EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
DATED APRIL 3, 2007
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
April 3, 2007 among Titanium Group Limited, a corporation organized under the
laws of the British Virgin Islands (the "COMPANY"), and each purchaser
identified on the signature pages hereto (each, including its successors and
assigns, a "PURCHASER" and collectively the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings set forth in this Section 1.1:
"ACTION" shall have the meaning ascribed to such term in Section
3.1(j).
"AFFILIATE" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Purchaser,
any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"BUSINESS DAY" means any day except Saturday, Sunday, any day
which shall be a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized
or required by law or other governmental action to close.
"CLOSING" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"CLOSING DATE" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions
precedent to (i) the Purchasers' obligations to pay the Subscription
Amount and (ii) the Company's obligations to deliver the Securities
have been satisfied or waived.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value
$0.01 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed into.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"COMPANY COUNSEL" means Dill Dill Carr Stonbraker & Hutchings,
P.C., with offices located at 455 Sherman Street, Suite 300, Denver,
Colorado 80203-4404.
"CONVERSION PRICE" shall have the meaning ascribed to such term in
the Debentures.
"DEBENTURES" means the Series A 8% Senior Convertible Debentures
due, subject to the terms therein, 3 years from their date of issuance,
issued by the Company to the Purchasers hereunder, in the form of
EXHIBIT A attached hereto.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
term in Section 3.1.
"DISCUSSION TIME" shall have the meaning ascribed to such term in
Section 3.2(f).
"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.
"ESCROW AGENT" shall mean Signature Bank, a New York State
chartered bank and having an office at 261 Madison Avenue, New York,
New York 10016.
"ESCROW AGREEMENT" shall mean the Escrow Deposit Agreement, dated
prior to the date hereof, by and among the Company, the Placement Agent
and the Escrow Agent pursuant to which the Purchasers shall deposit
Subscription Amounts with the Escrow Agent to be applied to the
transactions contemplated hereunder, substantially in the form of
EXHIBIT E attached hereto.
"EVALUATION DATE" shall have the meaning ascribed to such term in
Section 3.1(r).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
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"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 for such purpose by a majority
of the members of the Board of Directors of the Company or a majority
of the members of a committee of directors established for such purpose
by the Board of Directors of the Company, (b) securities upon the
exercise or exchange of or conversion of any Securities issued
hereunder and/or other securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been
amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise, exchange or conversion price of
such securities, (c) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of the disinterested
directors of the Company, provided that 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, (d) shares
of Common Stock or options to consultants providing financial public
relations, corporate finance, technical or other services to the
Company, provided that issuances to such consultants (i) shall not
exceed the aggregate number of shares set forth under the heading
"Commitments" on SCHEDULE 3.1(G) (as such share amounts shall be
adjusted for reverse and forward stock splits, recapitalizations and
the like after the date hereof) and (ii) shall not carry registration
rights of any kind, (e) commencing on the date that is the 3 month
anniversary of the Effective Date, shares of Common Stock or options to
consultants providing financial public relations, corporate finance,
technical or other services to the Company, provided that issuances to
such consultants (i) shall not exceed an aggregate of 300,000 shares
(adjusted for reverse and forward stock splits, recapitalizations and
the like after the date hereof) in any 12 month period and (ii) shall
not carry registration rights of any kind and (f) with prior written
consent of the Placement Agent, up to an amount of debentures and
warrants equal to the difference between $4,000,000 and the aggregate
Subscription Amounts hereunder, on the same terms, conditions and
prices as hereunder, with investors executing definitive agreements for
the purchase of such securities and such transactions having closed on
or before the earlier of (i) 5 Business Days prior to the Filing Date
(as defined in the Registration Rights Agreement) or (ii) the date that
the Initial Registration Statement is actually filed with the
Commission.
"FWS" means Feldman Weinstein & Smith LLP with offices located 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).
"INDEBTEDNESS" shall have the meaning ascribed to such term in
Section 3.1(aa).
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to
such term in Section 3.1(o).
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"LEGEND REMOVAL DATE" shall have the meaning ascribed to such term
in Section 4.1(c).
"LIENS" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to such
term in Section 3.1(b).
"MATERIAL PERMITS" shall have the meaning ascribed to such term in
Section 3.1(m).
"MAXIMUM RATE" shall have the meaning ascribed to such term in
Section 5.17.
"PARTICIPATION MAXIMUM" shall have the meaning ascribed to such
term in Section 4.13.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"PLACEMENT AGENT" means First Montauk Securities Corp., a New
Jersey corporation.
"PLACEMENT AGENT SHARES" means the aggregate number of shares of
Common Stock underlying the Placement Agent Warrant.
"PRE-NOTICE" shall have the meaning ascribed to such term in
Section 4.13.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PURCHASER PARTY" shall have the meaning ascribed to such term in
Section 4.11.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of EXHIBIT B attached hereto.
"REGISTRATION STATEMENT" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by each Purchaser as
provided for in the Registration Rights Agreement.
"REQUIRED APPROVALS" shall have the meaning ascribed to such term
in Section 3.1(e).
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"REQUIRED MINIMUM" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise or conversion in full of all
Warrants and Debentures (including Underlying Shares issuable as
payment of interest), ignoring any conversion or exercise limits set
forth therein, and assuming that the Conversion Price is at all times
on and after the date of determination 75% of the then Conversion Price
on the Trading Day immediately prior to the date of determination.
"RULE 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h).
"SECURITIES" means the Debentures, the Warrants, the Warrant
Shares and the Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated hereunder.
"SHORT SALES" means all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of Common
Stock).
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the aggregate
amount to be paid for Debentures and Warrants purchased hereunder as
specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount," in United
States dollars and in immediately available funds.
"SUBSEQUENT FINANCING" shall have the meaning ascribed to such
term in Section 4.13.
"SUBSEQUENT FINANCING NOTICE" shall have the meaning ascribed to
such term in Section 4.13.
"SUBSIDIARY" means any subsidiary of the Company as set forth on
SCHEDULE 3.1(A).
"TRADING DAY" means a day on which the Common Stock is traded on a
Trading Market.
"TRADING MARKET" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in
question: the American Stock Exchange, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange or the OTC Bulletin Board.
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"TRANSACTION DOCUMENTS" means this Agreement, the Debentures, the
Warrants, the Registration Rights Agreement and any other documents or
agreements executed in connection with the transactions contemplated
hereunder.
"TRANSFER AGENT" means Computershare Trust Company, Inc., with a
mailing address of 350 Indiana Street, Suite 800, Golden, Colorado
80401 and a facsimile number of (303) 262-0700, and any successor
transfer agent of the Company.
"UNDERLYING SHARES" means the shares of Common Stock issued and
issuable upon conversion or redemption of the Debentures and upon
exercise of the Warrants and issued and issuable in lieu of the cash
payment of interest on the Debentures in accordance with the terms of
the Debentures.
"VARIABLE RATE TRANSACTION" shall have the meaning ascribed to
such term in Section 4.14(c).
"VWAP" means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. New York City time to 4:02 p.m. New York City time); (b) if the
OTC Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the OTC Bulletin Board; (c) if the Common Stock is not then listed
or quoted on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by Pink Sheets, LLC
(or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common
Stock so reported; or (d) in all other cases, the fair market value of
a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchaser and reasonably acceptable to
the Company, the fees and expenses of which shall be paid by the
Company.
"WARRANTS" means, collectively, the Common Stock purchase warrants
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, in the form of EXHIBIT C attached
hereto.
"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, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and each Purchaser, severally and not jointly, agrees
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to purchase up to an aggregate of $4,000,000 in principal amount of the
Debentures. Each Purchaser shall deliver to the Escrow Agent, via wire transfer
or a certified check, immediately available funds equal to its Subscription
Amount and the Company shall deliver to each Purchaser its respective Debenture
and a Warrant, as determined pursuant to Section 2.2(a), and the Company and
each Purchaser shall deliver the other items set forth in Section 2.2
deliverable at the Closing. Upon satisfaction of the conditions set forth in
Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such
other location as the parties shall mutually agree.
2.2 DELIVERIES.
(a) On the Closing Date, the Company shall deliver or cause to
be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
EXHIBIT D attached hereto;
(iii) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, registered in the name of such
Purchaser;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 100% of
such Purchaser's Subscription Amount divided by the initial
Conversion Price, with an exercise price equal to $0.50, subject
to adjustment therein;
(v) a common stock purchase warrant registered in the name
of the Placement Agent, or its designees, to purchase up to a
number of shares of Common Stock equal to 10% of the aggregate
shares of Common Stock issuable upon conversion of the Debentures,
with an exercise price equal to $0.50, subject to adjustment
therein (such warrant, the "PLACEMENT AGENT WARRANT");
(vi) the Escrow Deposit Agreement duly executed by the
Company and the Placement Agent; and
(vii) the Registration Rights Agreement duly executed by the
Company.
(b) On the Closing Date, each Purchaser shall deliver or cause
to be delivered to the Company (or, if specified, the Escrow Agent) the
following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer
to the Escrow Agent; and
(iii) the Registration Rights Agreement duly executed by
such Purchaser.
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2.3 CLOSING CONDITIONS.
(a) The obligations of the Company hereunder in connection with
the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on
the Closing Date of the representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing
Date shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth
in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions
being met:
(i) the accuracy in all material respects when made and on
the Closing Date of the representations and warranties of the
Company contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the Closing Date
shall have been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or
the Company's principal Trading Market (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 L.P. shall not have been suspended or
limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment
of each Purchaser, makes it impracticable or inadvisable to
purchase the Debentures at the Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in the Disclosure Schedules which Disclosure Schedules shall be deemed a part
hereof and shall qualify any representation or otherwise made herein to the
extent of the disclosure contained in the corresponding section of the
Disclosure Schedules, the Company hereby makes the following representations and
warranties to each Purchaser:
(a) SUBSIDIARIES. All of the direct and indirect subsidiaries
of the Company are set forth on SCHEDULE 3.1(A). Except as 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 of 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, all
other references to the Subsidiaries or any of them in the Transaction
Documents shall be disregarded.
(b) ORGANIZATION AND QUALIFICATION. The Company and each of
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company's ability to perform in
any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "MATERIAL ADVERSE
EFFECT") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on
the part of the Company and no further action is required by the
Company, its board of directors or its
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stockholders in connection therewith other than in connection with the
Required Approvals. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited
by 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.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and thereby do
not and will not: (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) subject to the Required Approvals, conflict with
or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) FILINGS, CONSENTS AND APPROVALS. The Company is not required
to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i) filings required
pursuant to Section 4.6, (ii) the filing with the Commission of the
Registration Statement, (iii) the notice and/or application(s) to each
applicable Trading Market for the issuance and sale of the Securities
and the listing of the Underlying Shares for trading thereon in the
time and manner required thereby and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable
state securities laws (collectively, the "REQUIRED APPROVALS").
(f) ISSUANCE OF THE SECURITIES. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed
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by the Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying
Shares at least equal to the Required Minimum on the date hereof.
(g) CAPITALIZATION. The capitalization of the Company is as set
forth on SCHEDULE 3.1(G), which SCHEDULE 3.1(G) shall also include the
number of shares of Common Stock owned beneficially, and of record, by
Affiliates of the Company as of the date hereof. The Company has not
issued any capital stock since its most recently filed periodic report
under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company's stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company's employee
stock purchase plan and pursuant to the conversion or exercise of
Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. 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 set forth on SCHEDULE 3.1(G) and
as a result of the purchase and sale of the Securities, there are no
outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable
for, or giving any Person any right to subscribe for or acquire, any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become
bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of 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, schedules, forms, statements and other documents required
to be filed by the Company 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 or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the "SEC
REPORTS") on a timely basis or has
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received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise
specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i) MATERIAL CHANGES. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in a subsequent SEC Report filed prior to the
date hereof, (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 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. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on SCHEDULE 3.1(i), no
event, liability or development has occurred or exists with respect to
the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the
time this representation is made that has not been publicly disclosed
at least one Trading Day prior to the date that this representation is
made.
(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
12
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. None of the Company's or its
Subsidiaries' employees is a member of a union that relates to such
employee's relationship with the Company, and neither the Company or
any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to
the knowledge of the Company, is, or is now expected to be, in
violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such
executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all
applicable U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions
of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business and all such
laws that affect the environment, except in each case as could not have
or reasonably be expected to result in 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
13
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 with 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, trade
secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights necessary or material for use in
connection with their respective businesses as described in the SEC
Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS"). Neither the
Company nor any Subsidiary has received a notice (written or otherwise)
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. The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. 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
14
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 for (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) 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 information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. The Company's certifying
officers have evaluated the effectiveness of the Company's disclosure
controls and procedures as of the end of the period covered by the
Company's 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 changes in the
Company's internal control over financial reporting (as such term is
defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting.
(s) CERTAIN FEES. Other than the fees payable to the Placement
Agent which are set forth on SCHEDULE 3.1(S), no brokerage or finder's
fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the
transactions contemplated by the Transaction Documents. The Purchasers
shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.
15
(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 of 1940, as amended.
(v) REGISTRATION RIGHTS. Other than each of the Purchasers, no
Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company.
(w) LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its
knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received
any notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
certificate of incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) DISCLOSURE. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction
Documents, 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 it believes constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representation
in effecting transactions in securities of the Company. All disclosure
furnished by or on behalf of the Company to the Purchasers regarding
the Company, its business and the transactions contemplated
16
hereby, including the Disclosure Schedules to this Agreement, is true
and correct and does 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 press releases disseminated by the
Company during the twelve months preceding the date of this Agreement
taken as a whole do not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements, in light of the
circumstances under which they were made and when 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 provision of any
Trading Market on which any of the securities of the Company are listed
or designated.
(aa) SOLVENCY. Based on the financial condition of the Company
as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i)
the fair saleable value of the Company's 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 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
liabilities when such amounts are required to be paid. The Company does
not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be
payable on or in respect of its debt). The Company has no knowledge of
any facts or circumstances which lead it to believe that it will file
for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the
Closing Date. SCHEDULE 3.1(AA) sets 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" means (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
17
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 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 accounting firm is set forth on
SCHEDULE 3.1(EE) of the Disclosure Schedule. To the knowledge and
belief of the Company, such accounting firm (i) is a registered public
accounting firm as required by the Exchange Act and (ii) shall express
its opinion with respect to the financial statements to be included in
the Company's Annual Report on Form 10-K for the year ended December
31, 2006.
(ff) SENIORITY. Except as set forth on SCHEDULE 3.1(FF), as of
the Closing Date, no Indebtedness or other claim against the Company is
senior to the Debentures in right of payment, whether with respect to
interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital lease
obligations (which is senior only as to the property covered thereby).
(gg) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company
and, except as set forth on SCHEDULE 3.1(GG), the Company is current
with respect to any fees owed to its accountants and lawyers.
18
(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 thereby.
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 the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser
or any of their respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated thereby 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 and the other Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its
representatives.
(ii) ACKNOWLEDGMENT REGARDING PURCHASERS' TRADING ACTIVITY.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Sections 3.2(f) and 4.16 hereof), it is
understood and acknowledged by the Company (i) that none of the
Purchasers have been asked to agree, nor has any Purchaser agreed, to
desist from purchasing or selling, long and/or short, securities of the
Company, or "derivative" securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) that
past or future open market or other transactions by any Purchaser,
including Short Sales, and specifically including, without limitation,
Short Sales or "derivative" transactions, before or after the closing
of this or future private placement transactions, may negatively impact
the market price of the Company's publicly-traded securities; (iii)
that any Purchaser, and counter-parties in "derivative" transactions to
which any such Purchaser is a party, directly or indirectly, presently
may have a "short" position in the Common Stock, and (iv) that each
Purchaser shall not be deemed to have any affiliation with or control
over any arm's length counter-party in any "derivative" transaction.
The Company further understands and acknowledges that (a) one or more
Purchasers may engage in hedging activities at various times during the
period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined and (b)
such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
(jj) REGULATION M COMPLIANCE. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the securities of the Company or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to
purchase any other securities of the Company, other than, in the case
of clauses (ii) and (iii), compensation paid to the Company's placement
agent in connection with the placement of the Securities.
19
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser,
for itself and for no other Purchaser hereby, 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 hereunder and thereunder. The execution,
delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action on the part of such Purchaser.
Each Transaction Document to which it is a party has been duly executed
by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with
its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) OWN ACCOUNT. Such Purchaser understands that the Securities
are "restricted securities" and have not been registered under the
Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to
or for distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities law,
has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law
and has no direct or indirect arrangement or understandings with any
other persons to distribute or regarding the distribution of such
Securities (this representation and warranty not limiting such
Purchaser's right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures it will
be either: (i) an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) 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
20
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 AND CONFIDENTIALITY PRIOR TO THE DATE HEREOF.
Other than the transaction contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any
transaction, including Short Sales, in the securities of the Company
during the period commencing from the time that such Purchaser first
received a term sheet (written or oral) from the Company or any other
Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof ("DISCUSSION TIME").
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that
made the investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to
it in connection with this transaction (including the existence and
terms of this transaction).
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, of a legend on any of the Securities in
the following form:
21
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] 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. THIS SECURITY [AND THE
SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to the Transfer Agent promptly after the Effective Date if
required by the Transfer Agent to effect the removal of the legend
hereunder. If all or any portion of a Debenture or
22
Warrant is converted or exercised (as applicable) at a time when there
is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations
and pronouncements issued by the staff of the Commission) 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 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 the Transfer Agent that
enlarge the restrictions on transfer set forth in this Section.
Certificates for Underlying Shares subject to legend removal hereunder
shall be transmitted by the Transfer Agent 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 VWAP of the Common Stock on the date such Securities are
submitted to the Transfer Agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after the 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, and that if Securities are
sold pursuant to a Registration Statement, they will be sold in
compliance with the plan of distribution set forth therein.
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
23
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, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144.
4.4 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. (New York City time) on the Trading Day following the date hereof, issue a
Current Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and attaching the Transaction Documents as exhibits thereto.
The Company and each Purchaser shall consult with each other in issuing any
other press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, 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 (A) any registration statement
24
contemplated by the Registration Rights Agreement and (B) the filing of final
Transaction Documents (including signature pages thereto) with the Commission
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 this clause (ii).
4.7 SHAREHOLDER RIGHTS PLAN. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover 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.
4.8 NON-PUBLIC INFORMATION. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
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 shall not use such proceeds 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),
the redemption of any Common Stock or Common Stock Equivalents or the settlement
of any outstanding litigation.
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 other stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
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4.11 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
"PURCHASER PARTY") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. 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, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. 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 such
Purchaser Party 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.
26
(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 principal 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 such Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on any date at least equal to the Required Minimum on such date
on such Trading Market or another Trading Market.
4.13 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date that is the 12 month
anniversary of the Effective Date, upon any issuance by the Company or
any of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"SUBSEQUENT FINANCING"), each Purchaser shall have the right to
participate in up to an amount of the Subsequent Financing equal to
100% of the Subsequent Financing (the "PARTICIPATION MAXIMUM") on the
same terms, conditions and price provided for in the Subsequent
Financing.
(b) At least 3 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 and the Person or Persons
through or with whom such Subsequent Financing is proposed to be
effected and shall include a term sheet or similar document relating
thereto as an attachment.
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than
5:30 p.m. (New York City time) on the 3rd Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing
to participate in the Subsequent Financing, the amount of the
Purchaser's participation, and that the Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Company receives no notice from a
Purchaser as of such 3rd Trading Day, such
27
Purchaser shall be deemed to have notified the Company that it does not
elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 3rd Trading Day
after all of the Purchasers have received the Pre-Notice, notifications
by the Purchasers of their willingness to participate in the Subsequent
Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Subsequent Financing, then
the Company may effect the remaining portion of such Subsequent
Financing on the terms and with the Persons set forth in the Subsequent
Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the 3rd Trading Day
after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers
seeking to purchase more than the aggregate amount of the Participation
Maximum, each such Purchaser shall have the right to purchase its Pro
Rata Portion (as defined below) of the Participation Maximum. "PRO RATA
PORTION" means the ratio of (x) the Subscription Amount of Securities
purchased on the Closing Date by a Purchaser participating under this
Section 4.13 and (y) the sum of the aggregate Subscription Amounts of
Securities purchased on the Closing Date by all Purchasers
participating under this Section 4.13.
(f) 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.
(g) Notwithstanding the foregoing, this Section 4.13 shall
not apply in respect of (i) an Exempt Issuance or (ii) an underwritten
public offering of Common Stock.
4.14 SUBSEQUENT EQUITY SALES.
(a) From the date hereof until 90 days after the Effective
Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents; PROVIDED, HOWEVER, the 90 day
period set forth in this Section 4.14 shall be extended for the number
of Trading Days during such period in which (i) trading in the Common
Stock is suspended by any Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by
the Purchasers for the resale of the Underlying Shares.
(b) [RESERVED]
(c) From the date hereof until such time as no Purchaser holds
any Debentures or Warrants, the Company shall be prohibited from
effecting or entering into an agreement to effect any Subsequent
Financing involving a Variable Rate Transaction. "VARIABLE RATE
TRANSACTION" means a transaction in which the Company issues or sells
(i)
28
any debt or equity securities that are convertible into, exchangeable
or exercisable for, or include the right to receive additional shares
of Common Stock either (A) at a conversion, exercise or exchange rate
or other price that is based upon and/or varies with the trading prices
of or quotations for the shares of Common Stock at any time after the
initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the
market for the Common Stock or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price.
(d) 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. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat 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 SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time and ending at the time that the transactions contemplated
by this Agreement are first publicly announced as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets
29
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser's
assets, the covenant set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.
4.17 FORM D; BLUE SKY FILINGS. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.18 CAPITAL CHANGES. Until the one year anniversary of the Effective
Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in principal amount outstanding of the Debentures.
4.19 MOST FAVORED NATION PROVISION. From the date hereof until the date
when the Debentures are no longer outstanding, if the Company effects a
Subsequent Financing at an effective per share price that is lower than the then
Conversion Price (if the holder of the Common Stock or Common Stock Equivalents
so issued shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or otherwise,
or due to warrants, options or rights per share which are issued in connection
with such issuance, be entitled to receive shares of Common Stock at an
effective price per share that is lower than the then Conversion Price, such
issuance shall be deemed to have occurred for less than the then Conversion
Price), each Purchaser may elect, in its sole discretion, to exchange all or
some of the Debentures then held by such Purchaser for any securities or units
issued in such Subsequent Financing on a $1.00 for $1.00 basis based on the
outstanding principal amount of such Debentures, along with any accrued but
unpaid interest, liquidated damages and other amounts owing thereon, and the
effective price at which such securities were sold in such Subsequent Financing;
PROVIDED, HOWEVER, that this Section 4.19 shall not apply with respect to (i) an
Exempt Issuance or (ii) an underwritten public offering of Common Stock. The
Company shall provide each Purchaser with notice of any such Subsequent
Financing in the manner set forth in Section 4.13.
ARTICLE V.
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any Purchaser,
as to such Purchaser's obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other Purchasers, by
written notice to the other parties, if the Closing has not been consummated on
or before April 16, 2007; PROVIDED, HOWEVER, that such termination will not
affect the right of any party to sue for any breach by the other party (or
parties).
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5.2 FEES AND EXPENSES. At the Closing, the Company agrees to
reimburse (i) Crescent International Ltd. ("CRESCENT") the non-accountable sum
of $15,000 for its legal fees and expenses, $5,000 of which has been paid prior
to the Closing, and (ii) the Placement Agent the non-accountable sum of $5,000
for its legal fees and expenses. Accordingly, in lieu of the foregoing payment,
the aggregate amount that Crescent is to pay for the Securities at the Closing
shall be reduced by $10,000 in lieu thereof. In addition, the Company agrees to
pay, out of the proceeds of the Closing, Cantara (Switzerland) S.A., the
investment advisor to Crescent, a fee equal to 1.5% of the aggregate
Subscription Amounts of Crescent and Purchasers introduced to the Placement
Agent and/or the Company by Cantara (Switzerland) S.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 delivery of any Securities to the Purchasers.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived,
modified, supplemented 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 waived provision 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 any party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.6 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
31
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 (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents 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 is an 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 other 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 reasonable 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 shall survive the
Closing and the delivery of the Securities 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
32
signature is delivered by facsimile transmission or by e-mail delivery of a
".pdf" format data file, 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 or ".pdf"
signature page were an original thereof.
5.12 SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; PROVIDED,
HOWEVER, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock delivered in connection with any such rescinded conversion or exercise
notice.
5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), 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. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
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 contained in the Transaction Documents and hereby agrees to waive
and not to assert 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
33
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.
5.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FWS. FWS
does not represent all of the Purchasers but only Crescent. The Company has
elected to provide
34
all Purchasers with the same terms and Transaction Documents for the convenience
of the Company and not because it was required or requested to do so by the
Purchasers.
5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 CONSTRUCTION. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(SIGNATURE PAGES FOLLOW)
35
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.
TITANIUM GROUP LIMITED ADDRESS FOR NOTICE:
By: /s/ JASON MA
-------------------------------------- 4/F BOCG INSURANCE TOWER
Name: Jason Ma 134-136 DES VOEUX ROAD CENTRAL
Title: CEO HONG KONG, CHINA
With a copy to (which shall not constitute notice):
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, Colorado 80203-4404
Attention: Fay M. Matsukage
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
36
[PURCHASER SIGNATURE PAGES TO TTNUF SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: CRESCENT INTERNATIONAL LTD.
--------------------------------------------------------------
SIGNATURE OF AUTHORIZED SIGNATORY
OF PURCHASER: /s/ MAXI BREZZI /s/ BACHIR TALEB-IBRAHIMI
-------------------------------------------------------------------
Name of Authorized Signatory: MAXI BREZZI BACHIR TALEB-IBRAHIMI
---------------------------------------------------
Title of Authorized Signatory: AUTHORIZED SIGNATORIES
--------------------------------------------------
Email Address of Purchaser: CANTARA@DMITRUST.COM
-----------------------------------------------------
Facsimile Number of Purchaser: +41 22 791 7171
--------------------------------------------------
Address for Notice of Purchaser: c/o Cantara (Switzerland) SA
84 Av. Louis-Casai,
CH-1216 Cointrin/Geneva, Switzerland
Address for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription Amount: $ 1,000,000 USD
------------------
Warrant Shares: 3,333,333
-----------------
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
37
[PURCHASER SIGNATURE PAGES TO TTNUF SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: CHESTNUT RIDGE PARTNERS, LP
--------------------------------------------------------------
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: /s/ KENNETH HOLZ
---------------------------------
Name of Authorized Signatory: KENNETH HOLZ
---------------------------------------------------
Title of Authorized Signatory: CHIEF FINANCIAL OFFICER
--------------------------------------------------
Email Address of Purchaser: KHOLZ@CHESTNUTCAP.COM
-----------------------------------------------------
Facsimile Number of Purchaser: (201) 802-9450
--------------------------------------------------
Address for Notice of Purchaser:
50 Tice Boulevard
Woodcliff Lake, NJ 07677
Address for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription Amount: $ 200,000 USD
------------------
Warrant Shares: 666,667
-----------------
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO TTNUF SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: WHALEHAVEN CAPITAL FUND LIMITED
--------------------------------------------------------------
SIGNATURE OF AUTHORIZED SIGNATORY
OF PURCHASER: /s/ EVAN SCHEMENAUER
-------------------------------------------------------------------
Name of Authorized Signatory: EVAN SCHEMENAUER
---------------------------------------------------
Title of Authorized Signatory: CFO
--------------------------------------------------
Email Address of Purchaser: BRIAN@WHALEHAVENCAPITAL.COM
-----------------------------------------------------
Facsimile Number of Purchaser:
--------------------------------------------------
Address for Notice of Purchaser:
3rd Floor, 14 Par-La-Ville Road
Hamilton, HM08 Bermuda
Address for Delivery of Securities for Purchaser (if not same as address for
notice):
Research Capital Attn: Cheryl Burton
Suite 4500, 199 Bay St.
Toronto, ON M5L 1G2 Canada
Subscription Amount: $ 250,000
------------------
Warrant Shares: 833,333
-----------------
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]