EXHIBIT 10.36
SECURITIES PURCHASE
AGREEMENT
DATED AS OF DECEMBER 28, 2005
AMONG
SYNTAX-BRILLIAN CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
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ARTICLE I Purchase and Sale of Preferred Stock and Warrants............................................... 1
Section 1.1 Purchase and Sale of Preferred Stock and Warrants..................................... 1
Section 1.2 Closing............................................................................... 1
Section 1.3 Warrants.............................................................................. 1
Section 1.4 Conversion Shares and Warrant Shares.................................................. 2
ARTICLE II Representations and Warranties................................................................. 2
Section 2.1 Representations and Warranties of the Company......................................... 2
Section 2.2 Representations and Warranties of the Purchasers...................................... 13
ARTICLE III Covenants..................................................................................... 16
Section 3.1 Disclosure of Transactions and Other Material Information............................. 16
Section 3.2 Registration.......................................................................... 16
Section 3.3 Inspection Rights..................................................................... 16
Section 3.4 Compliance with Laws.................................................................. 17
Section 3.5 Keeping of Records and Books of Account............................................... 17
Section 3.6 Other Agreements...................................................................... 17
Section 3.7 Right of Participation................................................................ 17
Section 3.8 Reservation of Shares................................................................. 20
Section 3.9 Non-public Information................................................................ 20
Section 3.10 S-3 Eligibility....................................................................... 20
Section 3.11 Beneficial Ownership Restrictions..................................................... 20
Section 3.12 Trading Market Limitations............................................................ 20
ARTICLE IV Conditions..................................................................................... 21
Section 4.1 Conditions Precedent to the Obligation of the Company to Close and to Sell the
Shares and Warrants on the Closing Date............................................... 21
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Close and to Purchase
the Shares and Warrants on the Closing Date........................................... 22
ARTICLE V Transfer Restrictions and Legends............................................................... 24
ARTICLE VI Termination.................................................................................... 26
Section 6.1 Termination by Mutual Consent......................................................... 26
Section 6.2 Effect of Termination................................................................. 26
ARTICLE VII Indemnification............................................................................... 26
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Section 7.1 General Indemnity..................................................................... 26
Section 7.2 Indemnification Procedure............................................................. 26
ARTICLE VIII Miscellaneous................................................................................ 27
Section 8.1 Fees and Expenses..................................................................... 27
Section 8.2 Specific Enforcement; Consent to Jurisdiction......................................... 28
Section 8.3 Entire Agreement; Amendment........................................................... 28
Section 8.4 Notices............................................................................... 29
Section 8.5 Waivers............................................................................... 29
Section 8.6 Headings.............................................................................. 29
Section 8.7 Successors and Assigns................................................................ 30
Section 8.8 No Third Party Beneficiaries.......................................................... 30
Section 8.9 Governing Law......................................................................... 30
Section 8.10 Survival.............................................................................. 30
Section 8.11 Counterparts.......................................................................... 30
Section 8.12 Severability.......................................................................... 30
Section 8.13 Further Assurances.................................................................... 30
Section 8.14 Independent Nature of Purchasers' Obligations and Rights.............................. 30
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
December 28, 2005, by and among Syntax-Brillian Corporation, a Delaware
corporation (the "Company"), and the entities listed on Exhibit A hereto (each,
a "Purchaser" and collectively, the "Purchasers"), for the purchase by and sale
to the Purchasers of shares of the Company's 6% Redeemable Convertible Preferred
Stock, par value $0.001 per share (the "Preferred Stock"), and warrants to
purchase shares of the Company's common stock, par value $0.001 per share (the
"Common Stock").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
Section 1.1 Purchase and Sale of Preferred Stock and Warrants. Upon
the following terms and conditions, the Company shall issue and sell to the
Purchasers, and each Purchaser shall, severally but not jointly, purchase from
the Company, (i) shares of Preferred Stock (the "Shares"), and (ii) warrants to
purchase shares of Common Stock, in substantially the form attached hereto as
Exhibits B (the "Warrants"), in each case, as set forth opposite each such
Purchaser's name on Exhibit A hereto, for an aggregate purchase price to the
Company from all Purchasers of up to $17,000,000 (the "Purchase Price"). The
Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "Securities Act"), including
Regulation D ("Regulation D"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments to be made hereunder.
Section 1.2 Closing. The closing of the sale to and purchase by each
Purchaser of the Shares and Warrants (the "Closing") shall take place at the
offices of Warren W. Garden, P.C. located at 100 Crescent Court, Suite 490,
Dallas, Texas 75201 at 10:00 a.m., Central Time, (i) on or before December 31,
2005, provided, that all of the conditions set forth in Sections 4.1 and 4.2
hereof shall have been fulfilled or waived in accordance herewith, or (ii) at
such other time and place or on such date as the Purchasers and the Company may
agree upon (the "Closing Date"). At the Closing, the Company shall deliver to
each Purchaser copies of the stock certificates and original agreements
evidencing the Shares and Warrants being purchased by it on the Closing Date
which shall be registered in such Purchaser's name as stated on Exhibit A
hereto, against delivery to the Company of payment by certified check or wire
transfer in an amount equal to that amount set forth opposite such Purchaser's
name on Exhibit A hereto under the heading "Dollar Amount of Investment at
Closing".
Section 1.3 Warrants. At the Closing, the Company shall issue to
each Purchaser such number of Warrants to purchase shares of Common Stock as is
set forth opposite
such Purchaser's name on Exhibit A hereto. The Warrants shall be exercisable for
five (5) years from the date of issuance and shall have an initial exercise
price equal to $5.00.
Section 1.4 Conversion Shares and Warrant Shares. The Company has
authorized and has reserved, and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, a number
of its authorized but unissued shares of Common Stock equal to the aggregate
number of shares of Common Stock necessary to effect the conversion of all the
Shares and the exercise of all the Warrants. Any shares of Common Stock issuable
upon conversion of the Shares (and such shares when issued) are herein referred
to as the "Conversion Shares". Any shares of Common Stock issuable upon exercise
of the Warrants (and such shares when issued) are herein referred to as the
"Warrant Shares". The Shares, the Conversion Shares, the Warrants, the Warrant
Shares, the PIK Dividend Shares (as defined in the Registration Rights
Agreement) and the Redemption Shares (as defined in the Registration Rights
Agreement) are sometimes collectively referred to herein as the "Securities".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. In order
to induce the Purchasers to enter into this Agreement and to purchase the Shares
and Warrants, the Company hereby makes the following representations and
warranties to the Purchasers, subject in each case to any exceptions identified
in the Schedule of Exceptions attached hereto:
(a) Organization, Good Standing and Power. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity, except as
disclosed in the Commission Documents (as defined in Section 2.1(f)) or on
Schedule 2.1(g). The Company and each such Subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified would not have a Material
Adverse Effect. For the purposes of this Agreement, "Material Adverse Effect"
means any adverse effect on the business, results of operations, properties,
prospects or financial condition of the Company and its Subsidiaries, taken as a
whole, and which is material to the Company and its Subsidiaries, taken as a
whole, or which is likely to materially hinder the performance by the Company of
its obligations hereunder and under the other Transaction Documents (as defined
in Section 2.1(b) hereof).
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Certificate of Designations establishing the Shares in the form of Exhibit D
attached hereto (the "Certificate of Designations"), the Registration Rights
Agreement in the form of Exhibit E attached hereto (the "Registration Rights
Agreement"), the Warrants, and all other agreements and documents
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contemplated hereby and thereby and executed by the Company or to which the
Company is party (collectively, the "Transaction Documents"), and to issue and
sell the Shares and the Warrants in accordance with the terms hereof. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly and validly authorized by all necessary corporate action, and no further
consent or authorization of the Company, its Board of Directors or its
stockholders is required. This Agreement has been duly executed and delivered by
the Company. The other Transaction Documents will have been duly executed and
delivered by the Company at the Closing. Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized capital stock of the Company and
the shares thereof currently issued and outstanding as of December 27, 2005, are
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the
Company's Common Stock and any other security of the Company have been duly and
validly authorized. Except as disclosed in the Commission Documents, no shares
of Common Stock or any other security of the Company are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as disclosed in the Commission
Documents, there are no contracts, commitments, understandings, or arrangements
by which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. Except (i) for customary transfer
restrictions contained in agreements entered into by the Company in order to
sell restricted securities, or (ii) as disclosed in the Commission Documents,
the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any individual, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind (a "Person") with
respect to any of its equity or debt securities. The Company is not a party to,
and it has no knowledge of, any agreement or understanding restricting the
voting or transfer of any shares of the capital stock of the Company. The offer
and sale of all capital stock, convertible securities, rights, warrants, or
options of the Company issued prior to the Closing have complied with all
applicable federal and state securities laws, and no holder of such securities
has a right of rescission or claim for damages with respect thereto which could
have a Material Adverse Effect. The Company has furnished or made available to
the Purchasers true and correct copies of the Company's Certificate of
Incorporation, as amended, and as in effect on the date hereof (the
"Certificate"), and the Company's Bylaws, as amended, and as in effect on the
date hereof (the "Bylaws").
(d) Issuance of Securities. The Shares and the Warrants to be issued
at the Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Shares shall be
validly issued and outstanding, fully paid and nonassessable and free and clear
of all liens, encumbrances and rights of refusal of any
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kind and the holders shall be entitled to all rights accorded to a holder of
Preferred Stock. When the Conversion Shares are issued and paid for in
accordance with the terms of the Preferred Stock, such shares will be duly
authorized by all necessary corporate action and validly issued and outstanding,
fully paid and nonassessable, free and clear of all liens, encumbrances and
rights of refusal of any kind and the holders shall be entitled to all rights
accorded to a holder of Common Stock. When the Warrant Shares are issued and
paid for in accordance with the terms of the Warrants, such shares will be duly
authorized by all necessary corporate action and validly issued and outstanding,
fully paid and nonassessable, free and clear of all liens, encumbrances and
rights of refusal of any kind and the holders shall be entitled to all rights
accorded to a holder of Common Stock. When the PIK Dividend Shares are issued in
accordance with the terms of the Certificate of Designations, such shares will
be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of refusal of any kind and the holders shall be entitled
to all rights accorded to a holder of Common Stock. When the Redemption Shares
are issued in accordance with the terms of the Certificate of Designations, such
shares will be duly authorized by all necessary corporate action and validly
issued and outstanding, fully paid and nonassessable, free and clear of all
liens, encumbrances and rights of refusal of any kind and the holders shall be
entitled to all rights accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Certificate or Bylaws or any Subsidiary's comparable charter
documents, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries'
respective properties or assets are bound, (iii) create or impose a lien,
mortgage, security interest, charge or encumbrance of any nature on any property
or asset of the Company or any of its Subsidiaries under any agreement or any
commitment to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound or by which any of their
respective properties or assets are bound, or (iv) assuming the accuracy of the
representations and warranties of the Purchasers set forth in Section 2.2,
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except, in all cases other than violations pursuant to clauses (i)
or (iv) (with respect to federal and state securities laws) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and would not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is required under federal, state, foreign or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under the
Transaction Documents or issue and sell the Securities in accordance with the
terms hereof or thereof (other
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than any filings which may be required to be made by the Company with the
Securities and Exchange Commission (the "Commission") prior to or subsequent to
the Closing, or state securities administrators subsequent to the Closing, or
any registration statement which may be filed pursuant hereto or thereto).
(f) Commission Documents; Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to Section 13(a) or 15(d) of the Exchange
Act (all of the foregoing, including filings incorporated by reference therein,
and all filings made pursuant to the Securities Act, including the Company's
Joint Proxy Statement/Prospectus filed with the Commission on October 24, 2005,
being referred to herein as the "Commission Documents"). The Company has
delivered or made available (through the SEC EDGAR website) to the Purchasers
true and complete copies of the Commission Documents filed with the Commission
since May 14, 2003. The Company has not provided to the Purchasers any material
non-public information or other information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. At the time of its filing, the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005
(the "Form 10-Q") complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and the Form 10-Q did 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 therein, in light of
the circumstances under which they were made, not misleading. At the time of its
filing, the Company's Annual Report on Form 10-K, as amended, for the fiscal
year ended December 31, 2004 (the "Form 10-K") complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws, rules
and regulations applicable to such documents, and, at the time of its filing,
the Form 10-K did 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 therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates (taking into account all
restatements thereof in subsequent Commission Documents), the financial
statements of the Company included in the Commission Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements (taking into account
all restatements thereof in subsequent Commission Documents) have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the Notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its Subsidiaries as of 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 year-end audit
adjustments).
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(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each Person's ownership of the outstanding stock
or other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any Person of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other Persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other Subsidiaries. All of the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable. There are no outstanding preemptive, conversion or
other rights, options, warrants or agreements granted or issued by or binding
upon any Subsidiary for the purchase or acquisition of any shares of capital
stock of any Subsidiary or any other securities convertible into, exchangeable
for or evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any Subsidiary is subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any Subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
Subsidiary.
(h) No Material Adverse Change. Since September 30, 2005, the
Company has not experienced or suffered any Material Adverse Effect.
(i) No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those set forth on the balance sheet included in the
Form 10-K or in the Commission Documents, or incurred in the ordinary course of
the Company's or its Subsidiaries respective businesses since December 31, 2004,
and which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company or its Subsidiaries.
(j) No Undisclosed Events or Circumstances. Since September 30,
2005, no event or circumstance has occurred or exists with respect to the
Company or its Subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For
purposes of this Agreement: (x) "Indebtedness" of any Person means, without
duplication (A) any indebtedness for borrowed money in excess of $100,000, (B)
any obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business) in excess of $100,000, (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (D) any obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (E) any indebtedness in
excess of $100,000 created or arising under any conditional sale or other title
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retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease with a present value in excess of $100,000, (G)
all indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; and (y) "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto in excess of
$100,000 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.
(l) Title to Assets. Each of the Company and the Subsidiaries has
good and valid title to all of its real and personal property, free and clear of
any mortgages, pledges, charges, liens, security interests or other encumbrances
of any nature whatsoever, except as disclosed in the Commission Documents or
such that, individually or in the aggregate, do not have a Material Adverse
Effect. All leases to real and personal property of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. There is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or other proceeding pending or, to the knowledge of the Company,
threatened against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the aggregate, would
have a Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or, to the knowledge of
the Company, any officers or directors of the Company or any Subsidiary in their
capacities as such, which individually, or in the aggregate, would have a
Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or such that,
individually or in the aggregate, the noncompliance therewith would not
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have a Material Adverse Effect. The Company and each of its Subsidiaries have
all franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(o) Taxes. The Company and each of the Subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the Subsidiaries
for all current taxes and other charges to which the Company or any Subsidiary
is subject and which are not currently due and payable. None of the federal
income tax returns of the Company or any Subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any Subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.
(p) Certain Fees. The Company has not employed any broker or finder
or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Intellectual Property. The Company and each of the Subsidiaries
owns or possesses valid licenses under all the Proprietary Rights owned by it
and have no knowledge that such rights are in conflict with the rights of
others. As of the date of this Agreement, neither the Company nor any of its
Subsidiaries has received any written notice that any Proprietary Rights have
been declared unenforceable or otherwise invalid by any court or governmental
agency. As of the date of this Agreement, there is, to the knowledge of the
Company, no material existing infringement, misuse or misappropriation of any
Proprietary Rights by others. From September 30, 2005 to the date of this
Agreement, neither the Company nor any of its Subsidiaries has received any
written notice alleging that the operation of the business of the Company or any
of its Subsidiaries infringes in any material respect upon the intellectual
property rights of others. "Proprietary Rights" shall mean patents, trademarks,
domain names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property
rights relating thereto, service marks, trade names, copyrights, licenses and
authorizations, and all rights with respect to the foregoing.
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(s) Environmental Compliance. The Company and each of its
Subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other Person, that are required under any
Environmental Laws, the absence of which would have a Material Adverse Effect.
"Environmental Laws" shall mean all applicable laws relating to the protection
of the environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The Company has
all necessary governmental approvals required under all Environmental Laws and
used in its business or in the business of any of its Subsidiaries, except for
such instances as would not individually or in the aggregate have a Material
Adverse Effect. The Company and each of its Subsidiaries are also in compliance
with all other limitations, restrictions, conditions, standards, requirements,
schedules and timetables required or imposed under all Environmental Laws.
Except for such instances as would not individually or in the aggregate have a
Material Adverse Effect, there are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way
affecting the Company or its Subsidiaries that violate or may violate any
Environmental Law after the Closing or that may give rise to any Environmental
Liabilities, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation (i) under any Environmental Law, or
(ii) based on or related to the manufacture, processing, distribution, use,
treatment, storage (including, without limitation, underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance. "Environmental Liabilities" means
all liabilities of a Person (whether such liabilities are owed by such Person to
governmental authorities, third parties or otherwise) whether currently in
existence or arising hereafter which arise under or relate to any Environmental
Law.
(t) Books and Records; Internal Accounting Controls. The books,
records and documents of the Company and its Subsidiaries accurately reflect in
all material respects the information relating to the business of the Company
and the Subsidiaries, the location and collection of their assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company or any Subsidiary. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the reasonable
judgment of the Company's Board of Directors, 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 actions are taken with respect to any differences.
(u) Material Agreements. Except for the Transaction Documents, or
those that are included as exhibits to the Commission Documents, neither the
Company nor any Subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or
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arrangement, a copy of which would be required to be filed with the Commission
(collectively, "Material Agreements") if the Company or any Subsidiary were
registering securities under the Securities Act. The Company and each of its
Subsidiaries has in all material respects performed all the obligations required
to be performed by them to date under the foregoing agreements, have received no
notice of default and, to the best of the Company's knowledge, are not in
default under any Material Agreement now in effect, the result of which could
cause a Material Adverse Effect. No written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement of the Company or of any
Subsidiary limits or shall limit the payment of dividends on its Common Stock.
(v) Transactions with Affiliates. Except as disclosed in the
Commission Documents, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other continuing
transactions between (a) the Company, any Subsidiary or any of their respective
customers or suppliers, on the one hand, and (b) on the other hand, any officer,
employee, consultant or director of the Company, or any of its Subsidiaries, or
any Person owning 5% or more of the capital stock of the Company or any
Subsidiary or any member of the immediate family of such Person, officer,
employee, consultant, director or 5% or greater stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director or
stockholder.
(w) Securities Act of 1933. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Section 2.2, the
Company has complied and will comply with all applicable federal and state
securities laws in connection with the offer, issuance and sale of the
Securities hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit offers to buy
any of the Securities, or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any Person, or has taken or will take any action so as to
bring the issuance and sale of any of the Securities under the registration
provisions of the Securities Act and applicable state securities laws. Neither
the Company nor any of its Affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection with
the offer or sale of any of the Securities. For purposes of this Agreement,
"Affiliate" means, with respect to any Person, any other Person that directly or
indirectly controls or is controlled by or under common control with such
Person. For the purposes of this definition, "control," when used with respect
to any Person, means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "affiliated," "controlling" and "controlled" have meanings correlative to
the foregoing.
(x) Governmental Approvals. Except for the filing of any notice
prior or subsequent to each Closing that may be required under applicable state
and/or federal securities laws (which if required, shall be filed on a timely
basis), no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Shares and the
Warrants, or for the performance by the Company of its obligations under the
Transaction Documents.
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(y) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
Except as set forth in the Commission Documents, neither the Company nor any
Subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such Subsidiary, which contract or
agreement is required to be disclosed in the Commission Documents but which is
not so disclosed. Since September 30, 2005, no officer, consultant or key
employee of the Company or any Subsidiary whose termination, either individually
or in the aggregate, could have a Material Adverse Effect, has terminated or, to
the knowledge of the Company, has any present intention of terminating his or
her employment or engagement with the Company or any Subsidiary.
(z) Absence of Certain Developments. Except as set forth in the
Commission Documents, since September 30, 2005, neither the Company nor any
Subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto other than under the
Company's stock option/stock issuance plans;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such Subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any Person except in the ordinary course of business or to the
Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
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(ix) made capital expenditures or commitments therefor that
aggregate in excess of $75,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would cause a Material Adverse Effect; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the Shares and
the Warrants shall be used by the Company for working capital purposes only, and
shall not be used to repay any outstanding Indebtedness or any loans due to any
officer, director, Affiliate or insider of the Company, other than up to
$4,075,000 which may be used to repay Indebtedness under the Company's senior
secured debentures.
(bb) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon each
Closing will not be, an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
Subsidiaries which is or would cause a Material Adverse Effect. The execution
and delivery of this Agreement and the issue and sale of the Shares and the
Warrants will not involve any transaction which is subject to the prohibitions
of Section 406 of ERISA or in connection with which a tax could be imposed
pursuant to Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code"); provided that, if any Purchaser, or any Person that owns a beneficial
interest in any Purchaser, is an "employee pension benefit plan" (within the
meaning of Section 3(2) of ERISA) with respect to which the Company is a "party
in interest" (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this
Section 2.1(cc), the term "Plan" shall mean an "employee pension benefit plan"
(as defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any Subsidiary or by any trade or business, whether
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or not incorporated, which, together with the Company or any Subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(dd) Sarbanes-Oxley. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective and
applicable to it as of the date hereof, and any and all applicable rules and
regulations promulgated by the Commission thereunder that are effective as of
the date hereof, except where such noncompliance would not have, individually or
in the aggregate, a Material Adverse Effect.
Section 2.2 Representations and Warranties of the Purchasers. Each
of the Purchasers hereby makes the following representations and warranties to
the Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If such Purchaser
is an entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Such Purchaser has the requisite power
and authority to enter into and perform the Transaction Documents and to
purchase the Shares and Warrants being sold to it hereunder. The execution,
delivery and performance of the Transaction Documents by such Purchaser and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate, limited liability company or partnership
action, and no further consent or authorization of such Purchaser or its Board
of Directors, stockholders, members, managers or partners, as the case may be,
is required. This Agreement has been duly authorized, executed and delivered by
such Purchaser. Each of the Transaction Documents constitute, or shall
constitute when executed and delivered, valid and binding obligations of such
Purchaser enforceable against such Purchaser in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.
(c) Acquisition for Investment. Such Purchaser is purchasing the
Shares and acquiring the Warrants (and would acquire the underlying Common
Stock) solely for its own account and not with a view to or for sale in
connection with the distribution thereof. Such Purchaser does not have a present
intention to sell any of the Securities, nor a present arrangement (whether or
not legally binding) or intention to effect any distribution of any of the
Securities to or through any Person; provided, however, that by making the
representations herein and subject to Section 2.2(e) below, such Purchaser does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to pledge any of the Securities for margin purposes
and/or to dispose of any of the Securities at any time in accordance with
federal and state securities laws applicable to such disposition. Such Purchaser
acknowledges that it (i) has such knowledge and experience in financial and
business matters such that such Purchaser is capable of evaluating the merits
and risks of its investment in the Company, (ii) is able to bear the financial
risks associated with an investment in the Securities, and (iii) has been given
full access to such records of the Company and the Subsidiaries and to
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the officers of the Company and the Subsidiaries as it has deemed necessary or
appropriate to conduct its due diligence investigation.
(d) Rule 144. Such Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
it is familiar with Rule 144 of the rules and regulations of the Commission, as
amended, promulgated pursuant to the Securities Act ("Rule 144"), and that such
Purchaser has been advised that Rule 144 permits resales only under certain
circumstances. Such Purchaser understands that to the extent that Rule 144 is
not available, such Purchaser will be unable to sell any Securities without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(e) General. Such Purchaser understands that the Securities are
being offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Securities. Such Purchaser
understands that no United States federal or state agency or any government or
governmental agency has passed upon or made any recommendation or endorsement of
the Securities.
(f) Opportunities for Additional Information. Such Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.
(g) No General Solicitation. Such Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(h) Accredited Investor. Such Purchaser is an accredited investor
(as defined in Rule 501 of Regulation D), and such Purchaser has such experience
in business and financial matters that it is capable of evaluating the merits
and risks of an investment in the Securities. Such Purchaser acknowledges that
an investment in the Securities is speculative and involves a high degree of
risk.
(i) Certain Trading Activity. During the period beginning on the
date such Purchaser was initially contacted by the Company or an agent thereof
with respect to a prospective investment in the Company and ending on the date
hereof, such Purchaser has not engaged in any Short Sales (as defined in
Regulation SHO under the federal securities laws) of
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shares of the Common Stock. Such Purchaser, severally and not jointly with the
other Purchasers, understands and acknowledges that the Commission currently
takes the position that coverage of Short Sales of shares of the Common Stock
"against the box" with the Securities purchased hereunder prior to the effective
date of the Registration Statement is a violation of Section 5 of the Securities
Act, as set forth in Item 65, Section 5 under Section A, of the Manual of
Publicly Available Telephone Interpretations, dated June 1997, compiled by the
Office of Chief Counsel, Division of Corporate Finance. Accordingly, such
Purchaser hereby agrees (on behalf of itself or any Person over which it has
direct control) not to use any of the Securities to cover any Short Sales made
prior to the effective date of the Registration Statement. Additionally, such
Purchaser agrees (i) to comply with Regulation M under the federal securities
laws, and (ii) not to engage in Short Sales of the shares of Common Stock in
contravention of state and federal securities laws. 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. In addition, it is understood and agreed by the Company (A) that none
of the Purchasers has 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, (B) 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,
(C) 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 (D) 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.
(j) Waiver of Rights. As of the date hereof, certain Purchasers are
holders of the Company's 4% convertible debentures (the "Debentures") and/or
warrants to purchase shares of the Company's common stock issued in connection
with the Debentures. Under Section 4.14(a) of that certain Securities Purchase
Agreement dated as of July 12, 2005 among the Company and the other purchasers
named therein (the "July Purchase Agreement"), the purchasers were provided
certain rights concerning the filing of registration statements by the Company
and the issuance by the Company of the Company's common stock (or securities
convertible into shares of the Company's common stock) after the date that the
registration statement filed by the Company covering the shares of Company
common stock issuable upon conversion of the Debentures and exercise of the
related warrants was declared effective by the Commission. Each Purchaser who is
party to the July Purchase Agreement hereby acknowledges and agrees that, by
executing and delivering this Agreement, such Purchaser forever waives any and
all rights it may have under Section 4.14(a) of the July Purchase Agreement in
connection with the transactions contemplated by this Agreement.
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ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants are
for the benefit of each Purchaser and its respective permitted assignees (and,
where expressly so indicated, the respective Purchasers severally and not
jointly covenant with and for the benefit of the Company as follows).
Section 3.1 Disclosure of Transactions and Other Material
Information. On or before 8:30 a.m., New York City time, on the second Business
Day (as used herein, the term "Business Day" shall mean any day except a
Saturday, Sunday or day on which banking institutions are legally authorized to
close in Tempe, Arizona) immediately following the Closing Date, the Company
shall file a Current Report on Form 8-K with the Commission describing the terms
of the transactions contemplated by the Transaction Documents and including as
exhibits to such Current Report on Form 8-K this Agreement, the Warrants, the
Certificate of Designations, and the Registration Rights Agreement, in the form
required by the Exchange Act (the "8-K Filing"). From and after the filing of
the 8-K Filing with the Commission, no Purchaser shall be in possession of any
material, nonpublic information received from the Company, any of its
Subsidiaries or any of their respective officers, directors, employees or agents
that is not disclosed in the 8-K Filing. The Company shall not, and shall cause
each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents not to, provide any Purchaser with any material,
nonpublic information regarding the Company or any of its Subsidiaries from and
after the filing of the 8-K Filing with the Commission without the express
written consent of such Purchaser. Neither the Company nor any Purchaser shall
issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of any Purchaser, to make any press release
or other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith, and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) above, the Purchasers shall be consulted by the Company (although the
consent of the Purchasers shall not be required) in connection with any such
press release or other public disclosure prior to its release).
Section 3.2 Registration. The Company will cause its Common Stock to
continue to be registered under Section 12(b) or 12(g) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to the Registration Rights Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein.
Section 3.3 Inspection Rights. In the event the Registration
Statement is not effective or has been suspended, the Company shall permit,
during normal business hours and upon reasonable request and reasonable notice,
each Purchaser or any employees, agents or representatives thereof, so long as
such Purchaser shall be obligated hereunder to purchase the
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Shares or shall beneficially own the Shares or Conversion Shares, or shall own
Warrant Shares or the Warrants which, in the aggregate, represent more than two
percent (2%) of the total combined voting power of all Company voting securities
then outstanding, to (subject to an appropriate non-disclosure agreement)
examine and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect, the properties, assets, operations and
business of the Company and any Subsidiary, and to discuss the affairs, finances
and accounts of the Company and any Subsidiary with any of its officers,
consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and
cause each Subsidiary to comply, with all applicable laws, rules, regulations
and orders, the noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company
shall keep and cause each Subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability of the Company or any Subsidiary to perform under any
Transaction Document.
Section 3.7 Right of Participation.
(a) Subject only to any prior rights of the Company's holders of
those certain 7% Convertible Debentures due April 20, 2008 and those certain 4%
Convertible Debentures due July 12, 2008, until the first anniversary of the
Closing Date, each Purchaser (including for such purposes its assigns) shall
have the right to participate in any financing of the Company or any of its
Subsidiaries of Common Stock or securities convertible into Common Stock (a
"Subsequent Financing") up to an amount of the Subsequent Financing equal to
100% of the Subsequent Financing (the "Participation Maximum").
(b) At least five Business 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 one
Business Day after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the person with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or similar
document relating thereto.
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(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 fifth Business 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 fifth Business Day, then such 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 fifth Business 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 to the Persons
set forth in the Subsequent Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the fifth Business 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 the greater of (i) their Pro Rata Portion (as
defined below) of the Participation Maximum and (ii) the difference between the
Participation Maximum and the aggregate amount of participation by all other
Purchasers. "Pro Rata Portion" is the ratio of (A) the Shares and Warrants
purchased on the Closing Date by a Purchaser participating under this Section
3.7 and (B) the sum of the aggregate Shares and Warrants purchased on the
Closing Date by all Purchasers participating under this Section 3.7.
(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 3.7, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within 60 Business Days
after the date of the initial Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 3.7 shall not apply
in respect of an Exempt Issuance. "Exempt Issuance" means the issuance of:
(i) shares of capital stock of the Company issued or issuable
upon conversion or exercise of any currently outstanding securities (but not any
amendment or modification to such currently outstanding securities after the
date hereof) or any New Securities issued in accordance with this Agreement
(including the Conversion Shares, the Warrant Shares, the PIK Dividend Shares
and the Redemption Shares);
(ii) shares of capital stock issued and issuable as payment
for outstanding interest under the Company's outstanding 7% convertible
debentures and 4% convertible debentures;
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(iii) shares or options or warrants for Common Stock granted
to officers, directors and employees of, and consultants to, the Company or its
Subsidiaries pursuant to stock option or purchase plans or other compensatory
agreements approved by the Board of Directors, or pursuant to the Syntax Groups
Corporation 2005 Stock Incentive Plan;
(iv) shares of Common Stock or Preferred Stock issued in
connection with any pro rata stock split, stock dividend (including PIK Dividend
Shares) or recapitalization by the Company;
(v) shares of capital stock, or options or warrants to
purchase capital stock, issued to a strategic investor in connection with a
strategic commercial agreement as determined by the Board of Directors;
(vi) shares of capital stock, or options or warrants to
purchase capital stock, issued to an investor in connection with a joint venture
arrangement where the Company is a participant;
(vii) shares of capital stock, or options or warrants to
purchase capital stock, issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of all
or substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other corporation or
entity;
(viii) shares of capital stock issued in an underwritten
public securities offering pursuant to a registration statement filed under the
Securities Act;
(ix) shares of capital stock, or options or warrants to
purchase capital stock, issued to current or prospective customers or suppliers
of the Company approved by the Board of Directors as compensation or
accommodation in lieu of other payment, compensation or accommodation to such
customer or supplier;
(x) shares of capital stock, or warrants to purchase capital
stock, issued to any Person that provides services to the Company as
compensation therefor pursuant to an agreement approved by the Board of
Directors;
(xi) shares of capital stock, or options or warrants to
purchase capital stock, offered in a transaction where purchase of such
securities by any Purchaser would cause such transaction to fail to comply with
applicable federal or state securities laws or would cause an applicable
registration or qualification exemption to fail to be available to the Company;
provided, however, that this clause (xi) shall apply only to the Purchaser or
Purchasers who would cause any such failure, and not to any of the other
Purchasers; and
(xii) securities issuable upon conversion or exercise of the
securities set forth in paragraphs (i) - (xi) above.
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Section 3.8 Reservation of Shares. So long as the Shares or Warrants
remain outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, the maximum number of
shares of Common Stock to effect the conversion of the Shares and the exercise
of the Warrants.
Section 3.9 Non-public Information. Neither the Company nor any of
its officers or agents shall disclose any material non-public information about
the Company to any Purchaser, and no Purchaser or any of its Affiliates,
officers or agents will solicit any material non-public information from the
Company.
Section 3.10 S-3 Eligibility. The Company shall use its commercially
reasonable efforts to remain eligible to use a Form S-3 registration statement.
Section 3.11 Beneficial Ownership Restrictions.
(a) Notwithstanding anything to the contrary set forth in this
Agreement or any other Transaction Document (including, without limitation, the
Warrants and the Certificate of Designations), at no time may a Purchaser
convert or exercise a Security if the number of shares of Common Stock to be
issued pursuant to such conversion or exercise, when aggregated with all other
shares of Common Stock owned by such Purchaser at such time, would result in
such Purchaser beneficially owning (as determined in accordance with Section
13(d) of the Exchange Act, and the rules thereunder) in excess of 4.99% of the
then issued and outstanding shares of Common Stock outstanding at such time;
provided, however, that any Purchaser may waive this Section 3.11(a) by so
indicating on the signature page to this Agreement, any such waiver to be
effective on and as of the date of this Agreement.
(b) Notwithstanding anything to the contrary set forth in this
Agreement or any other Transaction Document (including, without limitation, the
Warrants and the Certificate of Designations), at no time may a Purchaser
convert or exercise a Security if the number of shares of Common Stock to be
issued pursuant to such conversion or exercise, when aggregated with all other
shares of Common Stock owned by such Purchaser at such time, would result in
such Purchaser beneficially owning (as determined in accordance with Section
13(d) of the Exchange Act, and the rules thereunder) in excess of 9.99% of the
then issued and outstanding shares of Common Stock outstanding at such time.
Section 3.12 Trading Market Limitations. Notwithstanding anything
herein to the contrary, the Company shall not issue any Conversion Shares or
Warrant Shares which, when aggregated with any Conversion Shares, Warrant
Shares, PIK Dividend Shares and Redemption Shares issued prior to such date of
issuance, would exceed 19.999% of the number of shares of Common Stock
outstanding on the Business Day immediately preceding the Closing Date (such
number of shares, the "Issuable Maximum"). If on the date of conversion of
Shares or exercise of Warrants (a) the applicable Conversion Price or Exercise
Price, as applicable, in effect is such that the shares issuable upon conversion
of the Shares or exercise of the Warrants together with the aggregate number of
shares of Common Stock that would then be issuable upon conversion in full of
all then outstanding Shares and Warrants would exceed the Issuable Maximum, and
(b) the Company's stockholders shall not have previously approved the issuance
of 20% or more of
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the Company's capital stock in connection with the transactions contemplated by
the Transaction Documents (the "Shareholder Approval"), then the Company shall
issue to the Purchaser requesting conversion of Shares or exercise of Warrants a
number of shares of Common Stock equal to such Purchaser's pro-rata portion of
the Issuable Maximum and, with respect to the remainder of the Shares or
Warrants then held by such Purchaser for which conversion or exercise would
result in an issuance of shares of Common Stock in excess of such Purchaser's
pro-rata portion of the Issuable Maximum (the "Excess Shares"), the Company
shall be prohibited from issuing such Excess Shares, and shall notify the
Purchaser of the reason therefor. The Shares and Warrants would be unconvertible
and unexercisable to such extent until and unless Shareholder Approval is
subsequently obtained, but shall otherwise remain in full force and effect. If
Shareholder Approval is required under this Section 3.12, the Company shall use
commercially reasonable efforts to obtain, as promptly as practicable,
Shareholder Approval that is necessary to issue shares of Common Stock in excess
of the Issuable Maximum.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Shares and Warrants on the Closing Date. The obligation
hereunder of the Company to close and issue and sell the Shares and the Warrants
to the Purchasers on the Closing Date is subject to the satisfaction or waiver,
at or before the Closing, of the conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Shares
and Warrants being purchased at the Closing shall have been delivered to the
Company at the Closing.
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(e) Delivery of Transaction Documents. The Transaction Documents to
which the Purchasers are party shall have been duly executed and delivered by
the Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Close and to Purchase the Shares and Warrants on the Closing Date. The
obligation hereunder of the Purchasers to purchase the Shares and Warrants on
the Closing Date and consummate the transactions contemplated by this Agreement
is subject to the satisfaction or waiver, at or before the Closing, of each of
the conditions set forth below. These conditions are for each Purchaser's sole
benefit and may be waived by such Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company in this Agreement and in
each of the other Transaction Documents shall be true and correct in all
material respects as of the Closing Date, except for representations and
warranties that speak as of a particular date, which shall be true and correct
in all material respects as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. Trading in the Company's Common Stock shall
not have been suspended by the Commission (except for any suspension of trading
of limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
nor shall a banking moratorium have been declared either by the United States or
California State authorities, nor shall there have occurred any national or
international calamity or crisis of such magnitude in its effect on any
financial market which, in each case, in the reasonable judgment of the
Purchasers, makes it impracticable or inadvisable to purchase the Shares and the
Warrants being purchased on the Closing Date.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
other Affiliates of the Company or any Subsidiary, unless by or at the behest of
a Purchaser, seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.
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(f) Opinion of Counsel. The Purchasers shall have received an
opinion of counsel to the Company, dated the Closing Date, in the form of
Exhibit C hereto.
(g) Warrants and Shares. The Company shall have delivered to the
Purchasers the originally executed Warrants (in such denominations as each
Purchaser may request) and shall have provided copies of certificates
representing the Shares (in such denominations as each Purchaser may request)
being acquired by the Purchasers at the Closing, and the originals of such
certificates shall be delivered to the Purchasers no later than the fifth
Business Day following the Closing.
(h) Certificate of Designations. As of the Closing Date, the Company
shall have filed with the Delaware Secretary of State the Certificate of
Designations.
(i) Reservation of Shares. As of the Closing Date, the Company shall
have reserved out of its authorized and unissued Preferred Stock, solely for the
purpose of effecting the issuance of the Shares, a number of shares of Preferred
Stock equal to the aggregate number of the Shares. As of the Closing Date, the
Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Shares and the
exercise of the Warrants, a number of shares of Common Stock equal to the number
of Conversion Shares and the number of Warrant Shares issuable upon conversion
of the Preferred Stock and the exercise of the Warrants, respectively, assuming
all of the Warrants were granted on the Closing Date (after giving effect to the
Warrants to be issued on the Closing Date and assuming the Warrants were fully
exercisable on such date regardless of any limitation on the timing or amount of
such exercises).
(j) Officer's Certificate. On the Closing Date, the Company shall
have delivered to the Purchasers a certificate of an executive officer of the
Company, dated as of the Closing Date, confirming the accuracy of the Company's
representations, warranties and covenants as of the Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in Section
4.2 as of the Closing Date.
(k) Fees and Expenses. As of the Closing Date, all Purchasers' fees
and expenses contractually required to be paid by the Company shall have been or
authorized to be paid by the Company as of the Closing Date.
(l) Registration Rights Agreement. The Company shall have entered
into the Registration Rights Agreement.
(m) Material Adverse Effect. No Material Adverse Effect shall have
occurred since the date of this Agreement.
-23-
ARTICLE V
TRANSFER RESTRICTIONS AND LEGENDS
Section 5.1 (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, to the
Company, to an Affiliate of a Purchaser or in connection with a pledge permitted
by Section 5.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor, 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 5.1(b), of a legend on any of the Securities in the following
form:
THESE SECURITIES HAVE 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. THESE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a) UNDER THE SECURITIES ACT.
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, if required.
-24-
(c) Certificates evidencing the Conversion Shares, the Warrant
Shares, the PIK Dividend Shares and the Redemption Shares shall not contain any
legend (including the legend set forth in Section 5.1(b)), (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 Conversion Shares, Warrant Shares, PIK Dividend Shares or
Redemption Shares pursuant to Rule 144, or (iii) if such Conversion Shares,
Warrant Shares, PIK Dividend Shares or Redemption Shares are eligible for sale
under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Company's transfer agent promptly
after the Effectiveness Date (as defined in the Registration Rights Agreement)
if required by the Company's transfer agent to effect the removal of the legend
hereunder. If all or any portion of a Share or Warrant is converted or exercised
at a time when there is an effective registration statement to cover the resale
of the Conversion Shares, Warrant Shares, PIK Dividend Shares or Redemption
Shares, such Conversion Shares, Warrant Shares, PIK Dividend Shares or
Redemption Shares shall be issued free of all legends. The Company agrees that
following the Effectiveness Date or at such time as such legend is no longer
required under this Section 5.1(c), it will, no later than three (3) Business
Days following the delivery by a Purchaser to the Company or the Company's
transfer agent of a certificate representing Conversion Shares, Warrant Shares,
PIK Dividend Shares or Redemption Shares, as the case may be, issued with a
restrictive legend (such date, the "Legend Removal Date"), deliver or cause to
be delivered to such Purchaser a certificate representing such Securities that
is free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section 5.1.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as liquidated damages and not as a
penalty, for each $1,000 of Conversion Shares, Warrant Shares, PIK Dividend
Shares and/or Redemption Shares (based on the closing price of the Common Stock
on the date such Securities are submitted to the Company's transfer agent)
subject to Section 5.1(c), $10 per Business Day (increasing to $20 per Business
Day five (5) Business Days after such damages have begun to accrue) for each
Business Day commencing two (2) Business Days after the Legend Removal Date
until such certificate is delivered in proper form. 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 5.1 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.
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ARTICLE VI
TERMINATION
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Company and the Purchasers.
Section 6.2 Effect of Termination. In the event of termination by
the Company or the Purchasers, written notice thereof shall forthwith be given
to the other party and the transactions contemplated by this Agreement shall be
terminated without further action by any party. If this Agreement is terminated
as provided in Section 6.1 herein, this Agreement shall become void and of no
further force and effect, except for Sections 8.1 and 8.2, and Article VII
herein. Nothing in this Section 6.2 shall be deemed to release the Company or
any Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company or such Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VII
INDEMNIFICATION
Section 7.1 General Indemnity. The Company agrees to indemnify and
hold harmless each Purchaser (and its respective directors, officers, employees,
Affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
each Purchaser or any such Person as a result of any inaccuracy in or breach of
the representations, warranties or covenants made by the Company herein. The
Purchasers severally but not jointly agree to indemnify and hold harmless the
Company and its directors, officers, employees, Affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable
attorneys' fees, charges and disbursements) incurred by the Company as result of
any inaccuracy in or breach of the representations, warranties or covenants made
by the Purchasers herein, in an amount not to exceed the Purchaser's investment
amount set forth on Exhibit A.
Section 7.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the
-26-
indemnifying party may exist with respect to such action, proceeding or claim,
to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such Person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisors, 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; provided,
however, that the Company shall pay a flat $40,000 to Gryphon Master Fund, L.P.
("Gryphon"), the lead Purchaser, to reimburse Gryphon for the fees and expenses
(including attorneys' fees and expenses) incurred by it in connection with its
due diligence review of the Company and the preparation, negotiation, execution,
delivery and performance of this Agreement and the other Transaction Documents
and the transactions contemplated
-27-
thereunder, $20,000 of which has already been paid and is non-refundable, and
the remaining $20,000 of which shall be due and payable in cash at the Closing
(and only if the Closing occurs). If the Closing occurs, the Company hereby
authorizes and directs Gryphon to deduct $20,000 from the Purchase Price to be
paid by Gryphon at Closing in payment and satisfaction of such remaining $20,000
due and payable by the Company at Closing.
Section 8.2 Specific Enforcement; Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) The Company and each Purchaser (i) hereby irrevocably submit to
the exclusive jurisdiction of the United States District Court sitting in the
Northern District of Texas and the courts of the State of Texas located in
Dallas, Texas, County for the purposes of any suit, action or proceeding arising
out of or relating to this Agreement or any of the other Transaction Documents
or the transactions contemplated hereby or thereby, (ii) hereby waive, and agree
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper, and (iii) hereby waive any and all rights they
may have to a trial by jury with respect to any suit, action or proceeding based
on, or arising out of, under, or in connection with, this Agreement. The Company
and each Purchaser consent to process being served in any such suit, action or
proceeding by mailing a copy thereof 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 in this
Section 8.2 shall affect or limit any right to serve process in any other manner
permitted by law. The Company and the Purchasers hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
the Shares, the Warrants or any Transaction Document, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party.
Section 8.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein;
provided, however, that any non-disclosure agreement is not so superseded. No
provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least a majority in
interest of the then-outstanding Shares, and no provision hereof may be waived
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought. No such amendment shall be effective
to the extent that it applies to less than all of the holders of the Shares then
outstanding. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or
-28-
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 or holders of Shares, as the case may be. Notwithstanding the
foregoing or any other provision of this Agreement to the contrary, in no event
may Section 3.11 hereof be amended under any circumstances whatsoever.
Section 8.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a Business Day during normal
business hours where such notice is to be received), or the first Business Day
following such delivery (if delivered other than on a Business Day during normal
business hours where such notice is to be received), or (b) on the second
Business Day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Syntax-Brillian Corporation
1600 North Desert Drive
Tempe, Arizona 85281-1230
Attention: Vincent F. Sollitto, Jr.,
Chief Executive Officer
Telecopier: (602) 389-8801
with copies (which copies
shall not constitute notice
to the Company) to: Greenberg Traurig, LLP
2375 East Camelback Road
Phoenix, Arizona 85016
Attention: Robert S. Kant, Esq.
Telecopier: (602) 445-8100
If to any Purchaser: At the address of such Purchaser set forth
on Exhibit A to this Agreement.
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 8.5 Waivers. No waiver by any party 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 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 accruing to it thereafter.
Section 8.6 Headings. The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.
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Section 8.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
After the Closing, the Purchasers, in compliance with all applicable securities
laws, may assign the Shares, the Warrants and their rights under this Agreement
and the other Transaction Documents and any other rights hereto and thereto
without the consent of the Company.
Section 8.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person (other than indemnified parties, as contemplated
by Article VII).
Section 8.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas, without
giving effect to the choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 8.10 Survival. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and 2.1(s) shall survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and 2.1(s), shall survive the execution and delivery hereof and each
Closing until the date two (2) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, V, VII and VIII of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder.
Section 8.11 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered (including by facsimile and/or by photocopy) to the
other parties hereto, it being understood that all parties need not sign the
same counterpart.
Section 8.12 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, would
be valid, legal and enforceable to the maximum extent possible.
Section 8.13 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the other
Transaction Documents.
Section 8.14 Independent Nature of Purchasers' Obligations and
Rights. The obligations of each Purchaser under any Transaction Document are
several and not joint with the
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obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance of the obligations of any other Purchaser under any
Purchaser Transaction Document. Nothing contained herein or in any other
Purchaser Transaction Document, and no action taken by any Purchaser pursuant
hereto or 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 confirms that it has independently
participated in the negotiation of the transactions contemplated hereby with the
advice of its own counsel and advisors. 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 any 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 (other than
Gryphon and GSSF Master Fund, LP ("GSSF")) hereby agrees and acknowledges that
(a) Warren W. Garden, P.C. was retained solely by Gryphon and GSSF in connection
with its due diligence review of the Company and the preparation, negotiation,
execution, delivery and performance of this Agreement and the other Transaction
Documents and the transactions contemplated thereunder, and in such capacity has
provided legal services solely to Gryphon and GSSF, (b) Warren W. Garden, P.C.
has not represented, nor will it represent, any Purchaser (other than Gryphon
and GSSF) in connection with the preparation, negotiation, execution, delivery
and performance of this Agreement or the other Transaction Documents or the
transactions contemplated thereunder, and (c) each Purchaser (other than Gryphon
and GSSF) should, if it wishes counsel with respect to the preparation,
negotiation, execution, delivery and performance of this Agreement or the other
Transaction Documents or the transactions contemplated thereunder, retain its
own independent counsel with respect thereto.
[Remainder of page intentionally left blank. Signature pages to follow.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers or agents as of the date
first above written.
SYNTAX-BRILLIAN CORPORATION
By: /s/ Wayne A. Pratt
---------------------------------------------
Wayne A. Pratt, Chief Financial Officer
[SIGNATURES OF PURCHASERS TO FOLLOW ON NEXT PAGES.]
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PURCHASERS:
GRYPHON MASTER FUND, L.P.
By: Gryphon Partners, L.P., its General Partner
By: Gryphon Management Partners, L.P.,
its General Partner
By: Gryphon Advisors, L.L.C., its General Partner
By: /s/ E.B. Lyon, IV
----------------------------------------------
E.B. Lyon, IV, Authorized Agent
[X] Check box and initial if the foregoing Purchaser wishes to
waive the provisions of Section 3.11(a). ______ (initial here)
GSSF MASTER FUND, LP
By: Gryphon Special Situations Fund, LP, its General Partner
By: GSSF Management Partners, LP, its General Partner
By: GSSF, LLC, its General Partner
By: /s/ E.B. Lyon, IV
---------------------------------------
E.B. Lyon, IV, Authorized Agent
[X] Check box and initial if the foregoing Purchaser wishes to
waive the provisions of Section 3.11(a). ______ (initial here)
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[SIGNATURE PAGES FOR OTHER PURCHASERS]
Enable Growth Partners
By: /s/ Mitch Levine
-----------------------------------
Name: Mitch Levine
Title: Managing Partner
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
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[SIGNATURE PAGES FOR OTHER PURCHASERS]
Enable Opportunity Partners
By: /s/ Mitch Levine
-----------------------------------
Name: Mitch Levine
Title: Managing Partner
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
Hudson Bay Fund, L.P.
By: /s/ Yoav Roth
-----------------------------------
Name: Yoav Roth
Title: Portfolio Manager
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
DKR SoundShore Oasis Holding Fund Ltd.
By: /s/ Fred Leif
-----------------------------------
Name: Fred Leif
Title: Director
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
Castle Creek Technology Partners LLC
By: /s/ Stephen D. Friend
-----------------------------------
Name: Stephen D. Friend
Title: Managing Director
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
Bushido Capital Master Fund, LP
By: Bushido Capital Partners, Ltd.
By: /s/ Christopher Rossman
-----------------------------
Name: Christopher Rossman
Title: Managing Director
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
Nite Capital LP
By: /s/ Keith A. Goodman
-----------------------------------
Name: Keith A. Goodman
Title: Manager of the General Partner
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
Iroquois Master Fund Ltd.
By: /s/ Joshua Silverman
___________________________________
Name: Joshua Silverman
Title: Authorized Signatory
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
Longview Special Finance Inc.
By: /s/ Francois Morax
-------------------------
Name: Francois Morax
Title: Director
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
Lagunitas Partners LP
By: /s/ Jon D. Gruber
-----------------------------------
Name: Gruber & McBaine Capital Management
Title: General Partner
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
Jon D. and Linda W. Gruber Trust
By: /s/ Jon D. Gruber
-----------------------------------
Name: Jon D. Gruber
Title: Trustee
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
Gruber & McBaine International
By: /s/ Jon D. Gruber
-----------------------------------
Name: Gruber & McBaine Capital Management
Title: Investment Advisor
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)
[SIGNATURE PAGES FOR OTHER PURCHASERS]
WesTech Electronics Limited
By: /s/ Tan Chin Hock
-----------------------------------
Name: Tan Chin Hock
Title: CFO
[ ] Check box and initial if the foregoing Purchaser
wishes to waive the provisions of Section 3.11(a).
______ (initial here)