Preferred Stock and the Warrant Shares.
"WARRANTS" means collectively the Common Stock purchase
warrants, in the form of EXHIBIT C delivered to the Purchasers at the
Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be exercisable immediately and have a term of exercise equal to 5
years.
"WARRANT SHARES" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. On the Closing Date, upon the terms and subject to
the conditions set forth herein, concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and each
Purchaser agrees to purchase in the aggregate, severally and not jointly, up to
$2,000,000 of shares of Preferred Stock with an aggregated Stated Value equal to
such Purchaser's Subscription Amount and Warrants as determined by pursuant to
Section 2.2(a)(iii). Upon satisfaction of the conditions set forth in Section
2.2, the Closing shall occur at the offices of FW, or such other location as the
parties shall mutually agree.
2.2 DELIVERIES.
a) At or prior to the Closing Date, the Company shall
deliver or cause to be delivered to each Purchaser
the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of shares
of Preferred Stock equal to such Purchaser's
Subscription Amount divided by the
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Stated Value, registered in the name of such
Purchaser;
(iii) a Warrant registered in the name of such
Purchaser to purchase up to a number of
shares of Common Stock equal to 50% of such
Purchaser's aggregate Subscription Amount
divided by the Conversion Price, with an
exercise price equal to $0.55, subject to
adjustment therein;
(iv) an Additional Investment Right, registered
in the name of such Purchaser, pursuant to
which such Purchaser shall have the right to
purchase up to such Purchaser's pro rata
share (based on the number of shares of
Preferred Stock purchased hereunder at the
Closing) of up to $4,000,000 of preferred
stock and warrants, on the same terms,
prices and conditions of the Preferred Stock
and Warrants issued hereunder;
(v) the Registration Rights Agreement duly
executed by the Company;
(vi) a lock-up agreement, in the form attached
hereto as EXHIBIT F, executed by each
officer and director of the Company; and
(vii) a legal opinion of Company Counsel, in the
form of EXHIBIT D attached hereto.
b) At or prior to the Closing Date, each Purchaser shall
deliver or cause to be delivered to the Company the
following:
(i) this Agreement duly executed by such
Purchaser;
(ii) such Purchaser's Subscription Amount, by
wire transfer to the account as specified in
writing by the Company; and
(iii) the Registration Rights Agreement duly
executed by such Purchaser.
2.3 CLOSING CONDITIONS.
a) The obligations of the Company hereunder in
connection with the Closing are subject to the
following conditions being met:
(i) the accuracy in all material respects when
made and on the Closing Date of the
representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of
the Purchasers required to be performed at
or prior to the Closing Date shall have been
performed; and
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(iii) the delivery by the Purchasers of the items
set forth in Section 2.2(b) of this
Agreement.
b) The respective obligations of the Purchasers
hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the accuracy in all material respects on the
Closing Date of the representations and
warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of
the Company required to be performed at or
prior to the Closing Date shall have been
performed;
(iii) the delivery by the Company of the items set
forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse
Effect with respect to the Company since the
Closing Date;
(v) from the date hereof to the Closing Date,
trading in the Common Stock shall not have
been suspended by the Commission (except for
any suspension of trading of limited
duration agreed to by the Company, which
suspension shall be terminated prior to the
Closing), and, at any time prior to the
Closing Date, trading in securities
generally as reported by Bloomberg Financial
Markets shall not have been suspended or
limited, or minimum prices shall not have
been established on securities whose trades
are reported by such service, or on any
Trading Market, nor shall a banking
moratorium have been declared either by the
United States or New York State authorities
nor shall there have occurred any material
outbreak or escalation of hostilities or
other national or international calamity of
such magnitude in its effect on, or any
material adverse change in, any financial
market which, in each case, in the
reasonable judgment of each Purchaser, makes
it impracticable or inadvisable to purchase
the Preferred Stock at the Closing; and
(vi) the Company shall have entered into a
written employment agreement with [CEO] with
a minimum term of two years.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set
forth under the corresponding section of the disclosure schedules delivered to
the Purchasers concurrently herewith (the "DISCLOSURE SCHEDULES") which
Disclosure Schedules shall be deemed a part
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hereof, the Company hereby makes the representations and warranties set forth
below to each Purchaser.
(a) SUBSIDIARIES. All of the direct and indirect
subsidiaries of the Company are set forth on SCHEDULE 3.1(A). The
Company owns, directly or indirectly, all of the capital stock or other
equity interests of each Subsidiary free and clear of any Liens, and
all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and
free of preemptive and similar rights to subscribe for or purchase
securities. If the Company has no subsidiaries, then references in the
Transaction Documents to the Subsidiaries will be disregarded.
(b) ORGANIZATION AND QUALIFICATION. Each of the Company
and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Each of the
Company and the Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the
Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's ability to perform in any material
respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT") and
no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents, except where such violation or
default could not have or reasonably be expected to result in a
Material Adverse Effect.
(c) AUTHORIZATION; ENFORCEMENT. The Company has the
requisite corporate power and authority to enter into and to consummate
the transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and
no further action is required by the Company in connection therewith
other than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except (i)
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application
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affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(d) NO CONFLICTS. The execution, delivery and performance
of the Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated thereby do not and will
not: (i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any property
or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected; except in
the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.
(e) FILINGS, CONSENTS AND APPROVALS. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) the filing if
the Certificate of Designation, (ii) filings required pursuant to
Section 4.6, (iii) the filing with the Commission of the Registration
Statement, (iv) the notice and/or application(s) to each applicable
Trading Market for the issuance and sale of the Preferred Stock and
Warrants, the Additional Investment Rights, the Additional Investment
Right Securities and the listing of the Underlying Shares for trading
thereon in the time and manner required thereby and (v) the filing of
Form D with the Commission and such filings as are required to be made
under applicable state securities laws (collectively, the "REQUIRED
APPROVALS").
(f) ISSUANCE OF THE SECURITIES. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying
Shares at least equal to the Required Minimum on the date hereof.
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(g) CAPITALIZATION. The capitalization of the Company is
as described in the Company's most recent periodic report filed with
the Commission. The Company has not issued any capital stock since such
filing other than pursuant to the exercise of employee stock options
under the Company's stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company's employee stock
purchase plan and pursuant to the conversion or exercise of outstanding
Common Stock Equivalents. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary
is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will
not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors of
the Company or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company's capital stock to
which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's stockholders.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has
filed all reports required to be filed by it under the Securities Act
and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the
foregoing materials, including the exhibits thereto, being collectively
referred to herein as the "SEC REPORTS") on a timely basis or has
received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports in final amended form complied
in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent
basis during the periods involved
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("GAAP"), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) MATERIAL CHANGES. Since the date of the latest
audited financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has
not incurred any liabilities (contingent or otherwise) other than (A)
trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required
to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii)
the Company has not altered its method of accounting, (iv) the Company
has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and
(v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option
plans. The Company does not have pending before the Commission any
request for confidential treatment of information.
(j) LITIGATION. There is no action, suit, inquiry, notice
of violation, proceeding or investigation pending or, to the knowledge
of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"ACTION") which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or,
to the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
(l) COMPLIANCE. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred
that has not been waived that, with
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notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation
of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business except in each case as could not have a
Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not
have or reasonably be expected to result in a Material Adverse Effect
("MATERIAL PERMITS"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries
have good and marketable title in fee simple to all real property owned
by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment
of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and
the Subsidiaries are in compliance.
(o) PATENTS AND TRADEMARKS. The Company and the
Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that are necessary
or material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have could
have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has received
a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights of others.
(p) INSURANCE. The Company and the Subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in
the businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage at
12
least equal to the aggregate Subscription Amounts. To the best of
Company's knowledge, such insurance contracts and policies are accurate
and complete. Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as
set forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000 other
than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) SARBANES-OXLEY; INTERNAL ACCOUNTING CONTROLS. The
Company is in material compliance with all provisions of the
Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing
Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and
to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization,
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which
the Company's most recently filed periodic report under the Exchange
Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the
"EVALUATION DATE"). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in
the Company's internal controls (as such term is defined in Item 307(b)
of Regulation S-K under the Exchange
13
Act) or, to the Company's knowledge, in other factors that could
significantly affect the Company's internal controls.
(s) CERTAIN FEES. No brokerage or finder's fees or
commissions are or will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation
with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated by
this Agreement.
(t) PRIVATE PLACEMENT. Assuming the accuracy of the
Purchasers representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
(u) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.
(v) REGISTRATION RIGHTS. No Person has any right to cause
the Company to effect the registration under the Securities Act of any
securities of the Company.
(w) LISTING AND MAINTENANCE REQUIREMENTS. The Company's
Common Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its
knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received
any notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and
its Board of Directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under
14
the Transaction Documents, including without limitation as a result of
the Company's issuance of the Securities and the Purchasers' ownership
of the Securities.
(y) DISCLOSURE. The Company confirms that neither it nor
any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material, nonpublic information. The
Company understands and confirms that the Purchasers will rely on the
foregoing representations and covenants in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, furnished
by or on behalf of the Company with respect to the representations and
warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement
of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
3.2 hereof.
(z) NO INTEGRATED OFFERING. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its affiliates, nor any Person acting
on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any
exchange or automated quotation system on which any of the securities
of the Company are listed or designated.
(aa) SOLVENCY. Based on the financial condition of the
Company as of the Closing Date after giving effect to the receipt by
the Company of the proceeds from the sale of the Securities hereunder,
(i) the Company's fair saleable value of its assets exceeds the amount
that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business for the
current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after
taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect
of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization
laws of
15
any jurisdiction within one year from the Closing Date. The SEC Reports
set forth as of the dates thereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company
or any Subsidiary has commitments. For the purposes of this Agreement,
"INDEBTEDNESS" shall mean (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
and (c) the present value of any lease payments in excess of $50,000
due under leases required to be capitalized in accordance with GAAP.
Neither the Company nor any Subsidiary is in default with respect to
any Indebtedness.
(bb) TAX STATUS. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary
has filed all necessary federal, state and foreign income and franchise
tax returns and has paid or accrued all taxes shown as due thereon, and
the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
(cc) NO GENERAL SOLICITATION. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(dd) FOREIGN CORRUPT PRACTICES. Neither the Company, nor
to the knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any corrupt
funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity,
(ii) made any unlawful payment to foreign or domestic government
officials or employees or to any foreign or domestic political parties
or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law, or
(iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended
(ee) ACCOUNTANTS. The Company's accountants are set forth
on SCHEDULE 3.1(FF) of the Disclosure Schedule. To the Company's
knowledge, such accountants, who the Company expects will express their
opinion with respect to the financial statements to be included in the
Company's Annual Report on Form 10-KSB for the year ending December 31,
2004 are a registered public accounting firm as required by the
Securities Act.
(ff) SENIORITY. As of the Closing Date, no indebtedness or
other equity of the Company is senior to the Preferred Stock in right
of payment, whether with respect to
16
interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital lease
obligations (which is senior only as to the property covered thereby).
(gg) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There
are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
(hh) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length
purchaser with respect to the Transaction Documents and the
transactions contemplated hereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby
is merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
as of the date hereof and as of the Closing Date to the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity
duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or
similar action on the part of such Purchaser. Each Transaction Document
to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof,
will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
17
(b) PURCHASER REPRESENTATION. Such Purchaser understands
that the Securities are "restricted securities" and have not been
registered under the Securities Act or any applicable state securities
law and is acquiring the Securities as principal for its own account
and not with a view to or for distributing or reselling such Securities
or any part thereof, has no present intention of distributing any of
such Securities and has no arrangement or understanding with any other
persons regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell
the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws). Such
Purchaser is acquiring the Securities hereunder in the ordinary course
of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute
any of the Securities.
(c) PURCHASER STATUS. At the time such Purchaser was
offered the Securities, it was, and at the date hereof it is, and on
the Closing Date and date on which it exercises any Warrants or
Additional Investment Right or converts any Preferred Stock it will be,
an "accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either
alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not
purchasing the Securities as a result of any advertisement, article,
notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or
radio or presented at any seminar or any other general solicitation or
general advertisement.
(f) SHORT SALES. Each Purchaser represents that during
the sixty days prior to the date hereof to the date hereof, neither it
nor any Person over which the Purchaser has direct control, have made
any purchases or sales of, or granted any option for the purchase of or
entered into any hedging or similar transaction with the same economic
effect as a net short sale, of the Common Stock.
(g) DISCLOSURE OF INFORMATION; INDEPENDENT INVESTIGATION.
Such Purchaser has received, read, carefully considered, and fully
understands this Agreement and all documents related to the Company and
its operations required by and furnished to such Purchaser. In making
its decision to invest in the Securities, such Purchaser has relied
upon the independent investigations made by such Purchaser and by such
Purchaser's own professional advisors. Such Purchaser and its advisors,
if any, have been given the opportunity to obtain information and to
examine this Agreement and certain other
18
information regarding the Company and to ask questions of, and to
receive answers from, the Company or any Person acting on the Company's
behalf concerning the Securities, the Company, and terms and conditions
of this investment, and to obtain any additional information to verify
the accuracy of any information previously furnished. All such
questions have been answered to such Purchaser's full satisfaction.
The Company acknowledges and agrees that each Purchaser does
not make or has not made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically
set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance
with state and federal securities laws. In connection with any transfer
of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an affiliate of a Purchaser
or in connection with a pledge as contemplated in Section 4.1(b), the
Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor and reasonably acceptable
to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH
19
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall
not contain any legend (including the legend set forth in Section
4.1(b) hereof): (i) while a registration statement (including the
Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying
Shares are eligible for sale under Rule 144(k), or (iv) if such legend
is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
staff of the Commission). The Company shall cause its counsel to issue
a legal opinion to the Company's transfer agent promptly after the
Effective Date if required by the Company's transfer agent to effect
the removal of the legend hereunder. If all or any shares of Preferred
Stock, Warrant or Additional Investment Rights Security is converted or
exercised (as applicable) at a time when there is an effective
registration statement to cover the resale of the Underlying Shares, or
if such Underlying Shares may be sold under Rule 144(k) or if such
legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations thereof) then such
Underlying Shares shall be issued free of all legends. The Company
agrees that following the Effective Date or at such time as such legend
is no longer required under this Section 4.1(c), it will, no later than
three Trading Days following the delivery by a Purchaser to the Company
or the Company's transfer agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the "LEGEND REMOVAL DATE"), deliver or cause
to be delivered to such Purchaser a certificate representing such
shares that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer
set forth in this Section. Certificates for Securities subject to
legend removal hereunder shall be transmitted by the
20
transfer agent of the Company to the Purchasers by crediting the
account of the Purchaser's prime broker with the Depository Trust
Company System.
(d) In addition to such Purchaser's other available
remedies, the Company shall pay to a Purchaser, in cash, as partial
liquidated damages and not as a penalty, for each $1,000 of Underlying
Shares (based on the Closing Price of the Common Stock on the date such
Securities are submitted to the Company's transfer agent) delivered for
removal of the restrictive legend and subject to this Section 4.1(c),
$10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days
after such damages have begun to accrue) for each Trading Day after the
Legend Removal Date until such certificate is delivered without a
legend. Nothing herein shall limit such Purchaser's right to pursue
actual damages for the Company's failure to deliver certificates
representing any Securities as required by the Transaction Documents,
and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the
other Purchasers, agrees that the removal of the restrictive legend
from certificates representing Securities as set forth in this Section
4.1 is predicated upon the Company's reliance that the Purchaser will
sell any Securities pursuant to either the registration requirements of
the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
(f) Until the date that each Purchaser holds less than
20% of the shares of Preferred Stock initially purchased hereunder by
such Purchaser, the Company shall not undertake a reverse or forward
stock split or reclassification of the Common Stock without the prior
written consent of the Purchasers holding a majority in interest of the
outstanding shares of Preferred Stock.
4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request,
21
all to the extent required from time to time to enable such Person to sell such
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144.
4.4 INTEGRATION. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market.
4.5 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of
Exercise included in the Warrants, the form of Notice of Conversion included in
the Certificate of Designations and the form of Notice of Exercise or Conversion
set forth in the Additional Investment Rights and Additional Investment Right
Securities set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants, convert the Preferred Stock or convert or
exercise the Additional Investment Rights and Additional Investment Right
Securities. No additional legal opinion or other information or instructions
shall be required of the Purchasers to exercise the Warrants or convert the
Preferred Stock or convert or exercise the Additional Investment Rights and
Additional Investment Right Securities. The Company shall honor exercises of the
Warrants and the Additional Investment Rights and conversions of the Preferred
Stock and Additional Investment Right Securities and shall deliver the
Additional Investment Securities and the Underlying Shares in accordance with
the terms, conditions and time periods set forth in the Transaction Documents.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by
8:30 a.m. Eastern time on the Trading Day following the date hereof, issue a
Current Report on Form 8-K, reasonably acceptable to each Purchaser disclosing
the material terms of the transactions contemplated hereby, and shall attach the
Transaction Documents thereto as exhibits. The Company and each Purchaser shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market, without the prior written consent of such Purchaser, except
(i) as required by federal securities law in connection with the registration
statement contemplated by the Registration Rights Agreement and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under subclause (i) or (ii).
22
4.7 SHAREHOLDER RIGHTS PLAN. No claim will be made or enforced by
the Company or, to the knowledge of the Company, any other Person that any
Purchaser is an "Acquiring Person" under any shareholder rights plan or similar
plan or arrangement in effect or hereafter adopted by the Company, or that any
Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Purchasers. The Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.9 USE OF PROCEEDS. Except as set forth on SCHEDULE 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents.
4.10 REIMBURSEMENT. If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder), solely as a
result of such Purchaser's acquisition of the Securities under this Agreement,
the Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.11 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of
this Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"PURCHASER PARTY") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company
23
in this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser, or any of them or their respective Affiliates,
by any stockholder of the Company who is not an Affiliate of such Purchaser,
with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of such Purchaser's
representation, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser may have with any such stockholder
or any violations by the Purchaser of state or federal securities laws or any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance). If any action shall be brought against any Purchaser
Party in respect of which indemnity may be sought pursuant to this Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of its
own choosing. Any Purchaser Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Purchaser Party
except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
4.12 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but
unissued (and otherwise unreserved) shares of Common Stock is less than
the Required Minimum on such date, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the
Company's certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.
(c) The Company shall, if applicable: (i) in the time and
manner required by the Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause
such shares of Common Stock to be approved for listing on the Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on any date at least equal to the Required Minimum on such date
on such Trading Market or another Trading Market.
24
4.13 PARTICIPATION IN FUTURE FINANCING. From the date hereof until
the one year anniversary of the Effective Date, upon any financing by the
Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents
or any non-convertible debt securities (a "SUBSEQUENT FINANCING"), each
Purchaser shall have the right to participate in up to 100% of the Subsequent
Financing (the "PARTICIPATION MAXIMUM"). At least 5 Trading Days prior to the
closing of the Subsequent Financing, the Company shall deliver to each Purchaser
a written notice of its intention to effect a Subsequent Financing
("PRE-NOTICE"), which Pre-Notice shall ask such Purchaser if it wants to review
the details of such financing (such additional notice, a "SUBSEQUENT FINANCING
NOTICE"). Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no
later than 1 Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the Person with whom such Subsequent
Financing is proposed to be effected, and attached to which shall be a term
sheet or similar document relating thereto. If by 5:30 p.m. (New York City time)
on the 5th Trading Day after all of the Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate in the
Subsequent Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Participation Amount, then the
Company may effect the remaining portion of such Subsequent Financing on the
terms and to the Persons set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such 5th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not elect to
participate. The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation
set forth above in this Section 4.13, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within 60 Trading Days after
the date of the initial Subsequent Financing Notice. In the event the Company
receives responses to Subsequent Financing Notices from Purchasers seeking to
purchase more than the aggregate amount of the Participation Amount, each such
Purchaser shall have the right to purchase their Pro Rata Portion (as defined
below) of the Participation Maximum. "PRO RATA PORTION" is the ratio of (x) the
Subscription Amount of Securities purchased by a participating Purchaser and (y)
the sum of the aggregate Subscription Amount of all participating Purchasers.
Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of
an Exempt Issuance or a firm commitment underwritten public offering of the
Company's securities.
4.14 SUBSEQUENT TRANSACTIONS. From the date hereof until after the
Effective Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents or indebtedness for borrowed monies. In
addition to the limitations set forth herein, from the date hereof until such
time as no Purchaser holds any of the Securities, the Company shall be
prohibited from effecting or entering into an agreement to effect any Subsequent
Financing involving a "VARIABLE RATE TRANSACTION" (as defined below). The term
"VARIABLE RATE TRANSACTION" shall mean a transaction in which the Company issues
or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or
25
(B) with a conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such debt or equity security
or upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock (but
not including customary anti-dilution provisions that adjust the conversion or
exercise price of outstanding securities). Any Purchaser shall be entitled to
obtain injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
Notwithstanding the foregoing, this Section 4.14 shall not apply in respect of
an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.15 EQUAL TREATMENT OF PURCHASERS. No consideration shall be
offered or paid to any person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
is also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.16 NO NET SHORT POSITION. Each Purchaser agrees, severally and
not jointly with any other Purchasers, that they or any Person acting at the
request or direction of Purchaser, will not enter into any Short Sales (as
hereinafter defined) from the period commencing on the Closing Date and ending
on the date that such Purchaser no longer holds any shares of Preferred Stock.
For purposes of this Section 4.16, a "SHORT SALE" by any Purchaser shall mean a
sale of Common Stock by such Purchaser that is marked as a short sale and that
is made at a time when there is no equivalent offsetting long position in Common
Stock held by such Purchaser. For purposes of determining whether there is an
equivalent offsetting long position in Common Stock held by the Purchaser,
Underlying Shares that have not yet been exercised or converted, as applicable,
shall be deemed to be held long by the Purchaser, and the amount of shares of
Common Stock held in a long position shall be all Underlying Shares (ignoring
any exercise limitations included therein) held by such Purchaser on such date,
plus any shares of Common Stock otherwise then held by such Purchaser.
Additionally, each Purchaser understands and acknowledges, severally and not
jointly with any other Purchaser, that the SEC currently takes the position that
coverage of short sales of shares of the Common Stock "against the box" prior to
the Effective Date of the Registration Statement with the Underlying Shares
issuable hereunder is a violation of Section 5 of the Securities Act, as set
forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance.
ARTICLE V.
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated on or before December 31, 2004; provided that no such termination
will affect the right of any party to sue for any breach by the other party (or
parties).
26
5.2 FEES AND EXPENSES. The Company shall deliver, prior to the
Closing, a completed and executed copy of the Closing Statement, attached hereto
as ANNEX A. Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the issuance of
any Securities.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number set forth on the signature pages attached hereto on a
day that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the second Trading Day following the date of mailing, if
sent by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages
attached hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each Purchaser or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.6 CONSTRUCTION. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of each Purchaser. Any Purchaser may
assign any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in
27
writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. The parties
hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 SURVIVAL. The representations and warranties contained herein
shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
28
5.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; PROVIDED,
HOWEVER, in the case of a rescission of a conversion of shares of Preferred
Stock, exercise of a Warrant or conversion and/or exercise of an Additional
Investment Right Security, the Purchaser shall be required to return any shares
of Common Stock subject to any such rescinded conversion notice.
5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
29
5.17 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent any of
the Purchasers but only the placement agent, Ascendiant Securities, LLC. The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.
5.18 LIQUIDATED DAMAGES. The Company's obligations to pay any
partial liquidated damages or other amounts owing under the Transaction
Documents is a continuing obligation of the Company and shall not terminate
until all unpaid partial liquidated damages and other amounts have been paid
notwithstanding the fact that the instrument or security pursuant to which such
partial liquidated damages or other amounts are due and payable shall have been
canceled.
5.19 CONSTRUCTION. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(SIGNATURE PAGES FOLLOW)
30
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
CIROND CORPORATION ADDRESS FOR NOTICE:
By:__________________________________________
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
31
[PURCHASER SIGNATURE PAGES TO CROO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: ___________________________________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: ______________________
Name of Authorized Signatory: _______________________________________________
Title of Authorized Signatory: ______________________________________________
Email Address of Authorized Entity:__________________________________________
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount:
Warrant Shares:
Additional Investment Right:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
32
ANNEX A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $2,000,000 of Preferred Stock,
Warrants and Additional Investment Rights from Cirond Corporation (the
"COMPANY"). All funds will be wired into a trust account maintained by Dill Dill
Carr Stonbraker & Hutchings, P.C., counsel to the Company. All funds will be
disbursed in accordance with this Closing Statement.
DISBURSEMENT DATE: December 22, 2004
- --------------------------------------------------------------------------
I. PURCHASE PRICE
GROSS PROCEEDS TO BE RECEIVED IN TRUST $2,000,000
II. DISBURSEMENTS
Ascendiant Securities, LLC (Placement $60,000
Agent Fee - 8% of Aggregate Subscription
Amount based on $2M, net of $100,000
invested for Ascendiant's Subscription
Amount)
Feldman Weinstein, LLP (Legal Fee) $15,000
Dill Dill Carr Stonbraker & Hutchings, P.C. $85,000
TOTAL AMOUNT DISBURSED: $160,000
WIRE INSTRUCTIONS:
To: Ascendiant Securities, LLC $60,000
AMERICAN BUSINESS BANK
523 WEST 6TH STREET, SUITE 900
LOS ANGELES, CA 90014-1223
213-430-4000
ABA # 122042807
ACCOUNT: ASCENDIANT SECURITIES,
LLC
ACCOUNT # 02100363
To: Feldman Weinstein, LLP $15,000
STERLING NATIONAL BANK
622 3RD AVENUE
NEW YORK, NY 10017
Account Name: Feldman Weinstein
33
LLP
ABA ROUTING NO: 026007773
ACCT NO: 0814180101
Remark: croo fee/Ascendiant
34
SCHEDULE 3.1(A) - SUBSIDIARIES
Cirond Networks Inc. - a Nevada corporation
Cirond Networks (Canada) Inc., a British Columbia corporation
SCHEDULE 3.1(G) - CAPITALIZATION
At September 30, 2004, the Company had received a subscription in the amount of
$25,000 for 50,000 shares of common stock. These shares were issued in November
2004. As of December 10, 2004, 37,110,000 shares of common stock are issued and
outstanding and no shares of preferred stock are issued or outstanding.
Pursuant to the Company's agreement with Ascendiant Securities, LLC dated August
26, 2004, the Company has agreed to pay a cash fee equal to 8% of the gross
proceeds from the sale of Securities. In addition, upon the sale of Securities,
the Company is to grant Ascendiant warrants for the purchase of an amount equal
to 8% of the Securities to be issued in the transaction. The warrants are to be
exercisable into Securities similar to those issued in the transaction and have
an exercise price and term consistent with the warrants issued to investors. The
warrants are to contain piggyback registration rights and a net exercise
provision.
In connection with the acquisition of the Company's wholly-owned subsidiary,
Cirond Networks, Inc., the Company issued 17,000,000 of its common stock to
Seaside Holdings Inc. (f/k/a Cirond Technologies Inc.), a Colorado corporation
("Seaside"). Effective July 31, 2004, Seaside transferred the 17,000,000 shares
of the Company's common stock to a trust, the Seaside Holdings Trust (the
"Trust"), for the benefit of the shareholders of Seaside as of July 31, 2004.
The Trust will be dissolved on or before December 31, 2004 in accordance with
the terms of the trust agreement and upon dissolution will distribute the shares
of the Company held by the Trust to the beneficiaries of the Trust. Pursuant to
the terms of the trust agreement establishing the Trust, the trustee may vote on
the following matters only as directed by the beneficiaries of the Trust which
are the beneficial owners of two-thirds of the Company's common shares held by
the Trust:
(1) Proposals to dissolve the Company, or to merge or consolidate it with
another company or companies;
(2) Proposals to amend the Articles of Incorporation and/or Bylaws of the
Company;
(3) Proposals to sell substantially all the assets of the Company not in
the ordinary course of business;
(4) Proposals which will have the effect, directly or indirectly, of
reducing substantially the voting power, right to dividends, or rights
to the assets of the Company upon liquidation, of the stock of Company
subject to the Trust; and
(5) Proposals to sell all or any portion of the stock of the Company.
Officers and directors of the Company will be executing a lock-up agreement in
connection with this transaction.
SCHEDULE 3.1(H) - SEC REPORTS; FINANCIAL STATEMENTS
The following reports were not filed on a timely basis:
DUE DATE
REPORT (AS EXTENDED, IF APPLICABLE) DATE FILED
- ------------------------------------------------------------- ------------------------------ ------------------------
Form 8-K dated September 8, 2003 September 15, 2003 October 10, 2003
Amended Form 8-K dated November 25, 2003 February 10, 2004 April 19, 2004
Form 10-KSB (year ended December 31, 2003) April 14, 2004 May 10, 2004
Form 10-QSB (quarter ended March 31, 2004) May 20, 2004 May 21, 2004
Form 10-QSB (quarter ended June 30, 2004) August 19, 2004 August 20, 2004
Form 8-K dated September 20, 2004 September 24, 2004 October 5, 2004
Form 8-K dated October 1, 2004 October 7, 2004 December 2, 2004
SCHEDULE 3.1(J) - LITIGATION
Tate Holt, a director of the Company, was an outside director of AremisSoft
Corporation ("AremisSoft"), an enterprise application software company that
encountered accounting issues in its international emerging markets division.
The following derivative state court actions were filed in Delaware in 2001
alleging breaches of fiduciary duties against the directors, but not fraud:
Jeffrey Music, Derivatively on Behalf of AremisSoft Corporation, v. Lycourgos K.
Kyprianou, Roys Poyiadjis, Dann V, Angeloff, H. Tate Holt, George Papadopoulos,
John Malamas, Noel Voice, George H. Ellis, and Theodore S. Fessas, Civil Action
No. 18955-NC, Delaware Chancery Court. Case dismissed with prejudice.
Thomas Malagisi, Derivatively on Behalf of AremisSoft Corporation v. Lycourgos
K. Kyprianou, Roys Poyiadjis, Dann V, Angeloff, H. Tate Holt, George
Papadopolos, John Malamas, Noel Voice, George H. Ellis and Theordore S. Fessas,
Civil Action No. 18954, Delaware Chancery Court. Sister complaint to Music v.
Kyprianou, et al. above. Case dismissed with prejudice.
SCHEDULE 3.1(P) - INSURANCE
Neither the Company nor its Subsidiaries has any directors and officers
liability insurance.
SCHEDULE 3.1(S) - CERTAIN FEES
Pursuant to the Company's agreement with Ascendiant Securities, LLC dated August
26, 2004, the Company has agreed to pay a cash fee equal to 8% of the gross
proceeds from the sale of Securities. In addition, upon the sale of Securities,
the Company is to grant Ascendiant warrants for the purchase of an amount equal
to 8% of the Securities to be issued in the transaction. The warrants are to be
exercisable into Securities similar to those issued in the transaction and have
an exercise price and term consistent with the warrants issued to investors. The
warrants are to contain piggyback registration rights and a net exercise
provision.
SCHEDULE 3.1(V) - REGISTRATION RIGHTS
On August 2, 2004, the Company entered into a Management Services Agreement with
STS. The agreement is effective as of August 2, 2004 and has a term of two
years. Pursuant to the terms of the agreement, the Company has issued 1,200,000
shares of its common stock to STS at a deemed price of $1.50 per share. The
shares will be held in escrow by the Company, with the Company releasing 50,000
shares from escrow for every month of services performed. STS was granted
piggy-back registration rights in connection with the agreement and the shares
are subject to anti-dilution provisions in the event of a consolidation of the
Company's share capital.
SCHEDULE 3.1(X) - APPLICATION OF TAKEOVER PROVISIONS
The Company is currently not subject to the provisions of Nevada Revised
Statutes Sections 78.378 through 78.3793 and 78.411 through 78.444 because it
does not come under the definitions of "Issuing Corporation" and "Resident
Domestic Corporation," respectively. The Articles of Incorporation currently do
not contain any provisions making these sections inapplicable to the Company
generally.
The Company will amend its Articles of Incorporation to render these sections
inapplicable.
SCHEDULE 3.1(AA) - SOLVENCY
At September 30, 2004, the Company reported a stockholders' deficiency of
$705,664, current assets of $96,447, total assets of $165,729, and current
liabilities of $871,393.
As is common with many software companies, the Company's asset base is
relatively small since it must expense product development costs and research.
SCHEDULE 3.1(FF) - SENIORITY
The Company notes that indebtedness generally can be said to have priority over
any form of equity, including preferred stock.
At September 30, 2004, total liabilities were $871,393, consisting of the
following:
Accounts payable and accrued liabilities1..........$ 143,428
Consulting fees payable............................ 110,516
Share subscriptions payable2....................... 25,000
Deferred revenue3.................................. 30,874
Loan payable4...................................... 400,000
Due to stockholder................................. 161,575
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TOTAL..............................................$ 871,393
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1 Included in accounts payable and accrued liabilities at September 30,
2004 was $50,776 that was being disputed by management with the
supplier. This amount is no longer included in accounts payable as the
supplier has agreed that the Company is not liable for this amount.
2 Share subscriptions outstanding at September 30, 2004, consist of
subscriptions to acquire 50,000 common shares at a price of $0.50 per
share. These shares were issued in November, 2004.
3 Represents support fees received but not deemed to be earned as of
September 30, 2004.
4 This amount will be paid from proceeds of this transaction. See
Schedule 4.9 below.
SCHEDULE 4.9 - USE OF PROCEEDS
The Company proposes to use $400,000 of the proceeds to pay an unsecured demand
loan made by an unaffiliated third party.