EXHIBIT 99.1
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of July 26, 2006 (this
"Agreement"), by and among Bravo! Foods International Corp., a Delaware
corporation, with headquarters located at 11300 US Highway #1, Suite 202, North
Palm Beach, FL 33408 (the "Company"), and the investors listed on the Schedule
of Buyers attached hereto (individually, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized (i) a new series of senior convertible
notes of the Company, in the form attached hereto as Exhibit A-1 (the "Initial
Notes"), and (ii) a new series of senior convertible notes of the Company, in
the form attached hereto as Exhibit A-2 (the "Additional Notes", and together
with the Initial Notes, the "Notes"), which Notes shall be convertible into the
Company's common stock, par value $0.001 per share (the "Common Stock") (as
converted, the "Conversion Shares"), in accordance with the terms of the Notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, (i) that aggregate principal
amount of the Initial Notes set forth opposite such Buyer's name in column (3)
on the Schedule of Buyers attached hereto (which aggregate amount for all
Buyers shall be $15,000,000), (ii) that aggregate principal amount of the
Additional Notes set forth opposite such Buyer's name in column (4) on the
Schedule of Buyers attached hereto (which aggregate amount for all Buyers shall
be $15,000,000), (iii) warrants, in substantially the form attached hereto as
Exhibit B-1 (the "Series A Warrants"), to acquire up to that number of
additional shares of Common Stock set forth opposite such Buyer's name in
column (5) of the Schedule of Buyers (as exercised, collectively, the "Series A
Warrant Shares") and (iv) warrants, in substantially the form attached hereto
as Exhibit B-2 (the "Series B Warrants", and together with the Series A
Warrants, the "Warrants"), to acquire, only at the time of an Optional
Redemption, as set forth in Section 9 of each of the Notes, an increased number
of additional shares of Common Stock equal to the number of shares of Common
Stock issuable upon conversion of the Notes being redeemed by the Company
pursuant to such Optional Redemption, as set forth in Section 9 of each of the
Notes, and in total, up to that number of additional shares of Common Stock set
forth opposite such Buyer's name in column (6) of the Schedule of Buyers (as
exercised, collectively, the "Series B Warrant Shares", and together with the
Series A Warrant Shares, the "Warrant Shares").
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit C (the
"Registration Rights Agreement"), pursuant to which
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the Company will agree to provide certain registration rights with respect to
the Registrable Securities (as defined in the Registration Rights Agreement)
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
E. The Notes, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "Securities".
F. On May 12, 2006, the Company and certain of its subsidiaries entered
into temporary financing arrangements with certain of the Buyers (the "Bridge
Lenders"), and as more fully set forth in a Subscription Agreement (the "Bridge
Agreement") by and among the Company and the Bridge Lenders, as lenders, and
certain other security and ancillary documents related thereto (the "Bridge
Facility"), pursuant to which the Company issued to the Bridge Lenders
$2,500,000 of 10% promissory notes (the "Bridge Notes") and share purchase
warrants to purchase Common Stock.
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes and Warrants.
(i) Notes and Warrants. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the
Company shall issue and sell to each Buyer, and each Buyer
severally, but not jointly, agrees to purchase from the Company on
the Closing Date (as defined below), (w) a principal amount of
Initial Notes as is set forth opposite such Buyer's name in column
(3) on the Schedule of Buyers, (x) a principal amount of Additional
Notes as is set forth opposite such Buyer's name in column (4) on
the Schedule of Buyers, (y) the Series A Warrants to acquire up to
that number of Series A Warrant Shares as is set forth opposite
such Buyer's name in column (5) on the Schedule of Buyers and (z)
the Series B Warrants to acquire up to that number of Series B
Warrant Shares as is set forth opposite such Buyer's name in column
(6) on the Schedule of Buyers (the "Closing").
(ii) Closing. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m., New York City time, on July 27, 2006
(or such other date as is mutually agreed to by the Company and
each Buyer) after notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 below at
the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New
York, New York 10022.
(iii) Purchase Price. The aggregate purchase price for the
Notes and the Warrants to be purchased by each such Buyer at the
Closing (the "Purchase Price") shall be the amount set forth
opposite each Buyer's name in column (7) of the Schedule of Buyers.
Each Buyer shall pay $1.00 for each $1.00 of principal amount of
Notes and related Warrants to be purchased by such Buyer at the
Closing.
(b) Form of Payment. On the Closing Date, (i) each Buyer shall pay
its Purchase Price (less (x) the Purchase Price of the Additional Notes,
which each Buyer shall wire to the Escrow Account (as defined below), (y)
in the case of Kings Road Investments Ltd. ("Kings Road"), the amounts
withheld pursuant to Section 4(g), and (z) in the case of Buyers
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that are Bridge Lenders under the Bridge Facility, the amount of such
Buyer's principal amount outstanding under the Bridge Facility as set
forth opposite each Buyer's name in column (8) of the Schedule of Buyers
(such amount which shall be deemed to have been paid by such Bridge
Lender(s) by cancellation of the existing Bridge Note(s), as herein
provided, and delivery of the same, marked cancelled, to the Company)) to
the Company for the Notes and the Warrants to be issued and sold to such
Buyer at the Closing, by wire transfer of immediately available funds in
accordance with the Company's written wire instructions and (ii) the
Company shall deliver to each Buyer the Notes (allocated in the principal
amounts as such Buyer shall request) which such Buyer is then purchasing
hereunder along with the Warrants (allocated in the amounts as such Buyer
shall request) which such Buyer is purchasing, in each case duly executed
on behalf of the Company and registered in the name of such Buyer or its
designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants to the Company with respect to
only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i)
acquiring the Notes and the Warrants and (ii) upon conversion of
the Notes and exercise of the Warrants (other than pursuant to a
Cashless Exercise (as defined in the Warrants)) will acquire the
Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants, for
investment for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum
or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Such
Buyer is acquiring the Securities hereunder in the ordinary course
of its business. Such Buyer does not presently have any agreement
or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
(b) Accredited Investor Status. At the time such Buyer was
offered the Securities, it was, and at the date hereof it is, and
on each date on which it exercises Notes or Warrants it will be, an
"accredited investor" as defined in Rule 501(a) under the 1933 Act.
Such Buyer is not a registered broker-dealer under Section 15 of
the 1934 Act.
(c) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying
in part upon the truth and accuracy of, and such Buyer's compliance
with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility
of such Buyer to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business,
finances and operations of the Company and materials relating to
the offer and sale of the Securities which have been requested by
such Buyer. Such
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Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or
affect such Buyer's right to rely on the Company's representations
and warranties contained herein. Such Buyer understands that its
investment in the Securities involves a high degree of risk. Such
Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(e) No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of the
investment in the Securities nor have such authorities passed upon
or endorsed the merits of the offering of the Securities.
(f) Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities
have not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered
thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to the Company,
to the effect that such Securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Buyer provides the
Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act, as amended, (or a successor rule
thereto) (collectively, "Rule 144"); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in
which the seller (or the Person (as defined in Section 3(s))
through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company
nor any other Person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
The Securities may be pledged in connection with a bona fide margin
account or other loan or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be
a transfer, sale or assignment of the Securities hereunder, and no
Buyer effecting a pledge of Securities shall be required to provide
the Company with any notice thereof or otherwise make any delivery
to the Company pursuant to this Agreement or any other Transaction
Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or
other instruments representing the Notes and the Warrants and,
until such time as the resale of the Conversion Shares and the
Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares and the Warrant
Shares, except as set forth below, shall bear any legend as
required by the "blue sky" laws of any state and a restrictive
legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
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[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THIS
CERTIFICATE IS [CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO BRAVO!
FOODS INTERNATIONAL CORP., THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR
RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection
with a sale, assignment or other transfer, such holder provides the Company
with an opinion of counsel, in a form reasonably acceptable to the Company, to
the effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the 1933 Act, or
(iii) such holder provides the Company with reasonable assurance that the
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A.
(h) Validity; Enforcement. This Agreement and the
Registration Rights Agreement to which such Buyer is a party have
been duly and validly authorized, executed and delivered on behalf
of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in
accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and
remedies.
(i) No Conflicts. The execution, delivery and performance by
such Buyer of this Agreement and the Registration Rights Agreement
to which such Buyer is a party and the consummation by such Buyer
of the transactions contemplated hereby and thereby will not (i)
result in a violation of the organizational documents of such Buyer
or (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, indenture or
instrument to which such Buyer is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to such
Buyer, except in the case of clauses (ii) and (iii) above,
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for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Buyer to perform its
obligations hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.
(k) Certain Trading Activities. Such Buyer has not directly
or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Buyer, engaged in any transactions
in the securities of the Company (including, without limitations,
any Short Sales involving the Company's securities) since the time
that such Buyer was first contacted by the Company or Cowen and
Company regarding the transactions contemplated hereby. Such Buyer
covenants that neither it nor any Person acting on its behalf or
pursuant to any understanding with it will engage in any
transactions in the securities of the Company (including Short
Sales) prior to the time that the transactions contemplated by this
Agreement are publicly disclosed. For the purpose of this
Agreement, "Short Sales" include, without limitation, all "short
sales" as defined in Rule 200 promulgated under Regulation SHO
under the 1934 Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, swaps and
similar arrangements (including on a total return basis), and sales
and other transactions through non-US broker dealers or foreign
regulated brokers.
(l) Organization. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and
authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents (as defined
below) and otherwise to carry out its obligations thereunder.
(m) No Broker. Such Buyer has not used the services of any
broker, investment banker, placement agreement or advisor who will
seek compensation from the Company with respect to the purchase of
the Securities and/or any of the transactions contemplated hereby.
(n) No Legal, Tax or Investment Advice. Such Buyer
understands that nothing in this Agreement or any other materials
presented by or on behalf of the Company to the Buyer in connection
with the purchase of the Securities constitutes legal, tax or
investment advice. Such Buyer has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the
Securities. Such Buyer understands that the Placement Agent (as
defined below) has acted solely as the agent of the Company in this
placement of the Securities, and that the Placement Agent makes no
representation or warranty with regard to the merits of this
transaction or as to the accuracy of any information such Buyer may
have received in connection therewith. Such Buyer acknowledges that
he has not relied on any information or advice furnished by or on
behalf of the Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
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(a) Organization and Qualification. The Company is duly
organized and validly existing in good standing under the laws of
the jurisdiction in which it is formed, and has the requisite power
and authorization to own its properties and to carry on its
business as now being conducted. Each of the Company's
"Subsidiaries" (which for purposes of this Agreement means any
Person in which the Company, directly or indirectly, owns more than
5% of any capital stock or holds more than 5% of any equity or
similar interest), all of which are listed on Schedule A hereto
(the "Existing Subsidiaries"), are entities that have no more than
$25,000 in the aggregate of assets and liabilities and conduct no
operations or activities. The Company covenants and agrees that the
Existing Subsidiaries will not hold any assets or incur any
liabilities in excess of $25,000 in the aggregate and covenants and
agrees that its Existing Subsidiaries will not conduct any
operations in the future. The Company is duly qualified as a
foreign entity to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of
the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in
good standing would not reasonably be expected to have a Material
Adverse Effect. As used in this Agreement, "Material Adverse
Effect" means any material adverse effect on the business,
properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company and its
Subsidiaries, taken as a whole, or on the transactions contemplated
hereby and the other Transaction Documents or by the agreements and
instruments to be entered into in connection herewith or therewith,
or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The
Company has no Subsidiaries except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the
requisite power and authority to enter into and perform its
obligations under this Agreement, the Notes, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as
defined in Section 5(b)), the Escrow Agreement, the Lock-Up
Agreements, the Warrants, and each of the other agreements entered
into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "Transaction
Documents") and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes and the
Warrants, the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Notes and the
reservation for issuance and issuance of Warrant Shares issuable
upon exercise of the Warrants have been duly authorized by the
Company's Board of Directors and (other than (i) the filing of a
Form D under Regulation D of the 1933 Act (ii) obtaining the
Stockholder Approval (as defined below) and (iii) the filing with
the SEC of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement) no further
filing, consent, or authorization is required by the Company, its
Board of Directors or its stockholders. This Agreement and the
other Transaction Documents of even date herewith have been duly
executed and delivered by the Company, and constitute the legal,
valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as
such enforceability may be limited by general principles of equity
or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally,
the enforcement of applicable creditors' rights and remedies.
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(c) Issuance of Securities. The issuance of the Notes and the
Warrants are duly authorized and are free from all taxes, liens and
charges with respect to the issue thereof. As of the Closing, a
number of shares of Common Stock shall have been duly authorized
and reserved for issuance which equals 100% of the maximum number
of shares of Common Stock issuable upon conversion of the Initial
Notes and upon exercise of the Series A Warrants. As of the
Stockholder Approval Date, a number of shares of Common Stock shall
have been duly authorized and reserved for issuance which equals
130% of the maximum number of shares Common Stock issuable upon
conversion of the Notes and upon exercise of the Warrants. Upon
conversion in accordance with the Notes or exercise in accordance
with the Warrants, as the case may be, the Conversion Shares and
the Warrant Shares, respectively, will be validly issued, fully
paid and nonassessable and free from all preemptive or similar
rights, taxes, liens and charges with respect to the issue thereof,
with the holders being entitled to all rights accorded to a holder
of Common Stock. The offer and issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
(d) 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
(including, without limitation, the issuance of the Notes and the
Warrants, the granting of a security interest in the Collateral and
reservation for issuance and issuance of the Conversion Shares and
the Warrant Shares) will not (i) result in a violation of any
certificate of incorporation, certificate of formation, any
certificate of designations or other constituent documents of the
Company or any of its Subsidiaries, any capital stock of the
Company or any of its Subsidiaries or bylaws of the Company or any
of its Subsidiaries or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would
become a default) in any respect under, or give to others any
rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any
of its Subsidiaries is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including
foreign, federal and state securities laws and regulations and the
rules and regulations of the OTC Bulletin Board (the "Principal
Market") as reported on Bloomberg Financial Markets LP) 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 the case of clause (ii) or (iii) above, to the
extent such violations that would not reasonably be expected to
have a Material Adverse Effect.
(e) Consents. Other than as set forth on Schedule 3(e), the
Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or
any other Person in order for it to execute, deliver or perform any
of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or
thereof. Other than as set forth on Schedule 3(e), all consents,
authorizations, orders, filings and registrations which the Company
is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the Closing Date, and the
Company and its Subsidiaries are unaware of any facts or
circumstances which might prevent the Company from obtaining or
effecting any of the registration, application or filings pursuant
to the preceding sentence. Other than as set forth on Schedule
3(e), the Company is not in violation of the listing requirements
of the Principal Market and has no knowledge of any facts which
would reasonably lead to delisting or suspension of the Common
Stock in the foreseeable future.
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(f) Acknowledgment Regarding Buyer's Purchase of Securities.
The Company acknowledges and agrees that each Buyer is acting
solely in the capacity of an arm's length purchaser with respect to
the Transaction Documents and the transactions contemplated hereby
and thereby and that no Buyer is (i) an officer or director of the
Company, (ii) an "affiliate" of the Company (as defined in Rule 144
of the 1933 Act) or (iii) to the knowledge of the Company, a
"beneficial owner" of more than 10% of the shares of Common Stock
(as defined for purposes of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the "1934 Act")). The Company further
acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company or any of its Subsidiaries (or in any
similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given
by a Buyer or any of its representatives or agents in connection
with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of
the Securities. The Company further represents to each Buyer that
the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and
its representatives.
(g) No General Solicitation; Placement Agent's Fees. 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) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers'
commissions (other than for persons engaged by any Buyer or its
investment advisor) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including,
without limitation, attorney's fees and out-of-pocket expenses)
arising in connection with any such claim. The Company acknowledges
that it has engaged Cowen and Company as placement agent (the
"Placement Agent") in connection with the sale of the Securities.
Other than the Placement Agent, the Company has not engaged any
placement agent or other agent in connection with the sale of the
Securities.
(h) No Integrated Offering. None of the Company, its
Subsidiaries, any of their affiliates, and any Person acting on
their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, under
circumstances that would require registration of any of the
Securities under the 1933 Act or cause this offering of the
Securities to be integrated with prior offerings by the Company for
purposes of requiring registration under the 1933 Act or any
applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the
Company are listed or designated. None of the Company, its
Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding
sentence that would require registration of any of the Securities
under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of
the Notes and the Warrant Shares issuable upon exercise of the
Warrants will increase in certain circumstances. The Company
further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Notes in accordance with this Agreement and
the Notes and its obligation to issue the Warrant Shares
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upon exercise of the Warrants in accordance with this Agreement and
the Warrants, in each case, is absolute and unconditional
regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
(j) Application of Takeover Protections; Rights Agreement.
The Company and its board of directors have taken all necessary
action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation which
is or could become applicable to any Buyer as a result of the
transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and any
Buyer's ownership of the Securities. The Company has not adopted a
stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change
in control of the Company.
(k) SEC Documents; Financial Statements. Except as disclosed
in Schedule 3(k), during the two (2) years prior to the date
hereof, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the
SEC pursuant to the reporting requirements of the 1934 Act (all of
the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements, notes and schedules
thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). The Company has
delivered to the Buyers or their respective representatives true,
correct and complete copies of the SEC Documents not available on
the EDGAR system. Except as disclosed in Schedule 3(k), as of their
respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. Except as disclosed in Schedule 3(k), as of their
respective dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Except as disclosed in
Schedule 3(k), such financial statements have been prepared in
accordance with generally accepted accounting principles,
consistently applied, 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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
audit adjustments). Except as disclosed in Schedule 3(k), no other
information provided by or on behalf of the Company to the Buyers
which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this
Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which
they are or were made and not misleading.
(l) Absence of Certain Changes. Except as disclosed in
Schedule 3(l) and Schedule 3(k), since December 31, 2005, there has
been no material adverse change and no
-11-
material adverse development in the business, properties,
operations, condition (financial or otherwise), results of
operations or prospects of the Company or its Subsidiaries. Except
as disclosed in Schedule 3(l) and Schedule 3(k), since December 31,
2005, the Company has not (i) declared or paid any dividends, (ii)
sold any assets, individually or in the aggregate, in excess of
$100,000 outside of the ordinary course of business or (iii) had
capital expenditures, individually or in the aggregate, in excess
of $300,000. Except as disclosed in Schedule 3(l) and Schedule
3(k), the Company has not taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge
of any fact which would reasonably lead a creditor to do so. The
Company and its Subsidiaries, individually and on a consolidated
basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing, will
not be Insolvent (as defined below). For purposes of this Section
3(l), "Insolvent" means, with respect to any Person (as defined in
Section 3(s)), (i) the present fair saleable value of such Person's
assets is less than the amount required to pay such Person's total
Indebtedness (as defined in Section 3(s)), (ii) such Person is
unable to pay its debts and liabilities, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and
matured, (iii) such Person intends to incur or believes that it
will incur debts that would be beyond its ability to pay as such
debts mature or (iv) such Person has unreasonably small capital
with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has
occurred or exists, or is contemplated to occur with respect to the
Company, its Subsidiaries or their respective business, properties,
prospects, operations or financial condition, that would be
required to be disclosed by the Company under applicable securities
laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock
and which has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the
Company nor its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the
Company or Bylaws or their organizational charter or bylaws,
respectively. Neither the Company nor any of its Subsidiaries is in
violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries
will conduct its business in violation of any of the foregoing,
except for possible violations which could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or
requirements of the Principal Market and has no knowledge of any
facts or circumstances that would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the
foreseeable future. During the two years prior to the date hereof,
the Common Stock has been designated for quotation on the Principal
Market. During the two years prior to the date hereof, (i) trading
in the Common Stock has not been suspended by the SEC or the
Principal Market and (ii) the Company has received no
communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting of the Common Stock
from the Principal Market. The Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the
appropriate regulatory
-12-
authorities necessary to conduct their respective businesses,
except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, and neither the Company nor
any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate,
authorization or permit.
(o) Foreign Corrupt Practices. Neither the Company, nor any
of its Subsidiaries, nor any director, officer, agent, employee or
other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf
of, the Company or any of its Subsidiaries (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any
unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government
official or employee.
(p) Sarbanes-Oxley Act. The Company is in compliance with any
and all applicable requirements of the Sarbanes-Oxley Act of 2002
that are effective as of the date hereof, and any and all
applicable rules and regulations promulgated by the SEC thereunder
that are effective as of the date hereof.
(q) Transactions With Affiliates. Except as set forth in the
SEC Documents filed at least ten (10) days prior to the date hereof
and other than the grant of stock options disclosed on Schedule
3(q), none of the officers, directors or employees of the Company
or any of its Subsidiaries is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for
ordinary course services as employees, officers or directors),
including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring
payments to or from any such officer, director or employee or, to
the knowledge of the Company, any corporation, partnership, trust
or other entity in which any such officer, director, or employee
has a substantial interest or is an officer, director, trustee or
partner.
(r) Equity Capitalization. The Company's capitalization is
set forth on Schedule 3(r). All of such outstanding shares have
been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 3(r): (i) none
of the Company's capital stock is subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital
stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to issue additional
capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital
stock of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing
Indebtedness of the
-13-
Company or any of its Subsidiaries or by which the Company or any
of its Subsidiaries is or may become bound; (iv) there are no
financing statements securing obligations in any material amounts,
either singly or in the aggregate, filed in connection with the
Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the
1933 Act (except pursuant to the Registration Rights Agreement);
(vi) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or
similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vii) there are no securities
or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities; (viii) the
Company does not have any stock appreciation rights or "phantom
stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or
obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's or its Subsidiaries' respective
businesses and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect. The Company has furnished
to the Buyers true, correct and complete copies of the Company's
Articles of Incorporation, as amended and as in effect on the date
hereof (the "Articles of Incorporation"), and the Company's Bylaws,
as amended and as in effect on the date hereof (the "Bylaws"), and
the terms of all securities convertible into, or exercisable or
exchangeable for, shares of Common Stock and the material rights of
the holders thereof in respect thereto. Schedule 3(r) sets forth
the shares of Common Stock owned beneficially or of record and
Common Stock Equivalents (as defined below) held by each director
and executive officer.
(s) Indebtedness and Other Contracts. Except as disclosed in
Schedule 3(s), neither the Company nor any of its Subsidiaries (i)
has any outstanding Indebtedness (as defined below), (ii) is a
party to any contract, agreement or instrument, the violation of
which, or default under which, by the other party(ies) to such
contract, agreement or instrument could reasonably be expected to
result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument
relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a
Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers,
has or is expected to have a Material Adverse Effect. For purposes
of this Agreement: (x) "Indebtedness" of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all
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), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds
and other similar instruments, (D) all 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) all indebtedness
created or arising under any conditional sale or other title
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 generally accepted accounting principles,
consistently applied for the periods covered thereby, is
-14-
classified as a capital lease, (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; (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; and (z) "Person" means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and
a government or any department or agency thereof.
(t) Absence of Litigation. Except as disclosed on Schedule
3(t), there is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries, the Common Stock
or any of the Company's Subsidiaries or any of the Company's or its
Subsidiaries' officers or directors, whether of a civil or criminal
nature or otherwise, except as would not, either individually or in
the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(u) Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as management of the
Company believes to be prudent and customary in the businesses in
which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance
coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have
a Material Adverse Effect.
(v) Employee Relations. (i) Neither the Company nor any of
its Subsidiaries is a party to any collective bargaining agreement
or employs any member of a union. The Company and its Subsidiaries
believe that their relations with their employees are good. No
executive officer of the Company or any of its Subsidiaries (as
defined in Rule 501(f) of the 1933 Act) has notified the Company or
any such Subsidiary that such officer intends to leave the Company
or any such Subsidiary or otherwise terminate such officer's
employment with the Company or any such Subsidiary. No executive
officer of the Company or any of its Subsidiaries, to the knowledge
of the Company or any such Subsidiary, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or
any restrictive covenant, and the continued employment of each such
executive
-15-
officer does not subject the Company or any of its Subsidiaries to
any liability with respect to any of the foregoing matters.
(ii) The Company and its Subsidiaries are in compliance
with all federal, state, local and foreign laws and
regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment
and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse
Effect.
(w) Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of
such property by the Company and any of its Subsidiaries. Any real
property and facilities held under lease by the Company and any of
its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do
not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
(x) Intellectual Property Rights. Except as disclosed in
Schedule 3(x), The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, service marks
and all applications and registrations therefor, trade names,
patents, patent rights, copyrights, original works of authorship,
inventions, licenses, approvals, governmental authorizations, trade
secrets and other intellectual property rights necessary to conduct
their respective businesses as now conducted ("Intellectual
Property Rights"). Except as disclosed in Schedule 3(x), none of
the Company's registered, or applied for, Intellectual Property
Rights have expired or terminated or have been abandoned, or are
expected to expire or terminate or expected to be abandoned, within
three years from the date of this Agreement. The Company does not
have any knowledge of any infringement by the Company or its
Subsidiaries of Intellectual Property Rights of others. There is no
claim, action or proceeding being made or brought, or to the
knowledge of the Company, being threatened, against the Company or
any of its Subsidiaries regarding its Intellectual Property Rights.
The Company is unaware of any facts or circumstances which might
give rise to any of the foregoing infringements or claims, actions
or proceedings. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property
Rights.
(y) Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all Environmental Laws (as
hereinafter defined), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit,
license or approval where, in each of the foregoing clauses (i),
(ii) and (iii), the failure to so comply could be reasonably
expected to have, individually or in the aggregate, a Material
Adverse Effect. The term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of chemicals,
pollutants, contaminants, or toxic or hazardous substances or
wastes
-16-
(collectively, "Hazardous Materials") into the environment, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees,
demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations
issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. The Company or one of its Subsidiaries
has the unrestricted right to vote, and (subject to limitations
imposed by applicable law) to receive dividends and distributions
on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.
(aa) Investment Company. The Company is not, and upon
consummation of the sale of the Securities will not be, an
"investment company," a company controlled by an "investment
company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company" as such terms are defined
in the Investment Company Act of 1940, as amended.
(bb) Tax Status. The Company and each of its Subsidiaries (i)
has made or filed all foreign, federal and state income and all
other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in
amount, shown to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction.
(cc) Internal Accounting and Disclosure Controls. Except as
disclosed in Schedule 3(cc), the Company and each of its
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset and
liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the
existing assets and liabilities at reasonable intervals and
appropriate action is taken with respect to any difference. The
Company maintains disclosure controls and procedures (as such term
is defined in Rule 13a-14 under the 1934 Act) that are effective in
ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is
recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including,
without limitation, controls and procedures designed in to ensure
that information required to be disclosed by the Company in the
reports that it files or submits under the 1934 Act is accumulated
and communicated to the Company's management, including its
principal executive officer or officers and its principal financial
officer or officers, as appropriate, to allow timely decisions
regarding required disclosure. During the twelve months prior to
the date hereof neither the Company nor any of its Subsidiaries
have received any notice or correspondence from any accountant
relating to any potential material weakness in any part of the
system of internal accounting controls of the Company or any of its
Subsidiaries.
-17-
(dd) Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an
unconsolidated or other off balance sheet entity that is required
to be disclosed by the Company in its Exchange Act filings and is
not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.
(ee) Ranking of Notes. Except as set forth on Schedule (ee),
no Indebtedness of the Company is senior to or ranks pari passu
with the Notes in right of payment, whether with respect of payment
of redemptions, interest, damages or upon liquidation or
dissolution or otherwise.
(ff) Form SB-2 Eligibility. The Company is eligible to
register the Conversion Shares and the Warrant Shares for resale by
the Buyers using Form SB-2 promulgated under the 1933 Act.
(gg) Transfer Taxes. On the Closing Date, all stock transfer
or other taxes (other than income or similar taxes) which are
required to be paid in connection with the sale and transfer of the
Securities to be sold to each Buyer hereunder will be, or will have
been, fully paid or provided for by the Company, and all laws
imposing such taxes will be or will have been complied with.
(hh) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company or to facilitate the sale or resale of any of the
Securities. From and after January 1, 2004, except for transactions
undertaken with the Placement Agent with respect to the
transactions contemplated hereby and such redemptions of Common
Stock or other securities of the Company by or on behalf of the
Company disclosed in the SEC Documents prior to the date hereof,
the Company has not, and to its knowledge no one acting on its
behalf has (i) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities, or (ii) paid or
agreed to pay to any person any compensation for soliciting another
to purchase any other securities of the Company. Except as set
forth on Schedule 3(hh), since November 23, 2005, the Company has
not sold or issued any Common Stock or Common Stock Equivalents (as
defined below) to any Person (other than securities issued pursuant
to an Approved Stock Plan (as defined in the Notes) or under the
Bridge Agreement).
(ii) Acknowledgement Regarding Buyers' Trading Activity. It
is understood and acknowledged by the Company (i) that none of the
Buyers have been asked by the Company, the Placement Agent or any
other affiliate, agent or representative of the Company to agree,
nor has any Buyer agreed, to desist from purchasing or selling,
long and/or short, securities of the Company, or "derivative"
securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that any Buyer, and counter
parties in "derivative" transactions to which any such Buyer is a
party, directly or indirectly, presently may have a "short"
position in the Common Stock, and (iii) that each Buyer shall not
be deemed to have any affiliation with or control over any arm's
length counter-party in any "derivative" transaction. The Company
further understands and acknowledges that, subject to applicable
securities laws, one or more Buyers may engage in hedging and/or
trading activities at various times during the period that the
Securities are outstanding, including, without limitation, during
-18-
the periods that the value of the Conversion Shares and the Warrant
Shares deliverable with respect to Securities are being determined
and (b) such hedging and/or trading activities, if any, can reduce
the value of the existing stockholders' equity interest in the
Company both at and after the time the hedging and/or trading
activities are being conducted. The Company acknowledges that such
aforementioned hedging and/or trading activities do not constitute
a breach of this Agreement, the Notes, the Warrants or any of the
documents executed in connection herewith.
(jj) U.S. Real Property Holding Corporation. The Company is
not, nor has ever been, a U.S. real property holding corporation
within the meaning of Section 897 of the Internal Revenue Code of
1986, as amended, and the Company shall so certify upon Buyer's
request.
(kk) OFAC. Neither the Company nor any of its Subsidiaries
(i) is a Person whose property or interest in property is blocked
or subject to blocking pursuant to Section 1 of Executive Order
13224 of September 23, 2001 Blocking Property and Prohibiting
Transactions with Persons Who Commit, Threaten to Commit, or
Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any
dealings or transactions prohibited by Section 2 of such executive
order, or is otherwise associated with any such Person in any
manner violative of Section 2 of such executive order, or (iii) is
a Person on the list of Specially Designated Nationals and Blocked
Persons or subject to the limitations or prohibitions under any
other U.S. Department of Treasury's Office of Foreign Assets
Control regulation or executive order.
(ll) Patriot Act. To the extent applicable, both the Company
and its Subsidiaries are in compliance, in all material respects,
with the (i) Trading with the Enemy Act, as amended, and each of
the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and
any other enabling legislation or executive order relating thereto,
and (ii) Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act
of 2001).
(mm) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Buyers or
their agents or counsel with any information that constitutes or
could reasonably be expected to constitute material, nonpublic
information other than the existence of the transactions
contemplated by this Agreement or the other Transaction Documents.
The Company understands and confirms that each of the Buyers will
rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Buyers
regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company is true and correct and
does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they
were made, not misleading. Each press release issued by the Company
or any of its Subsidiaries during the twelve (12) months preceding
the date of this Agreement did not at the time of release 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 the light of the circumstances under
which they were made, not misleading. No event or circumstance has
occurred or information exists with respect to the Company or any
of its Subsidiaries or its or their business, properties,
prospects, operations or financial conditions,
-19-
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.
4. COVENANTS.
(a) Reasonable Best Efforts. Each party shall use its reasonable
best efforts timely to satisfy each of the conditions to be satisfied by
it as provided in Sections 6 and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall,
on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or
to qualify the Securities for sale to the Buyers at the Closing pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the
states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to
the Buyers on or prior to the Closing Date. The Company shall make all
filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of
the United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the
Conversion Shares and Warrant Shares and none of the Notes or Warrants is
outstanding (the "Reporting Period"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the
sale of the Securities for general corporate and for working capital
purposes, provided, however, that the Company may not use the proceeds
from the sale of the Securities for (i) the repayment of any other
outstanding Indebtedness of the Company or any of its Subsidiaries,
except for (w) $104,000 and $66,000, respectively to pay the Alpha
Capital Aktiengesellschaft notes, plus accrued and unpaid interest
thereon, such principal and interest not exceeding $215,000 in the
aggregate (x) $750,000 to pay the Mid-AM Capital LLC note, plus accrued
an unpaid interest thereon not exceeding $103,326.48 through July 21,
2006 and $164.38 per day thereafter, (y) $1,500,000 to prepay certain
notes outstanding under the Bridge Facility and (z) the exchange of
$1,000,000 of the notes outstanding under the Bridge Facility for Notes
and Warrants as contemplated herein, and (ii) the redemption or
repurchase of any of its or its Subsidiaries' equity securities, except
the Company shall be permitted, in one or more transactions, to
repurchase up to $5 million of Common Stock of the Company (each, a
"Permitted Stock Buyback") at any time during the period commencing on
the first Business Day following the effective date of the registration
statement on Form SB-2 of the Company with the SEC file number 333-130535
(the "November Effective Date") and ending ninety calendar days following
the November Effective Date, so long as the purchase price of each share
of Common Stock in each such Permitted Stock Buyback does not exceed
$0.60 per share.
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(e) Financial Information. The Company agrees to send the following
to each Investor (as defined in the Registration Rights Agreement) during
the Reporting Period (i) unless the following are filed with the SEC
through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy
of its Annual Reports on Form 10-K or 10-KSB, any interim reports or any
consolidated balance sheets, income statements, stockholders' equity
statements and/or cash flow statements for any period other than annual,
any Current Reports on Form 8-K and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on
the same day as the release thereof, if not publicly filed, facsimile or
e-mailed copies of all press releases issued by the Company or any of its
Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders. As used herein, "Business Day" means any day other than
Saturday, Sunday or any other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.
(f) Listing. The Company shall promptly secure the listing of all
of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed (subject to
official notice of issuance) and shall maintain such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stocks'
authorization for quotation on the Principal Market. Neither the Company
nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section
4(f).
(g) Fees. The Company shall reimburse Kings Road or its designee(s)
(in addition to any other expense amounts paid to any Buyer prior to the
date of this Agreement) for all reasonable documentation costs and
expenses incurred in connection with the negotiation and consummation of
the transactions contemplated by the Transaction Documents (including all
reasonable legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the
Transaction Documents and due diligence in connection therewith), which
amount shall be withheld by such Buyer from its Purchase Price at the
Closing. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or broker's commissions
(other than for Persons engaged by any Buyer) relating to or arising out
of the transactions contemplated hereby, including, without limitation,
any fees or commissions payable to the Placement Agent. The Company shall
pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, reasonable attorney's fees and
out-of-pocket expenses) arising in connection with any claim against a
Buyer relating to any such payment. Except as otherwise set forth in the
Transaction Documents, each party to this Agreement shall bear its own
expenses in connection with the sale of the Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that
the Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a
transfer, sale or
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assignment of the Securities hereunder, and no Investor effecting a
pledge of Securities shall be required to provide the Company with any
notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without
limitation, Section 2(f) hereof; provided that an Investor and its
pledgee shall be required to comply with the provisions of Section 2(f)
hereof in order to effect a sale, transfer or assignment of Securities to
such pledgee. The Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an
Investor.
(i) Disclosure of Transactions and Other Material Information. On
or before 8:30 a.m., New York City time, on the first Business Day
following the date of this Agreement, the Company shall issue a press
release and file a Current Report on Form 8-K describing the terms of the
transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this
Agreement), the form of the Notes, the form of Warrant, the form of the
Registration Rights Agreement and the form of Security Documents) as
exhibits to such filing (including all attachments, the "8-K Filing").
From and after the filing of the 8-K Filing with the SEC, no Buyer shall
be in possession of any material, nonpublic information received from the
Company, any of its Subsidiaries or any of its 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 Buyer 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 SEC without the express written consent
of such Buyer. If a Buyer has, or believes it has, received any such
material, nonpublic information regarding the Company or any of its
Subsidiaries, it shall provide the Company with written notice thereof.
The Company shall, within five (5) Trading Days of receipt of such
notice, make public disclosure of such material, nonpublic information.
In the event of a breach of the foregoing covenant by the Company, any of
its Subsidiaries, or any of its or their respective officers, directors,
employees and agents, in addition to any other remedy provided herein or
in the Transaction Documents, a Buyer shall have the right to make a
public disclosure, in the form of a press release, public advertisement
or otherwise, of such material, nonpublic information without the prior
approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Buyer shall have
any liability to the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees, stockholders or agents for any
such disclosure. Subject to the foregoing, neither the Company, its
Subsidiaries nor any Buyer 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 Buyer, 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) each Buyer shall be consulted by the Company in
connection with any such press release or other public disclosure prior
to its release). Without the prior written consent of any applicable
Buyer, neither the Company nor any of its Subsidiaries or affiliates
shall disclose the name of such Buyer in any filing, announcement,
release or otherwise.
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(j) Restriction on Redemption and Cash Dividends. So long as any
Notes are outstanding, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, the
Common Stock without the prior express written consent of the Required
Holders (as defined in the Notes).
(k) Additional Notes; Variable Securities; Dilutive Issuances.
(i) So long as any Buyer beneficially owns any Securities,
the Company will not issue any Notes other than to the Buyers as
contemplated hereby and the Company shall not issue any other
securities that would cause a breach or default under the Notes.
For long as any Notes or Warrants remain outstanding, the Company
shall not, in any manner, issue or sell any rights, warrants or
options to subscribe for or purchase Common Stock or directly or
indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary with the market
price of the Common Stock, including by way of one or more reset(s)
to any fixed price unless the conversion, exchange or exercise
price of any such security cannot be less than the then applicable
Conversion Price (as defined in the Notes) with respect to the
Common Stock into which any Note is convertible or the then
applicable Exercise Price (as defined in the Warrants) with respect
to the Common Stock into which any Warrant is exercisable. For long
as any Notes or Warrants remain outstanding, the Company shall not,
in any manner, enter into or affect any Dilutive Issuance (as
defined in the Notes) if the effect of such Dilutive Issuance is to
cause the Company to be required to issue upon conversion of any
Note or exercise of any Warrant any shares of Common Stock in
excess of that number of shares of Common Stock which the Company
may issue upon conversion of the Notes and exercise of the Warrants
without breaching the Company's obligations under the rules or
regulations of the Eligible Market (as defined in the Registration
Rights Agreement).
(ii) Until the Stockholder Approval Date, the Company will
not, (excluding securities issued upon exercise or conversion of
Common Stock Equivalents of the Company outstanding as of the date
of this Agreement in accordance with the terms of such Common Stock
Equivalent as of the date of this Agreement and excluding options
exercisable for up to 500,000 shares of Common Stock, in the
aggregate, issued pursuant to an Approved Stock Plan) directly or
indirectly, offer, sell, grant any option to purchase, or otherwise
dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) any of its equity or Common Stock
Equivalents (as defined below), including without limitation any
debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for shares of common equity of
the Company, without the prior written consent of the Required
Holders.
(l) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction
(as defined in the Notes) unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Notes and the Warrants.
(m) Reservation of Shares. So long as any Buyer owns any
Securities, the Company shall take all action necessary to at all times
have authorized, and reserved for the
-23-
purpose of issuance, no less than (i) as of the Closing, 100% of the
number of shares of Common Stock issuable upon conversion of all of the
Initial Notes and issuable upon exercise of the Series A Warrants then
outstanding and (ii) as of the Stockholder Approval Date, 130% of the
number of shares of Common Stock issuable upon conversion of all of the
Notes and issuable upon exercise of the Warrants then outstanding, in
each case, without taking into account any limitations on the conversion
of the Notes or exercise of the Warrants set forth in the Notes and
Warrants, respectively.
(n) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would
not result, either individually or in the aggregate, in a Material
Adverse Effect.
(o) Additional Issuances of Securities.
(i) For purposes of this Section 4(o), the following
definitions shall apply.
(1) "Convertible Securities" means any stock or
securities (other than Options) convertible into or
exercisable or exchangeable for shares of Common Stock.
(2) "Options" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or
Convertible Securities.
(3) "Common Stock Equivalents" means, collectively,
Options and Convertible Securities.
(ii) From the date hereof until the date that is 30 Trading
Days (as defined in the Notes) following the Initial Effective Date
(as defined in the Registration Rights Agreement) (the "Trigger
Date"), the Company will not, directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other
disposition of) any of its or its Subsidiaries' equity or equity
equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any
time during its life and under any circumstances, convertible into
or exchangeable or exercisable for shares of Common Stock or Common
Stock Equivalents (any such offer, sale, grant, disposition or
announcement being referred to as a "Subsequent Placement").
(iii) From the Trigger Date until the eighteen month
anniversary of the Closing Date, the Company will not, directly or
indirectly, effect any Subsequent Placement unless the Company
shall have first complied with this Section 4(o)(iii).
(1) The Company shall deliver to each Buyer who
purchased Notes hereunder with at least a principal amount of
$5 million (each, an "Eligible Buyer") a written notice (the
"Offer Notice") of any proposed or intended issuance or sale
or exchange (the "Offer") of the securities being offered
(the "Offered Securities") in a Subsequent Placement, which
Offer Notice shall (w) identify and describe the
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Offered Securities, (x) describe the price and other terms
upon which they are to be issued, sold or exchanged, and the
number or amount of the Offered Securities to be issued, sold
or exchanged, (y) identify the persons or entities (if known)
to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and
sell to or exchange with such Eligible Buyers at least 35% of
the Offered Securities, allocated among such Eligible Buyers
(a) based on such Eligible Buyer's pro rata portion of the
aggregate principal amount of Notes purchased hereunder by
Eligible Buyers (the "Basic Amount"), and (b) with respect to
each Eligible Buyer that elects to purchase its Basic Amount,
any additional portion of the Offered Securities attributable
to the Basic Amounts of other Eligible Buyers as such
Eligible Buyer shall indicate it will purchase or acquire
should the other Eligible Buyers subscribe for less than
their Basic Amounts (the "Undersubscription Amount"), which
process shall be repeated until the Buyers shall have an
opportunity to subscribe for any remaining Undersubscription
Amount.
(2) To accept an Offer, in whole or in part, such
Eligible Buyer must deliver a written notice to the Company
prior to the end of the second Business Day after such
Eligible Buyer's receipt of the Offer Notice (the "Offer
Period"), setting forth the portion of such Eligible Buyer's
Basic Amount that such Eligible Buyer elects to purchase and,
if such Eligible Buyer shall elect to purchase all of its
Basic Amount, the Undersubscription Amount, if any, that such
Eligible Buyer elects to purchase (in either case, the
"Notice of Acceptance"). If the Basic Amounts subscribed for
by all Eligible Buyers are less than the total of all of the
Basic Amounts, then each Eligible Buyer who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has
subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the
Basic Amounts subscribed for (the "Available
Undersubscription Amount"), each Eligible Buyer who has
subscribed for any Undersubscription Amount shall be entitled
to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Eligible
Buyer bears to the total Basic Amounts of all Eligible Buyers
that have subscribed for Undersubscription Amounts, subject
to rounding by the Company to the extent its deems reasonably
necessary.
(3) The Company shall have fifteen (15) Business Days
from the expiration of the Offer Period above to (i) offer,
issue, sell or exchange all or any part of such Offered
Securities as to which a Notice of Acceptance has not been
given by the Eligible Buyers (the "Refused Securities"), but
only to the offerees described in the Offer Notice (if so
described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest
rates) that are not more favorable to the acquiring person or
persons or less favorable to the Company than those set forth
in the Offer Notice and (ii) to publicly announce (a) the
execution of such Subsequent Placement Agreement (as defined
below), and (b) either (x) the consummation of the
transactions contemplated by such Subsequent Placement
Agreement or (y) the termination of such Subsequent Placement
Agreement, which shall be filed with the SEC on a Current
Report on Form 8-K with such Subsequent Placement Agreement
and any documents contemplated therein filed as exhibits
thereto.
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(4) In the event the Company shall propose to sell less
than all the Refused Securities (any such sale to be in the
manner and on the terms specified in Section 4(o)(iii)(3)
above), then each Eligible Buyer may, at its sole option and
in its sole discretion, reduce the number or amount of the
Offered Securities specified in its Notice of Acceptance to
an amount that shall be not less than the number or amount of
the Offered Securities that such Eligible Buyer elected to
purchase pursuant to Section 4(o)(iii)(2) above multiplied by
a fraction, (i) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to
issue, sell or exchange (including Offered Securities to be
issued or sold to Eligible Buyers pursuant to Section
4(o)(iii)(3) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the
Offered Securities. In the event that any Eligible Buyer so
elects to reduce the number or amount of Offered Securities
specified in its Notice of Acceptance, the Company may not
issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such
securities have again been offered to the Eligible Buyers in
accordance with Section 4(o)(iii)(1) above.
(5) Upon the closing of the issuance, sale or exchange
of all or less than all of the Refused Securities, the
Eligible Buyers shall acquire from the Company, and the
Company shall issue to the Eligible Buyers, the number or
amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 4(o)(iii)(3) above
if the Eligible Buyers have so elected, upon the terms and
conditions specified in the Offer. The purchase by the
Eligible Buyers of any Offered Securities is subject in all
cases to the preparation, execution and delivery by the
Company and the Eligible Buyers of a purchase agreement
relating to such Offered Securities reasonably satisfactory
in form and substance to the Eligible Buyers and their
respective counsel.
(6) Any Offered Securities not acquired by the Eligible
Buyers or other persons in accordance with Section
4(o)(iii)(3) above may not be issued, sold or exchanged until
they are again offered to the Eligible Buyers under the
procedures specified in this Agreement.
(iv) The restrictions contained in subsections (ii) and (iii)
of this Section 4(o) shall not apply in connection with the
issuance of any Excluded Securities (as defined in the Notes).
(p) Additional Registration Statements. Until the Additional
Effective Date, the Company will not file a registration statement under
the 1933 Act relating to securities that are not the Securities except,
solely with respect to registration statements of the Company filed prior
to the date hereof, such amendments that do not, without the prior
written consent of the Required Holders, effect (i) any increase in the
number of securities of the Company issued, issuable or registered for
resale pursuant to such registration statement, (ii) any issuance of
securities pursuant to such registration statements (other than
securities issued upon exercise or conversion of Common Stock Equivalents
of the Company outstanding as of the Date of this Agreement in accordance
with the terms of such Common Stock Equivalent as of the Date of this
Agreement) or (ii) any amendment of any terms of any offering of
securities or the terms of any security registered for resale or issued
pursuant to such registration statement, which impose more burdensome
terms upon the Company or any of its Subsidiaries, as the case may be.
-26-
(q) Stockholder Approval.
(i) The Company shall provide each stockholder entitled to
vote at a special or annual meeting of stockholders of the Company
(the "Stockholder Meeting"), which initially shall be promptly
called and held not later than 120 calendar days following the
Closing Date (the "Stockholder Meeting Deadline"), a proxy
statement, substantially in the form which has been previously
reviewed by the Buyers and Schulte Roth & Zabel LLP at the expense
of the Company, soliciting each such stockholder's affirmative vote
at the Stockholder Meeting for approval of resolutions (the
"Resolutions") providing for the increase in the authorized Common
Stock from 300,000,000 shares to 500,000,000 shares (such
affirmative approval being referred to herein as the "Stockholder
Approval" and the date such approval is obtained, the "Stockholder
Approval Date"), and the Company shall use its reasonable best
efforts to solicit its stockholders' approval of the Resolutions
and to cause the Board of Directors of the Company to recommend to
the stockholders that they approve the Resolutions. The Company
shall be obligated to seek to obtain the Stockholder Approval by
the Stockholder Meeting Deadline. If, despite the Company's
reasonable best efforts the Stockholder Approval is not obtained on
or prior to the Stockholder Meeting Deadline, the Company shall
cause an additional Stockholder Meeting to be held each twelve
month period thereafter until such Stockholder Approval is
obtained, provided that if the Board of Directors of the Company
does not recommend to the stockholders that they approve the
Resolutions at any such Stockholder Meeting and the Stockholder
Approval is not obtained, or the Notes are no longer outstanding,
the Company shall cause an additional Stockholder Meeting to be
held each calendar quarter thereafter until such Stockholder
Approval is obtained.
(ii) If the Common Stock is listed on an Eligible Market (as
defined in the Registration Rights Agreement) other than the
Principal Market (the "New Principal Market") and the issuance of
the Conversion Shares and Warrant Shares as contemplated under the
Transaction Documents would exceed that number of shares of Common
Stock which the Company may issue without breaching the Company's
obligations under the rules or regulations of the New Principal
Market, then the Company shall obtain the approval of its
stockholders as required by the applicable rules of the New
Principal Market for issuances of the Conversion Shares and Warrant
Shares in excess of such amount. At such time, the Company shall
provide each stockholder entitled to vote at a special or annual
meeting of stockholders of the Company (the "Additional Stockholder
Meeting"), which shall be promptly called and held not later than
75 days after the earlier of (i) the New Principal Market
indication of and (ii) the Company becoming aware of, any
limitation imposed by the New Principal Market on the issuance of
Conversion Shares or Warrant Shares (the "Additional Stockholder
Meeting Deadline"), a proxy statement, substantially in the form
which has been previously reviewed by the Buyers and Schulte Roth &
Zabel LLP, soliciting each such stockholder's affirmative vote at
the Additional Stockholder Meeting for approval of resolutions
providing for the Company's issuance of all of the Securities as
described in the Transaction Documents in accordance with
applicable law and the rules and regulations of the New Principal
Market and such affirmative approval being referred to herein as
the "Additional Stockholder Approval"), and the Company shall use
its reasonable best efforts to solicit its stockholders' approval
of such resolutions and to cause the Board of Directors of the
Company to recommend to the stockholders that they
-27-
approve such resolutions. The Company shall be obligated to use its
reasonable best efforts to obtain the Additional Stockholder
Approval by the Additional Stockholder Meeting Deadline. If,
despite the Company's reasonable best efforts the Additional
Stockholder Approval is not obtained on or prior to the Additional
Stockholder Meeting Deadline, the Company shall cause an additional
Additional Stockholder Meeting to be held each twelve month period
thereafter until such Additional Stockholder Approval is obtained,
provided that if the Board of Directors of the Company does not
recommend to the stockholders that they approve such resolutions at
any such Additional Stockholder Meeting and the Additional
Stockholder Approval is not obtained, or the Notes are no longer
outstanding, the Company shall cause an additional Additional
Stockholder Meeting to be held each calendar quarter thereafter
until such Additional Stockholder Approval is obtained.
(r) Escrow. On the Closing Date, the parties hereto and Wilmington
Trust Company, a financial institution chartered under the laws of the
State of Delaware with principal offices at 1100 North Market Street,
Mail Code 1625, Wilmington, Delaware 19890, as escrow agent (the "Escrow
Agent"), are executing and delivering an Escrow Agreement, in a form
mutually acceptable to the Company and the Required Holders (as amended
or modified from time to time, the "Escrow Agreement"), pursuant to which
the fifteen million dollar ($15,000,000) Purchase Price (as defined
below) of the Additional Notes (the "Escrow Funds") will be deposited
into an interest bearing account with the Escrow Agent (the "Escrow
Account"). Except as otherwise provided in this Section 4(r), any
interest accrued in the Escrow Account shall be released by the Escrow
Agent (A) from the Closing Date until the earlier to occur of (I) 90 days
after the Closing Date and (II) the Company Escrow Release Date, to the
Buyers (on a pro rata basis based on the principal amount of the
Additional Notes issued to each of the Buyers) and (B) thereafter, to the
Company, if any, in each case on a monthly basis from the Escrow Account.
Upon the later of (i) the Stockholder Approval Date and (ii) the Initial
Effective Date, but only so long as no Event of Default (as defined in
the Notes) has occurred or any event shall have occurred and be
continuing that with the passage of time and the failure to cure would
result in an Event of Default (such date, the "Company Escrow Release
Date"), the Company and the Buyer Representative (as defined below) shall
deliver to the Escrow Agent joint written instructions to release (x) to
the Company the Escrow Funds and (y) to the Buyers (on a pro rata basis
based on the principal amount of the Additional Notes issued to each of
the Buyers) the remainder of the then current balance of the Escrow
Account. Upon the occurrence of an Event of Default, the Buyer
Representative shall be entitled to direct the Escrow Agent to deliver to
each Buyer the Event of Default Redemption Price (as defined in the
Additional Notes) due and payable to such Buyer pursuant to the terms of
the Additional Notes from the Escrow Funds (on a pro rata basis based on
the principal amount of the Additional Notes issued to each of the
Buyers). The Company shall maintain the Escrow Account for so long as any
Additional Notes remain outstanding. If the Company Escrow Release Date
has not occurred prior to the tenth (10th) calendar day after the Initial
Effectiveness Deadline (as defined in the Registration Rights Agreement)
(the "Buyer Escrow Release Date"), the Buyer Representative shall deliver
to the Escrow Agent written instructions to release to the Buyers (on a
pro rata basis based on the principal amount of the Additional Notes
issued to each of the Buyers) all amounts then on deposit in the Escrow
Account (the "Escrow Termination Date").
(s) Buyer Representative. Kings Road is hereby appointed as the
"Buyer Representative" for the Buyers hereunder, and each Buyer hereby
authorizes the Buyer
-28-
Representative (and its officers, directors, employees and agents) to
take any and all such actions on behalf of such Buyer with respect to the
Escrow Funds in accordance with the terms of this Agreement and the
Escrow Agreement. The Buyer Representative shall not have, by reason
hereof or any of the other Transaction Documents, a fiduciary
relationship in respect of the Buyers. Neither the Buyer Representative
nor any of its officers, directors, employees and agents shall have any
liability to the Buyers for any action taken or omitted to be taken in
connection hereof except to the extent caused by its own gross negligence
or willful misconduct, and the Buyers agrees to defend, protect,
indemnify and hold harmless the Buyer Representative and all of its
officers, directors, employees and agents (collectively, the
"Indemnitees") from and against any losses, damages, liabilities,
obligations, penalties, actions, judgments, suits, fees, costs and
expenses (including, without limitation, reasonable attorneys' fees,
costs and expenses) incurred by such Indemnitee, as incurred, whether
direct, indirect or consequential, arising from or in connection with the
performance by such Indemnitee of the duties and obligations of the Buyer
Representative pursuant hereto. In the event that Kings Road no longer
holds any Additional Notes, a majority of the holders of the Additional
Notes shall appoint a new Buyer Representative. At any time, upon two (2)
Business Days advance notice to the Company, the Escrow Agent and the
Buyers, the Buyer Representative may resign as Buyer Representative, and
a majority of the holders of the Additional Notes shall appoint a new
Buyer Representative. After any Buyer Representative's resignation
hereunder, the provisions of this Section 4(s) shall inure to its
benefit. If a successor Buyer Representative shall not have been so
appointed within said two (2) Business Day period, the retiring Buyer
Representative shall then appoint a successor Buyer Representative who
shall serve until such time, if any, as the holders of a majority of the
Additional Notes appoint a successor Buyer Representative as provided
above.
(t) Most Favored Nation. The Company hereby represents and warrants
as of the date hereof and covenants and agrees from and after the date
hereof that none of the terms offered to any Person with respect to any
amendment, settlement or waiver (each a "Settlement Document") of any
obligations outstanding and due to such Person pursuant to that certain
Securities Purchase Agreement, dated November 28, 2005 (the "November
SPA"), by and among the Company and the investors signatory thereto (the
"November Investors'), is or will be more favorable to such Person than
those of any Buyer that is also a November Investor and this Agreement
shall be, without any further action by the Buyers or the Company, deemed
amended and modified in an economically and legally equivalent manner
such that such Buyers shall receive the benefit of the more favorable
terms contained in such Settlement Document. Notwithstanding the
foregoing, the Company agrees, at its expense, to take such other actions
(such as entering into amendments to the Transaction Documents) as such
Buyers may reasonably request to further effectuate the foregoing.
(u) Registration Delay Payments. The Company hereby covenants that
it shall pay any Registration Delay Payments or other amounts due and
payable under the November SPA to any Buyer that is also a November
Investor promptly when due under the November SPA.
(v) Lock-Up Agreements. The Company shall not amend, waive or
modify the Lock-Up Agreements without the written consent of the Required
Holders.
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5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may
designate by notice to each holder of Securities), a register for the
Notes and the Warrants in which the Company shall record the name and
address of the Person in whose name the Notes and the Warrants have been
issued (including the name and address of each transferee), the principal
amount of Notes held by such Person, the number of Conversion Shares
issuable upon conversion of the Notes and Warrant Shares issuable upon
exercise of the Warrants held by such Person. The Company shall keep the
register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
(b) Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates or credit shares to the applicable
balance accounts at The Depository Trust Company ("DTC"), registered in
the name of each Buyer or its respective nominee(s), for the Conversion
Shares and the Warrant Shares issued at the Closing or upon conversion of
the Notes or exercise of the Warrants in such amounts as specified from
time to time by each Buyer to the Company upon conversion of the Notes or
exercise of the Warrants in the form of Exhibit D attached hereto (the
"Irrevocable Transfer Agent Instructions"). The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5(b), and stop transfer instructions to give
effect to Section 2(g) hereof, will be given by the Company to its
transfer agent, and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a
Buyer effects a sale, assignment or transfer of the Securities in
accordance with Section 2(f), the Company shall permit the transfer and
shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to
effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Conversion Shares or Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement
or pursuant to Rule 144, the transfer agent shall issue such Securities
to the Buyer, assignee or transferee, as the case may be, without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Buyer.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Section 5(b) will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the
provisions of this Section 5(b), that a Buyer shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or
other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
Closing Date. The obligation of the Company hereunder to issue and
sell the Notes and the related Warrants to each Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of
the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice
thereof:
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(a) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the
Company.
(b) Such Buyer and each other Buyer shall have delivered to
the Company the Purchase Price (less (x) the Purchase Price of the
Additional Notes, which each Buyer shall wire to the Escrow
Account, (y) in the case of Kings Road, the amounts withheld
pursuant to Section 4(g) and (z) in the case of Buyers that are
Bridge Lenders under the Bridge Facility, the amount of such
Buyer's principal amount outstanding under the Bridge Facility as
set forth opposite each Buyer's name in column (8) of the Schedule
of Buyers) for the Notes and the related Warrants being purchased
by such Buyer at the Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the
Company.
(c) The representations and warranties of such Buyer shall be
true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or
Material Adverse Effect, which shall be true and correct in all
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 speak as of a specific date, which shall be true and correct
as of such specific date), and such Buyer shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to
the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
Closing Date. The obligation of each Buyer hereunder to purchase
the Notes and the related Warrants at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:
(a) The Company shall have duly executed and delivered to
such Buyer (i) each of the Transaction Documents and (ii) the
Initial Notes (allocated in such principal amounts as such Buyer
shall request), being purchased by such Buyer at the Closing
pursuant to this Agreement, (iii) the Additional Notes (allocated
in such principal amounts as such Buyer shall request), being
purchased by such Buyer at the Closing pursuant to this Agreement,
(iv) the related Series A Warrants (allocated in such amounts as
such Buyer shall request) being purchased by such Buyer at the
Closing pursuant to this Agreement and (v) the related Series B
Warrants (allocated in such amounts as such Buyer shall request)
being purchased by such Buyer at the Closing pursuant to this
Agreement.
(b) Such Buyer shall have received the opinion of Baker &
McKenzie LLP, the Company's outside counsel, dated as of the
Closing Date, in substantially the form of Exhibit E attached
hereto.
(c) The Company shall have delivered to such Buyer a copy of
the Irrevocable Transfer Agent Instructions, in the form of Exhibit
D attached hereto, which instructions shall have been delivered to
and acknowledged in writing by the Company's transfer agent.
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(d) The Company shall have delivered to such Buyer a true
copy of certificate evidencing the formation and good standing of
the Company in such entity's jurisdiction of formation issued by
the Secretary of State (or comparable office) of such jurisdiction,
as of a date within 10 days of the Closing Date.
(e) The Company shall have delivered to such Buyer a true
copy of certificate evidencing the Company's qualification as a
foreign corporation and good standing issued by the Secretary of
State (or comparable office) of such jurisdiction, the only
jurisdiction in which the Company is required to be so qualified,
except where the failure to be so qualified and in good standing
could not reasonably be expected to cause a Material Adverse Effect
as of a date within 10 days of the Closing Date.
(f) The Company shall have delivered to such Buyer a
certified copy of the Articles of Incorporation as certified by the
Secretary of State of the State of Delaware within ten (10) days of
the Closing Date.
(g) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as
of the Closing Date, as to (i) the resolutions consistent with
Section 3(b) as adopted by the Company's Board of Directors in a
form reasonably acceptable to such Buyer, (ii) the Articles of
Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit F.
(h) The representations and warranties of the Company shall
be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or
Material Adverse Effect, which shall be true and correct in all
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 speak as of a specific date, which shall be true and correct
as of such specific date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to
be performed, satisfied or complied with by the Company at or prior
to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form
attached hereto as Exhibit G.
(i) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares
of Common Stock outstanding as of a date within five days of the
Closing Date.
(j) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market and (II) shall not have been
suspended, as of the Closing Date, by the SEC or the Principal
Market from trading on the Principal Market nor shall suspension by
the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal
Market or (B) by falling below the minimum listing maintenance
requirements of the Principal Market.
(k) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary
for the sale of the Securities.
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(l) Such Buyer shall have received lock-up agreements in the
form attached hereto as Exhibit H (the "Lock-Up Agreements"), duly
executed and delivered by certain officers and directors of the
Company (collectively, "Management").
(m) On or prior to the Closing Date, with respect to
securities issued pursuant to the November SPA, the Company shall
have paid any Event Payments (as defined in the November SPA) and
any other amounts due through July 31, 2006 to the November
Investors in accordance with the November SPA, including, without
limitation, any accrued and unpaid interest thereon, in cash or,
with the written consent of the applicable November Investor and
Kings Road, in either securities of the Company or amendments or
adjustments to the terms of any securities previously issued by the
Company to any November Investor. For purposes of clarification,
the November SPA will remain in full force and effect in accordance
with its terms and the Event Payments shall continue to accrue and
be payable as set forth in Section 6.1 of the November SPA except
as otherwise modified from time to time by the parties thereto.
(n) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date
hereof due to the Company's or such Buyer's failure to satisfy the conditions
set forth in Sections 6 and 7 above (and the nonbreaching party's failure to
waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the
close of business on such date without liability of any party to any other
party; provided, however, this if this Agreement is terminated pursuant to this
Section 8, the Company shall remain obligated to reimburse the non-breaching
Buyers for their expenses described in Section 4(g) above. Upon any termination
in accordance with this Section 8 prior to the Closing, the Company shall issue
to Kings Road a warrant, in the form attached hereto as Exhibit B-1,
exercisable into 250,000 shares of Common Stock with and exercise price of
$0.80 and execute and deliver a registration rights agreement in the form
attached hereto as Exhibit C with respect to such shares of Common Stock.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of
this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action
or proceeding is improper. Each party hereby irrevocably waives personal
service of process and
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consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address for such notices
to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR
THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were
an original, not a facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of,
this Agreement.
(d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other
Transaction Documents supersede all other prior oral or written
agreements between the Buyers, the Company, their affiliates and Persons
acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments
referenced herein and therein contain the entire understanding of the
parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company
nor any Buyer makes any representation, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and
the Required Holders, and any amendment to this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on
all Buyers and holders of Securities, as applicable. No provision hereof
may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective
to the extent that it applies to less than all of the holders of the
applicable Securities then outstanding. No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same
consideration also is offered to all of the parties to the Transaction
Documents, holders of Notes or holders of the Warrants, as the case may
be. The Company has not, directly or indirectly, made any agreements with
any Buyers relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in the
Transaction Documents. Without limiting the foregoing, the Company
confirms that, except as set forth in this Agreement, no Buyer has made
any commitment or promise or has any other obligation to provide any
financing to the Company or otherwise.
-34-
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must
be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii)
one Business Day after deposit with an overnight courier service, in each
case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
Bravo! Foods International Corp.
11300 US Highway 1
Suite 202
North Palm Beach , FL 33408
Telephone: (561) 625-1411
Facsimile: (561) 625-1413
Attention: Jeffrey J. Kaplan, Chief Financial Officer
With a copy (for informational purposes only) to Roy D.
Toulan, Jr., Vice President, General Counsel
Copy to (for informational purposes only):
Baker & McKenzie LLP
1114 Avenue of the Americas
New York, NY 10036
Telephone: (212) 626-4100
Facsimile: (212) 310-1600
Attention: Martin E. Weisberg, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Telephone: (718) 921-8261
Facsimile: (718) 921-8337
Attention: Donna Ansbro or Jennifer Donovan
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers,
with a copy (for informational purposes only) to:
Schulte Roth & Zabel LLP
919 Third Avenue
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New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
or to such other address and/or facsimile number and/or to the attention of
such other Person as the recipient party has specified by written notice given
to each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date,
recipient facsimile number and an image of the first page of such transmission
or (C) provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors
and assigns, including any purchasers of the Notes or the Warrants. The
Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Required Holders
(unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes and the
Warrants). A Buyer may assign some or all of its rights hereunder without
the consent of the Company, in which event such assignee shall be deemed
to be a Buyer hereunder with respect to such assigned rights.
(h) 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.
(i) Survival. Unless this Agreement is terminated under Section 8,
the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3 and the agreements and covenants set forth
in Sections 4, 5 and 9 shall survive the Closing and the delivery and
exercise of Securities, as applicable. Each Buyer shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
(j) Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments
and documents, as any other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations
under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the
foregoing Persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnitees") from
and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in
connection
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therewith (irrespective of whether any such Indemnitee is a party to the
action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by any Indemnitee as a result of, or arising out
of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any
other certificate, instrument or document contemplated hereby or thereby
or (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative
action brought on behalf of the Company) and arising out of or resulting
from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds
of the issuance of the Securities, (iii) any disclosure made by such
Buyer pursuant to Section 4(i), or (iv) the status of such Buyer or
holder of the Securities as an investor in the Company pursuant to the
transactions contemplated by the Transaction Documents. To the extent
that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. Except as otherwise set forth herein,
the mechanics and procedures with respect to the rights and obligations
under this Section 9(k) shall be the same as those set forth in Section 6
of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their
mutual intent, and no rules of strict construction will be applied
against any party.
(m) Remedies. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time
under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company
recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents,
any remedy at law may prove to be inadequate relief to the Buyers. The
Company therefore agrees that the Buyers shall be entitled to seek
temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages and without posting a bond or other
security.
(n) Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions
of) the Transaction Documents, whenever any Buyer exercises a right,
election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods
therein provided, then such Buyer may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice
to its future actions and rights
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(o) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the
other Transaction Documents or the Buyers enforce or exercise their
rights hereunder or thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded,
repaid or otherwise restored to the Company, a trustee, receiver or any
other Person under any law (including, without limitation, any bankruptcy
law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made
or such enforcement or setoff had not occurred.
(p) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and
not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. The decision of each Buyer to
purchase Securities pursuant to this Agreement has been made by such
Buyer independently of any other Buyer and independently of any
information, materials, statements or opinions as to the business,
affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the
Company or of any Subsidiary which may have been made or given by any
other Buyer or by any agent or employee of any other Buyer, and no Buyer
or any of its agents or employees shall have any liability to any other
Buyer (or any other person) relating to or arising from any such
information, materials, statements or opinions. Nothing contained herein
or in any Transaction Document, and no action taken by any Buyer pursuant
thereto, shall be deemed to constitute the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated
by the Transaction Document. Each Buyer acknowledges that no other Buyer
has acted as agent for such Buyer in connection with making its
investment hereunder and that no other Buyer will be acting as agent of
such Buyer in connection with monitoring its investment hereunder. Each
Buyer shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or
out of the other Transaction Documents, and it shall not be necessary for
any other Buyer to be joined as an additional party in any proceeding for
such purpose.
[Signature Page Follows]
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
COMPANY:
BRAVO! FOODS INTERNATIONAL CORP.
By: ____________________________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
KINGS ROAD INVESTMENTS LTD.
By: ____________________________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
OTHER BUYERS:
EVOLUTION MASTER FUND LTD. SPC,
SEGREGATED PORTFOLIO M
By: ____________________________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
STEELHEAD INVESTMENTS LTD.
By: ____________________________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, Inc.
By: ____________________________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
ALPHA CAPITAL AKTIENGESELLSCHAFT
By: ____________________________________
Name:
Title:
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Aggregate Aggregate Legal
Principal Principal Number of Number of Representative's
Amount of Amount of Series A Series B Bridge Address and
Address and Initial Additional Warrant Warrant Purchase Facility Facsimile
Buyer Facsimile Number Notes Notes Shares Shares Price Amount Number
- -----------------------------------------------------------------------------------------------------------------------------------
Kings Road c/o Polygon Investment $4,500,000 $4,500,000 3,857,143 12,857,143 $9,000,000 N/A Schulte Roth &
Investments Ltd. Partners LP Zabel LLP
598 Madison Avenue 919 Third Avenue
14th Floor New York, New York
New York, NY 10022 10022
Attention: Erik M.W. Attention:Eleazer
Caspersen and Klein, Esq.
Brandon L. Jones Facsimile: (212)
Facsimile: (212) 593-5955
359-7303 Telephone: (212)
Telephone: (212) 756-2376
359-7300
Residence: Cayman
Islands
Evolution Master c/o Evolution Capital $4,500,000 $4,500,000 3,857,143 12,857,143 $9,000,000 N/A N/A
Fund Ltd. SPC Management LLC
Segregated Walker House, Mary
Portfolio M Street P.O. Box 908 GT
George Town,
Cayman Island
Attn: Richard Chisholm
Facsimile: 808-441-4946
Telephone: 808-441-4917
Residence: Cayman Islands
Additional Copy to:
Evolution Capital
Management, LLC
1132 Bishop Street,
Suite 1880
Honolulu, Hawaii 96813
Attention: Richard
Chisholm
Facsimile: 808-441-4946
Telephone: 808-441-4917
Steelhead c/o HBK Investments L.P. $3,000,000 $3,000,000 2,571,428 8,571,428 $6,000,000 N/A N/A
Investments Ltd. 300 Crescent Court,
Suite 700
Dallas, TX 75201
Attention: Legal (PP)
Telephone: 214-758-6107
Facsimile: 214-758-1207
Residence: Cayman
Islands
Capital Ventures c/o Heights Capital $2,500,000 $2,500,000 2,142,857 7,142,857 $5,000,000 N/A N/A
International Management
101 California
Street, Suite 3250
San Francisco, CA 94111
Attention: Martin
Kobinger,
Investment Manager
Facsimile:
415-403-6525
Telephone:
415-403-6500
Residence: Cayman
Islands
Alpha Capital c/o Alpha Capital, AG $500,000 $500,000 428,571 1,428,571 $1,000,000 $1,000,000 N/A
Aktiengesellschaft 160 Central Park South
#2701
New York, New York 10019
Attention: Joe Hammer
Facsimile: (212)
586-8244
Telephone: (212)
586-8224
Residence: Lichtenstein
- -----------------------------------------------------------------------------------------------------------------------------------
Total $15,000,000 $15,000,000 12,857,142 42,857,142 $30,000,000 $1,000,000
EXHIBITS
--------
Exhibit A-1 Form of Senior Notes
Exhibit A-2 Form of Notes
Exhibit B-1 Form of Series A Warrants
Exhibit B-2 Form of Series B Warrants
Exhibit C Registration Rights Agreement
Exhibit D Irrevocable Transfer Agent Instructions
Exhibit E Form of Outside Company Counsel Opinion
Exhibit F Form of Secretary's Certificate
Exhibit G Form of Officer's Certificate
Exhibit H Management Lock-Up Agreement
SCHEDULES
---------
Schedule 3(a) Subsidiaries
Schedule 3(e) Consents
Schedule 3(k) SEC Documents
Schedule 3(l) Absence of Certain Changes
Schedule 3(q) Transactions With Affiliates
Schedule 3(r) Equity Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Litigation
Schedule 3(x) Intellectual Property Rights
Schedule 3(cc) Internal Accounting and Disclosure Controls
Schedule 3(ee) Ranking of Notes
Schedule 3(hh) Manipulation of Price