Exhibit 99.1
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
Common Stock And Warrant Purchase Agreement ("Agreement") dated as of
January 12, 2006 by and between Electric & Gas Technology, Inc., a Texas
corporation (the "Company"), and Vision Opportunity Master Fund, Ltd., a Cayman
Islands corporation (the "Purchaser").
RECITAL
Subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act (as defined below), the Company
desires to issue and sell to the Purchaser, and the Purchaser desires to
purchase from the Company three hundred seventy-five thousand (375,000) shares
of Common Stock and Warrants to purchase one million one hundred twenty-five
thousand (1,125,000) shares of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agrees
as follows:
ARTICLE I
DEFINITIONS
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1.1 Definitions.
In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, the following terms have the meanings indicated in
this Section 1.1:
"Action" shall have the meaning ascribed to the term in Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common control
with a Person, as the terms are used in and construed under Rule 144. With
respect to the Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as the Purchaser will be
deemed to be an Affiliate of the Purchaser.
"Agreement" shall have the meaning ascribed to the term in the
Preamble.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of Texas are authorized or required by law or other governmental action to
close.
"Closing" shall have the meaning ascribed to the term in Section
2.1(a).
"Closing Date" shall have the meaning ascribed to the term in Section
2.1(a).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, $0.01 par value
per share, and any securities into which the common stock may hereafter be
reclassified.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
"Company" shall have the meaning ascribed to the term in the Preamble.
"Disclosure Schedules" means the Disclosure Schedules concurrently
delivered herewith.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Environmental Laws" shall have the meaning ascribed to the term in
Section 3.1(y).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" shall have the meaning ascribed to the term in Section 3.1(h).
"Governmental Authorizations" shall have the meaning ascribed to the
term in Section 3.1(m).
"Hazardous Substances" shall have the meaning ascribed to the term in
Section 3.1(y).
"Indemnified Party" shall have the meaning ascribed to the term in
Section 5.3.
"Indemnifying Party" shall have the meaning ascribed to the term in
Section 5.3.
"Intellectual Property" shall have the meaning ascribed to the term in
Section 3.1(o).
"Investor Rights Agreement" means the Investor Rights Agreement, dated
as of the date of this Agreement, between the Company and the Purchaser, in the
form of Exhibit A hereto.
"Lien" means a lien, charge, security interest, encumbrance, right of
first refusal or other restriction, except for a lien for current taxes not yet
due and payable and a minor imperfection of title, if any, not material in
nature or amount and not materially detracting from the value or impairing the
use of the property subject thereto or impairing the operations or proposed
operations of the Company.
"Material Adverse Effect" shall have the meaning ascribed to the term
in Section 3.1(b).
"Over-Allotment Option" shall have the meaning ascribed to the term in
Section 4.13.
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"Per Share Purchase Price" equals $0.60 subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of this
Agreement and prior to Closing.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Premises" shall have the meaning ascribed to the term in Section
3.1(y).
"Purchaser" shall have the meaning ascribed to the term in the
Preamble.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Investor Rights Agreement and covering the resale
by the Purchaser of the Shares and the Warrant Shares.
"Rights" shall have the meaning ascribed to the term in Section 3.1(o).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as the Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as the Rule.
"SEC Reports" shall have the meaning ascribed to the term in Section
3.1(h).
"Securities" means the Shares, the Warrants and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued to the Purchaser
pursuant to this Agreement.
"Subscription Amount" means two hundred twenty five thousand dollars
($225,000) in United States dollars and in immediately available funds.
"Subsidiary" means, with respect to any entity, any corporation or
other organization of which securities or other ownership interest having
ordinary voting power to elect a majority of the board of directors or other
persons performing similar functions, are directly or indirectly owned by the
entity or of which the entity is a partner or is, directly or indirectly, the
beneficial owner of 50% or more of any class of equity securities or equivalent
profit participation interests.
"Trading Day" means (i) a day on which the Common Stock is traded on a
Trading Market, or (ii) in the event that the Common Stock is not listed or
quoted as set forth in (i) hereof, then Trading Day shall mean a Business Day.
"Trading Market" means the American Stock Exchange, the New York Stock
Exchange, the NASDAQ National Market, the NASDAQ Capital Market or the OTC
Bulletin Board, whichever is at the time the principal trading exchange or
market for the Common Stock.
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"Transaction Documents" means this Agreement, the Investor Rights
Agreement, the Warrants and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"Warrant" or "Warrants" means the Common Stock Purchase Warrant, in the
form of Exhibit B attached hereto.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
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2.1 Closing.
(a) The closing of the transactions contemplated under this Agreement
(the "Closing") will take place as promptly as practicable, but no later than
five (5) Business Days following satisfaction or waiver of the conditions set
forth in Sections 2.2 and 2.3 (other than those conditions which by their terms
are not to be satisfied or waived until the Closing), at the offices of Wiggin
and Dana LLP, 400 Atlantic Street, Stamford, CT 06901 (or remotely via exchange
of documents and signatures) or at the other place or day as may be mutually
acceptable to the Purchaser and the Company. The date on which the Closing
occurs is the "Closing Date".
(b) At the Closing, the Purchaser shall purchase and the Company shall
issue and sell three hundred seventy-five thousand (375,000) shares of Common
Stock and a Warrant to purchase one million one hundred twenty-five thousand
(1,125,000) shares of Common Stock. In addition, the Warrant shall describe and
include the Over-Allotment Option.
2.2 Conditions to Obligations of Purchaser to Effect the Closing.
The obligation of the Purchaser to effect the Closing and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, by the Purchaser:
(a) At the Closing (unless otherwise specified below) the Company shall
deliver or cause to be delivered to the Purchaser the following:
(i) this Agreement, duly executed by the Company;
(ii) a certificate evidencing three hundred seventy-five
thousand (375,000) Shares of Common Stock registered in the name of the
Purchaser;
(iii) a Warrant, registered in the name of the Purchaser,
pursuant to which the Purchaser shall have the right to acquire up to one
million one hundred twenty-five thousand (1,125,000) shares of Common Stock on
the terms and conditions set forth therein;
(iv) the Investor Rights Agreement, duly executed by the
Company; and
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(v) a certificate of the Secretary of the Seller (the
"Secretary's Certificate"), attaching a true copy of the Certificate of
Incorporation and Bylaws of the Company, as amended to the Closing Date, and
attaching true and complete copies of the resolutions of the Board of Directors
of the Seller authorizing the execution, delivery and performance of this
Agreement and the other Transaction Documents.
(b) All representations and warranties of the Company contained herein
shall remain true and correct as of the Closing Date as though the
representations and warranties were made on the Closing Date (except those
representations and warranties that address matters only as of a particular date
will remain true and correct as of the applicable date).
(c) As of the Closing Date, there shall have been no Material Adverse
Effect with respect to the Company since the date hereof.
(d) From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to the Closing).
2.3. Conditions to Obligations of the Company to Effect the Closing.
(a) The obligations of the Company to effect the Closing and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, by the Company. At the Closing, the Purchaser shall
deliver or cause to be delivered to the Company the following:
(i) this Agreement, duly executed by the Purchaser;
(ii) two hundred twenty-five thousand dollars ($225,000) by
wire transfer to the account designated by the Company or by check, in good and
immediately available funds; and
(iii) the Investor Rights Agreement, duly executed by the
Purchaser.
(b) All representations and warranties of the Purchaser contained
herein shall remain true and correct as of the Closing Date as though the
representations and warranties were made on the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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3.1 Representations and Warranties of the Company.
Except as set forth under the corresponding section of the Disclosure
Schedules delivered concurrently herewith, the Company hereby makes the
following representations and warranties as of the date hereof and as of the
Closing Date to the Purchaser:
(a) Subsidiaries. Except as listed in Schedule 3.1(a), the Company has
no direct or indirect Subsidiaries.
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(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes the
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not have or result in (i) a material adverse
effect on the legality, validity or enforceability of any Transaction Document,
(ii) a material adverse effect on the business or financial condition of the
Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company's ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a "Material Adverse Effect").
(c) Authorization; Enforceability. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and rules
of law governing specific performance, injunctive relief, or other equitable
remedies.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected, except, in the cases of clause
(ii), where the conflict, default or violation would not have or result in a
Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
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execution, delivery and performance by the Company of the Transaction Documents,
other than (a) the filing with the Commission of the Registration Statement, the
application(s) to each Trading Market for the listing of the Shares and Warrant
Shares for trading thereon in the time and manner required thereby, Form D and
applicable Blue Sky filings and (b) as have already been obtained or exemptive
filings as are required to be made under applicable securities laws.
(f) Issuance of the Securities. The Securities are duly authorized and,
when issued and paid for in accordance with the Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens, other than any Liens created by or imposed on the holders thereof through
no action of the Company. The Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock issuable pursuant to
this Agreement and the Warrants.
(g) Capitalization.
(i) The authorized and outstanding capitalization of the
Company is as described in the Company's most recent periodic report filed with
the Commission. The Company has not issued any capital stock since October 31,
2005, other than pursuant to the exercise of employee stock options under the
Company's stock option plans and pursuant to the conversion or exercise of
Common Stock Equivalents outstanding on the date thereof. All shares of the
Company's issued and outstanding capital stock have been duly authorized, are
validly issued and outstanding, and are fully paid and nonassessable. No
securities issued by the Company from the date of its incorporation to the date
hereof were issued in violation of any statutory or common law preemptive
rights. There are no dividends which have accrued or been declared but are
unpaid on the capital stock of the Company. All taxes required to be paid by the
Company in connection with the issuance and any transfers of the Company's
capital stock have been paid. All securities of the Company have been issued in
all material respects in accordance with the provisions of all applicable
securities and other laws.
(ii) No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result of
the purchase and sale of the Securities and except for employee and director
stock options under the Company's equity compensation plans and outstanding
warrants to purchase shares of Common Stock described in its public filings with
the Commission, there are no outstanding options, warrants, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issue and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchaser) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any Company
securities.
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(h) SEC Reports; Financial Statements; Liabilities.
(i) The Company has filed all reports required to be filed by
it under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) of the Exchange Act, for the 12 months preceding the date hereof
(the foregoing materials, including the exhibits thereto, being collectively
referred to herein as the "SEC Reports") on a timely basis or has received a
valid extension of the time of filing and has filed all SEC Reports prior to the
expiration of any extension. As of their respective filing dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations of the Commission promulgated thereunder, as applicable, and none of
the SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(ii) The financial statements of the Company included in the
SEC Reports comply with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States, applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in the financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required by
GAAP, subject to normal year-end audit adjustments. These financial statements
fairly present in all material respects the financial position of the Company
and its consolidated subsidiaries, if any, as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal year-end audit adjustments.
(iii) Except as set forth in the SEC Reports, and except for
liabilities and obligations incurred in the ordinary course of business,
consistent with past practice, as of the date hereof: (i) the Company and its
Subsidiaries do not have any material liabilities or obligations (absolute,
accrued, contingent or otherwise) and (ii) there has not been any aspect of the
prior or current conduct of the business of the Company or its Subsidiaries
which may form the basis for any material claim by any third party which if
asserted could result in a Material Adverse Effect.
(i) Material Changes. Since October 31, 2005, the Company has conducted
its business only in the ordinary course, consistent with past practice, and
there has not occurred:
(i) any event that could have a Material Adverse Effect on the
Company or any of its Subsidiaries;
(ii) any amendments or changes in the charter documents of the
Company and its Subsidiaries;
(iii) any damage, destruction or loss, whether or not covered
by insurance, that would, individually or in the aggregate, have or would be
reasonably likely to have, a Material Adverse Effect on the Company and its
Subsidiaries;
(iv) any:
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(A) incurrence, assumption or guarantee by the
Company or its Subsidiaries of any debt for borrowed money other than (i)
equipment leases made in the ordinary course of business, consistent with past
practice and (ii) any incurrence, assumption or guarantee with respect to an
amount of $25,000 or less that has been disclosed in the SEC Reports;
(B) issuance or sale of any securities convertible
into or exchangeable for securities of the Company other than to directors,
employees and consultants pursuant to existing equity compensation or stock
purchase plans of the Company;
(C) issuance or sale of options or other rights to
acquire from the Company or its Subsidiaries, directly or indirectly, securities
of the Company or any securities convertible into or exchangeable for any of the
foregoing securities, other than options issued to directors, employees and
consultants in the ordinary course of business, consistent with past practice;
(D) issuance or sale of any stock, bond or other
corporate security other than to directors, employees and consultants pursuant
to existing equity compensation or stock purchase plans of the Company;
(E) discharge or satisfaction of any material Lien;
(F) declaration or making any payment or distribution
to stockholders or purchase or redemption of any share of its capital stock or
other security other than to directors, officers and employees of the Company or
its Subsidiaries as compensation for services rendered to the Company or its
Subsidiary (as applicable) or for reimbursement of expenses incurred on behalf
of the Company or its Subsidiary (as applicable);
(G) sale, assignment or transfer of any of its
intangible assets except in the ordinary course of business, consistent with
past practice, or cancellation of any debt or claim except in the ordinary
course of business, consistent with past practice;
(H) waiver of any right of substantial value whether
or not in the ordinary course of business;
(I) material change in officer compensation, except
in the ordinary course of business and consistent with past practice; or
(J) other commitment (contingent or otherwise) to do
any of the foregoing.
(v) any creation, sufferance or assumption by the Company or
any of its Subsidiaries of any Lien on any asset or any making of any loan,
advance or capital contribution to or investment in any Person, in an aggregate
amount which exceeds $25,000 outstanding at any time;
(vi) any entry into, amendment of, relinquishment, termination
or non-renewal by the Company or its Subsidiaries of any material contract,
license, lease, transaction, commitment or other right or obligation, other than
in the ordinary course of business, consistent with past practice; or
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(vii) any transfer or grant of a right with respect to the
patents, trademarks, trade names, service marks, trade secrets, copyrights or
other intellectual property rights owned or licensed by the Company or its
Subsidiaries, except as among the Company and its Subsidiaries.
(j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign)
(collectively, an "Action") which adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities. Except as disclosed in the SEC Reports, there is no Action that
could, if there were an unfavorable decision, have or result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor, to the knowledge of
the Company, any director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. To the knowledge of the
Company, there has not been and there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company. The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could have or result in a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not the default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business, except in the case of clauses (i) and
(iii) as would not have or reasonably be expected to result in a Material
Adverse Effect.
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(m) Licenses; Compliance With Regulatory Requirements. The Company
holds all material authorizations, consents, approvals, franchises, licenses and
permits required under applicable law or regulation for the operation of the
business of the Company and its Subsidiaries as presently operated (the
"Governmental Authorizations"). All the Governmental Authorizations have been
duly issued or obtained and are in full force and effect, and the Company and
its Subsidiaries are in material compliance with the terms of all the
Governmental Authorizations. The Company and its Subsidiaries have not engaged
in any activity that, to their knowledge, would cause revocation or suspension
of any of the Governmental Authorizations. The Company has no knowledge of any
facts which could reasonably be expected to cause the Company to believe that
the Governmental Authorizations will not be renewed by the appropriate
governmental authorities in the ordinary course. Neither the execution, delivery
nor performance of this Agreement shall adversely affect the status of any of
the Governmental Authorizations.
(n) Title to Assets. The Company and the Subsidiaries do not own any
real property, and have good and marketable title to all personal property owned
by them that is material to the business of the Company and the Subsidiaries,
taken as a whole, in each case free and clear of all Liens, except those, if
any, reflected in the Company's financial statements. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases (subject to laws of general
application relating to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and rules of law
governing specific performance, injunctive relief, or other equitable remedies)
with which the Company and the Subsidiaries are in material compliance.
(o) Intellectual Property.
(i) The Company or a Subsidiary thereof has the right to use
or is the sole and exclusive owner of all right, title and interest in and to
all foreign and domestic patents, patent rights, trademarks, service marks,
trade names, brands and copyrights (whether or not registered and, if
applicable, including pending applications for registration) owned, used or
controlled by the Company and its Subsidiaries (collectively, the "Rights") and
in and to each material invention, software, trade secret, technology, product,
composition, formula and method of process used by the Company or its
Subsidiaries (the Rights and the other items, the "Intellectual Property"), and,
to the Company's knowledge, has the right to use the same, free and clear of any
claim or conflict with the rights of others;
(ii) other than as set forth in the SEC Reports, no royalties
or fees (license or otherwise) are payable by the Company or its Subsidiaries to
any Person by reason of the ownership or use of any of the Intellectual
Property;
(iii) there have been no claims made against the Company or
its Subsidiaries asserting the invalidity, abuse, misuse, or unenforceability of
any of the Intellectual Property, and, to the best of the Company's knowledge,
there are no reasonable grounds for any of the foregoing claims;
(iv) neither the Company nor its Subsidiaries have made any
claim of any violation or infringement by others of its rights in the
Intellectual Property, and to the best of the Company's knowledge, no reasonable
grounds for the foregoing claims exist; and
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(v) neither the Company nor its Subsidiaries have received
notice that it is in conflict with or infringing upon the asserted rights of
others in connection with the Intellectual Property.
(p) Insurance. The Company and the Subsidiaries are insured by insurers
of recognized financial responsibility against the losses and risks and in the
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. All of the insurance policies of the Company and
its Subsidiaries are in full force and effect and are valid and enforceable in
accordance with their terms, and the Company and its Subsidiaries have complied
with all material terms and conditions thereof. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when the coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. None of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or employee or, to the knowledge of the Company, any entity in which
any officer, director, or any employee has a substantial interest or is an
officer, director, trustee or partner, other than (a) for payment of salary or
consulting fees for services rendered, (b) reimbursement for expenses incurred
on behalf of the Company and (c) for other employee benefits, including stock
option agreements and other stock awards under any equity compensation plan of
the Company.
(r) Internal Accounting Controls. The Company and each of the
Subsidiaries maintains a system of internal accounting controls sufficient in
the judgment of the Company's management to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and designed the
disclosure controls and procedures to ensure that material information relating
to the Company, including its Subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in
which the Company's Form 10-K or 10-Q, as the case may be, is being prepared.
(s) Certain Fees. No brokerage or finder's fees or commissions are or
will be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by this Agreement. The Purchaser shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.
12
(t) Private Placement; Integrated Offering. Assuming the accuracy of
the Purchaser's representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchaser as contemplated hereby. The issuance
and sale of the Securities hereunder does not contravene the rules and
regulations of the Trading Market. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
the Securities Act and would as a result require registration under the
Securities Act or trigger any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated.
(u) Charter, Bylaws and Corporate Records. The minute books of the
Company and its Subsidiaries contain in all material respects complete and
accurate records of all meetings and other corporate actions of the board of
directors, committees of the board of directors, incorporators and stockholders
of the Company and its Subsidiaries from the date of incorporation of each
entity to the date hereof. All material corporate decisions and actions have
been validly made or taken. All corporate books, including without limitation
the share transfer register, comply in all material respects with applicable
laws and regulations and have been regularly updated.
(v) Registration Rights. Except as set forth in Schedule 3.1(v), no
Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Company has not, in the
12 months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of the
Trading Market. The Company is, and has no reason to believe that it will not in
the foreseeable future continue to be, in compliance with all applicable listing
and maintenance requirements.
(x) Taxes. All tax returns and tax reports required to be filed with
respect to the income, operations, business or assets of the Company and its
Subsidiaries have been timely filed (or appropriate extensions have been
obtained) with the appropriate governmental agencies in all jurisdictions in
which the returns and reports are required to be filed, and all of the foregoing
as filed are, in all material respects, correct and complete and, in all
material respects, reflect accurately all liability for taxes of the Company and
its Subsidiaries for the periods to which the returns relate, and all amounts
shown as owing thereon have been paid. All income, profits, franchise, sales,
use, value added, occupancy, property, excise, payroll, withholding, FICA, FUTA
and other taxes (including interest and penalties), if any, collectible or
payable by the Company and its Subsidiaries or relating to or chargeable against
any of its material assets, revenues or income or relating to any employee,
independent contractor, creditor, stockholder or other third party through the
Closing Date, were fully collected and paid by the applicable date if due by the
applicable date or provided for by adequate reserves in the financial statements
contained in the SEC Reports (other than taxes accruing after the date) and all
similar items due through the Closing Date will have been fully paid by that
date or provided for by adequate reserves, whether or not any taxes were
reported or reflected in any tax returns or filings. No taxation authority has
13
sought to audit the records of the Company or any of its Subsidiaries for the
purpose of verifying or disputing any tax returns, reports or related
information and disclosures provided to the taxation authority, or for the
Company's or any of its Subsidiaries' alleged failure to provide any tax
returns, reports or related information and disclosure. No material claims or
deficiencies have been asserted against or inquiries raised with the Company or
any of its Subsidiaries with respect to any taxes or other governmental charges
or levies which have not been paid or otherwise satisfied, including claims
that, or inquiries whether, the Company or any of its Subsidiaries has not filed
a tax return that it was required to file, and, to the best of the Company's
knowledge, there exists no reasonable basis for the making of any claims or
inquiries. Neither the Company nor any of its Subsidiaries has waived any
restrictions on assessment or collection of taxes or consented to the extension
of any statute of limitations relating to taxation.
(y) Environmental Matters. None of the premises or any properties
owned, occupied or leased by the Company or its Subsidiaries (the "Premises")
has been used by the Company or the Subsidiaries or, to the Company's knowledge,
by any other Person, to manufacture, treat, store, or dispose of any substance
that has been designated to be a "hazardous substance" under applicable
Environmental Laws (hereinafter defined) ("Hazardous Substances") in violation
of any applicable Environmental Laws. To its knowledge, the Company has not
disposed of, discharged, emitted or released any Hazardous Substances which
would require, under applicable Environmental Laws, remediation, investigation
or similar response activity. No Hazardous Substances are present as a result of
the actions of the Company or, to the Company's knowledge, any other Person, in,
on or under the Premises which would give rise to any liability or clean-up
obligations of the Company under applicable Environmental Laws. The Company and,
to the Company's knowledge, any other Person for whose conduct it may be
responsible pursuant to an agreement or by operation of law, are in compliance
with all laws, regulations and other federal, state or local governmental
requirements, and all applicable judgments, orders, writs, notices, decrees,
permits, licenses, approvals, consents or injunctions in effect on the date of
this Agreement relating to the generation, management, handling, transportation,
treatment, disposal, storage, delivery, discharge, release or emission of any
Hazardous Substance (the "Environmental Laws"). Neither the Company nor, to the
Company's knowledge, any other Person for whose conduct it may be responsible
pursuant to an agreement or by operation of law has received any written
complaint, notice, order, or citation of any actual, threatened or alleged
noncompliance with any of the Environmental Laws, and there is no proceeding,
suit or investigation pending or, to the Company's knowledge, threatened against
the Company or, to the Company's knowledge, any Person with respect to any
violation or alleged violation of the Environmental Laws, and, to the knowledge
of the Company, there is no basis for the institution of any proceeding, suit or
investigation.
(z) Disclosure. The Company confirms that neither the Company nor any
other Person acting on its behalf and at the direction of the Company, has
provided the Purchaser or its agents or counsel with any information that in the
Company's reasonable judgment, at the time the information was furnished,
constitutes material, non-public information. The Company understands and
confirms that the Purchaser will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All disclosure
provided to the Purchaser regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company are true and correct and do
14
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
3.2 Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants as of the date hereof and
as of the Closing Date to the Company as follows:
(a) Organization; Authority; Enforceability. The Purchaser is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full power and authority to enter into and
to consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution, delivery and
performance by the Purchaser of the transactions contemplated by this Agreement
has been duly authorized by all necessary corporate or similar action on the
part of the Purchaser. Each Transaction Document to which it is a party has been
duly executed by the Purchaser, and when delivered by the Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, subject to laws of general application relating to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and rules of law governing specific performance,
injunctive relief, or other equitable remedies.
(b) General Solicitation. The Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
(c) No Public Sale or Distribution. The Purchaser is (i) acquiring the
Shares and Warrants and (ii) upon exercise of the Warrants will acquire the
Warrant Shares, for its own account and not with a view towards, or for resale
in connection with, the public sale or distribution thereof; provided, however,
that by making the representations herein, the Purchaser 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 Securities Act. The Purchaser
is acquiring the Securities hereunder in the ordinary course of its business.
The Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
(d) Accredited Investor Status. The Purchaser is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
(e) Reliance on Exemptions. The Purchaser understands that the Shares
and Warrants 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
the Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the availability of the exemptions and the eligibility of the
Purchaser to acquire the Common Stock and Warrants.
15
(f) Information. The Purchaser and its advisors, if any, have been
furnished with all publicly available materials relating to the business,
finances and operations of the Company and the other publicly available
materials relating to the offer and sale of the Shares and Warrants as have been
requested by the Purchaser. The Purchaser and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither the inquiries
nor any other due diligence investigations conducted by the Purchaser or its
advisors, if any, or its representatives shall modify, amend or affect the
Purchaser's right to rely on the Company's representations and warranties
contained herein. The Purchaser understands that its investment in the Shares
and Warrants involves a high degree of risk.
(g) No Governmental Review. The Purchaser 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 Shares and
Warrants or the fairness or suitability of the investment in the Shares and
Warrants, nor have these authorities passed upon or endorsed the merits of the
offering of the Shares and Warrants.
(h) Experience of The Purchaser. The Purchaser, either alone or
together with its representatives, has the knowledge, sophistication and
experience in business and financial matters, including investing in companies
engaged in the business in which the Company is engaged, so as to be capable of
evaluating the merits and risks of the prospective investment in the Shares and
Warrants, and has so evaluated the merits and risks of the investment. The
Purchaser is able to bear the economic risk of an investment in the Shares and
Warrants and, at the present time, is able to afford a complete loss of its
investment.
The Company acknowledges and agrees that the Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement, to the Company, to an
Affiliate of the Purchaser (who is an accredited investor and executes a
customary representation letter) or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor, the form and
substance of which opinion shall be reasonably satisfactory to the Company, to
the effect that the transfer does not require registration of the transferred
Securities under the Securities Act, provided, however, that in the case of a
transfer pursuant to Rule 144, no opinion shall be required if the transferor
provides the Company with a customary seller's representation letter, and if the
sale is not pursuant to subsection (k) of Rule 144, a customary broker's
representation letter and a Form 144. Any transferee that agrees in writing to
be bound by the terms of this Agreement and the Investor Rights Agreement shall
have the rights of the Purchaser under this Agreement and the Investor Rights
16
Agreement. Except as required by federal securities laws and the securities law
of any state or other jurisdiction within the United States, the Securities may
be transferred, in whole or in part, by the Purchaser at any time. The Company
shall reissue certificates evidencing the Securities upon surrender of
certificates evidencing the Securities being transferred in accordance with this
Section 4.1(a).
(b) The Purchaser agrees to the imprinting, so long as is required by
this Section 4.1(b), of a legend on any of the Securities in substantially the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO THIS EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT.
The Company acknowledges and agrees that the Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and, if required under the terms of the arrangement,
the Purchaser may transfer pledged or secured Securities to the pledgees or
secured parties. The a pledge or transfer would not be subject to approval of
the Company and no legal opinion of legal counsel of the pledgee, secured party
or pledgor shall be required in connection therewith; provided, however, that
the Purchaser shall provide the Company with the documentation as is reasonably
requested by the Company to ensure that the pledge is pursuant to a bona fide
margin agreement with a registered broker-dealer or a security interest in some
or all of the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. The Company will
execute and deliver the documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities, including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of selling
stockholders thereunder.
(c) Certificates evidencing the Shares and Warrant Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)), (i)
following any sale of the Shares or Warrant Shares pursuant to Rule 144, or (ii)
if the Shares or Warrant Shares are eligible for sale under Rule 144(k), or
(iii) if the legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the Staff of the Commission). The Company shall cause its counsel to issue a
legal opinion to the Company's transfer agent promptly upon the occurrence of
any of the events in clauses (i), (ii) or (iii) above to effect the removal of
17
the legend hereunder and shall also cause its counsel to issue a "blanket" legal
opinion to the Company's transfer agent promptly after the Effective Date, if
required by the Company's transfer agent, to allow sales pursuant to an
effective Registration Statement. The Company agrees that at the time as the
legend is no longer required under this Section 4.1(c), it will, no later than
three Trading Days following the delivery by the Purchaser to the Company or the
Company's transfer agent of a certificate representing Shares or Warrant Shares,
as the case may be, issued with a restrictive legend, deliver or cause to be
delivered to the Purchaser a certificate representing the Securities that is
free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.
(d) The Purchaser agrees that the removal of the restrictive legend
from certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance on, and the Purchaser's agreement that it
will not sell any Securities except pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
4.2 Furnishing of Information.
As long as the Purchaser owns Securities, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. Upon the request of any holder of
Securities, the Company shall deliver to the holder a written certification of a
duly authorized officer as to whether it has complied with the preceding
sentence. As long as the Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchaser and make publicly available in accordance with Rule
144(c), the information as is required for the Purchaser to sell the Securities
under Rule 144. The Company further covenants that it will take further action
as any holder of Securities may reasonably request, all to the extent required
from time to time to enable the Person to sell the Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.3 Integration.
The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.
4.4 Limitation on Future Financing.
From the date hereof until 90 calendar days after the Effective Date,
the Company shall not effect an issuance of its Common Stock or Common Stock
Equivalents. Notwithstanding anything to the contrary herein, this Section 4.4
shall not apply to the following: (a) the granting of options or other equity
compensation awards or the issuance of Common Stock or Common Stock Equivalents
to employees, independent contractors, officers and directors of the Company
pursuant to any equity compensation plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for the purpose
18
(and the exercise of the options or Common Stock Equivalents), or (b) the
issuance or exercise of any security issued by the Company in connection with
the offer and sale of the Company's securities pursuant to this Agreement, or
(c) the exercise of or conversion of any convertible securities, options or
warrants issued and outstanding on the date hereof, or (d) the issuance of
Common Stock or Common Stock Equivalents in connection with acquisitions or
strategic investments, partnerships, business relationship or joint venture, the
primary purpose of which is not to raise capital, or (e) the issuance of
securities pursuant to a stock split or stock dividend or similar capital
modification, or (f) the issuance of securities upon the authorization of the
Company's Board of Directors in connection with business conducted by the
Company with vendors, lessors or financial institutions in connection with
financing transactions.
4.5 Publicity.
The Company shall, within two Business Days following the Closing Date,
file a Current Report on Form 8-K, disclosing the transactions contemplated
hereby and make the other filings and notices in the manner and time required by
the Commission.
4.6 Shareholders Rights Plan.
No claim will be made or enforced by the Company or any other Person
that the Purchaser is an "acquiring person" under any shareholders rights plan
or similar plan or arrangement in effect or hereafter adopted by the Company, or
that the Purchaser could be deemed to trigger the provisions of any the plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Purchaser.
4.7 Non-Public Information.
The Company covenants and agrees that neither it nor any other Person
acting on its behalf will provide the Purchaser or its agents or counsel with
any information that the Company believes constitutes material non-public
information, unless prior thereto the Purchaser shall have executed a written
agreement regarding the confidentiality and use of the information. The Company
understands and confirms that the Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
4.8 Use of Proceeds.
The Company covenants and agrees that the proceeds from the sale of the
Common Stock and Warrants shall be used by the Company for equipment purchases
and working capital purposes.
4.9 Reservation of Common Stock.
As of the date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
a sufficient number of shares of Common Stock for the purpose of enabling the
Company to issue Shares pursuant to this Agreement and Warrant Shares pursuant
to the Warrants.
19
4.10 Listing of Common Stock.
The Company hereby agrees to use commercially reasonable efforts to
maintain the listing of the Common Stock on any applicable Trading Market, and,
if required, as soon as reasonably practicable following the Closing to list the
applicable Shares and Warrant Shares on any applicable Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in the application the Shares and
the Warrant Shares, and will take any other action as is necessary to cause the
Shares and Warrant Shares to be listed on the other Trading Market as promptly
as possible.
4.11 Business Operations. Until the earlier of: (i) the fourth year
anniversary of the Closing Date and (ii) the date that the Purchaser owns less
than 50% of the Shares originally issued pursuant to this Agreement, the Company
shall comply with the following covenants:
(a) Insurance. The Company and its Subsidiaries shall maintain
insurance policies so that the representations contained in the first sentence
of Section 3.1(p) hereof continue to be true and correct and shall, from time to
time upon the written request of the Purchaser, promptly furnish or cause to be
furnished to the Purchaser evidence, in form and substance reasonably
satisfactory to the Purchaser, of the maintenance of all insurance maintained by
it.
(b) Corporate Existence; Licenses. The Company shall preserve and
maintain and cause its Subsidiaries to preserve and maintain their corporate
existence and good standing in the jurisdiction of their incorporation and the
rights, privileges and franchises of the Company and its Subsidiaries (except,
in each case, in the event of a merger or consolidation in which the Company or
its Subsidiaries, as applicable, is not the surviving entity) in each case where
the failure to so preserve or maintain could have a Material Adverse Effect on
the financial condition, business or operations of the Company and its
Subsidiaries taken as a whole. The Company shall, and shall cause its
Subsidiaries to, maintain at all times all material licenses or permits
necessary to the conduct of its business and as required by any governmental
agency or instrumentality thereof.
(c) Taxes and Claims. The Company and its Subsidiaries shall duly pay
and discharge (a) all taxes, assessments and governmental charges upon or
against the Company or its properties or assets prior to the date on which
penalties attach thereto, unless and to the extent that the taxes are being
diligently contested in good faith and by appropriate proceedings, and
appropriate reserves therefor have been established, and (b) all lawful claims,
whether for labor, materials, supplies, services or anything else which might or
could, if unpaid, become a lien or charge upon the properties or assets of the
Company or its Subsidiaries, unless and to the extent only that the same are
being contested in good faith and by appropriate proceedings and appropriate
reserves therefor have been established.
(d) Affiliate Transactions. Except for transactions approved by a
majority of the disinterested members of the board of directors of the Company,
neither the Company nor any of its Subsidiaries shall enter into any transaction
with any (i) director, officer, employee or holder of more than 5% of the
outstanding capital stock of any class or series of capital stock of the Company
or any of its Subsidiaries, (ii) member of the immediate family of any such
person, or (iii) corporation, partnership, trust or other entity in which any
such person, or member of the immediate family of any such person, is a
director, officer, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof.
20
4.12 Securities Law Compliance.
(a) Securities Act. The Company shall timely prepare and file with the
Securities and Exchange Commission the form of notice of the sale of securities
pursuant to the requirements of Regulation D regarding the sale of the Common
Stock and Warrants under this Agreement.
(b) State Securities Law Compliance -- Sale. The Company shall timely
prepare and file the applications, consents to service of process (but not
including a general consent to service of process) and similar documents and
take the other steps and perform the further acts as shall be required by the
state securities law requirements of the jurisdiction where the Purchaser
resides with respect to the sale of the Common Stock and Warrants under this
Agreement.
(c) State Securities Law Compliance --Resale. Beginning no later than
30 days following any date, from time to time, on which the Common Stock is no
longer a "covered security" under Section 18(b)(1)(A) of the Securities Act and
continuing until either (i) the Purchasers have sold all of their Shares and
Warrant Shares under a registration statement pursuant to the Investor Rights
Agreement or (ii) the Common Stock becomes a "covered security" under Section
18(b)(1)(A) of the Securities Act, the Company shall maintain within either
Moody's Industrial Manual or Standard and Poor's Standard Corporation
Descriptions (or any successors to these manuals which are similarly qualified
as "recognized securities manuals" under state Blue Sky laws) an updated listing
containing (i) the names of the officers and directors of the Company, (ii) a
balance sheet of the Company as of a date that is at no time older than eighteen
months and (iii) a profit and loss statement of the Company for either the
preceding fiscal year or the most recent year of operations.
4.13 Over-Allotment Option.
From the Closing Date until the date four months after the Effective
Date, the Purchaser shall have the option to purchase up to an additional
357,000 shares of Common Stock at a price per share of $0.60 per share and in
connection with any such purchase shall also be granted a warrant (of like tenor
to the Warrant issued on the Closing Date) to purchase an additional 375,000
shares of Common Stock at an exercise price of $1.38 per share, as adjusted for
stock splits, stock dividends and the like (the "Over-Allotment Option").
ARTICLE V
INDEMNIFICATION, TERMINATION AND DAMAGES
----------------------------------------
5.1 Survival of Representations.
Except as otherwise provided herein, the representations and warranties
of the Company and the Purchaser contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing Date
and shall continue in full force and effect for a period of three (3) years from
the Closing Date; provided, however, that the Company's warranties and
representations under Sections 3.1(a) (Subsidiaries), 3.1(g) (Capitalization),
21
3,1(x) (Taxes) and 3.1(y) (Environmental Matters) shall survive the Closing Date
and continue in full force and effect until the expiration of all applicable
statutes of limitation. The Company's and the Purchaser's warranties and
representations shall in no way be affected or diminished in any way by any
investigation of (or failure to investigate) the subject matter thereof made by
or on behalf of the Company or the Purchaser.
5.2 Indemnification.
(a) The Company agrees to indemnify and hold harmless the Purchaser,
its Affiliates, each of their officers, directors, employees and agents and
their respective successors and assigns, from and against any losses, damages,
or expenses which are caused by or arise out of (i) any breach or default in the
performance by the Company of any covenant or agreement made by the Company in
this Agreement or in any of the Transaction Documents; (ii) any breach of
warranty or representation made by the Company in this Agreement or in any of
the Transaction Documents; and/or (iii) any and all third party actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees and expenses) incident to any of the foregoing.
(b) The Purchaser agrees to indemnify and hold harmless the Company,
its Affiliates, each of their officers, directors, employees and agents and
their respective successors and assigns, from and against any losses, damages,
or expenses which are caused by or arise out of (A) any breach or default in the
performance by the Purchaser of any covenant or agreement made by the Purchaser
in this Agreement or in any of the Transaction Documents; (B) any breach of
warranty or representation made by the Purchaser in this Agreement or in any of
the Transaction Documents; and (C) any and all third party actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees and expenses) incident to any of the foregoing; provided,
however, that the Purchaser's liability under this Section 5.2(b) shall not
exceed the Purchase Price paid by the Purchaser hereunder.
5.3 Indemnity Procedure.
A party or parties hereto agreeing to be responsible for or to
indemnify against any matter pursuant to this Agreement is referred to herein as
the "Indemnifying Party" and the other party or parties claiming indemnity is
referred to as the "Indemnified Party". An Indemnified Party under this
Agreement shall, with respect to claims asserted against such party by any third
party, give written notice to the Indemnifying Party of any liability which
might give rise to a claim for indemnity under this Agreement within sixty (60)
Business Days of the receipt of any written claim from any such third party, but
not later than twenty (20) days prior to the date any answer or responsive
pleading is due, and with respect to other matters for which the Indemnified
Party may seek indemnification, give prompt written notice to the Indemnifying
Party of any liability which might give rise to a claim for indemnity; provided,
however, that any failure to give the notice will not waive any rights of the
Indemnified Party except to the extent the rights of the Indemnifying Party are
materially prejudiced.
The Indemnifying Party shall have the right, at its election, to take
over the defense or settlement of the claim by giving written notice to the
Indemnified Party at least fifteen (15) days prior to the time when an answer or
other responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes the election, it may conduct the defense of the claim
through counsel of its choosing (subject to the Indemnified Party's approval of
the counsel, which approval shall not be unreasonably withheld), shall be solely
responsible for the expenses of the defense and shall be bound by the results of
its defense or settlement of the claim. The Indemnifying Party shall not settle
the claim without prior notice to and consultation with the Indemnified Party,
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and no settlement involving any equitable relief or which might have an adverse
effect on the Indemnified Party may be agreed to without the written consent of
the Indemnified Party (which consent shall not be unreasonably withheld). So
long as the Indemnifying Party is diligently contesting any the claim in good
faith, the Indemnified Party may pay or settle the claim only at its own expense
and the Indemnifying Party will not be responsible for the fees of separate
legal counsel to the Indemnified Party, unless the named parties to any
proceeding include both parties or representation of both parties by the same
counsel would be inappropriate in the reasonable opinion of the Indemnified
Party, due to conflicts of interest or otherwise. If the Indemnifying Party does
not make the election, or having made the election does not, in the reasonable
opinion of the Indemnified Party proceed diligently to defend the claim, then
the Indemnified Party may (after written notice to the Indemnifying Party), at
the expense of the Indemnifying Party, elect to take over the defense of and
proceed to handle the claim in its discretion and the Indemnifying Party shall
be bound by any defense or settlement that the Indemnified Party may make in
good faith with respect to the claim. In connection therewith, the Indemnifying
Party will fully cooperate with the Indemnified Party should the Indemnified
Party elect to take over the defense of the claim. The parties agree to
cooperate in defending the third party claims and the Indemnified Party shall
provide cooperation and access to its books, records and properties as the
Indemnifying Party shall reasonably request with respect to any matter for which
indemnification is sought hereunder; and the parties hereto agree to cooperate
with each other in order to ensure the proper and adequate defense thereof.
With regard to claims of third parties for which indemnification is
payable hereunder, the indemnification shall be paid by the Indemnifying Party
upon the earlier to occur of: (i) the entry of a judgment against the
Indemnified Party and the expiration of any applicable appeal period, or if
earlier, five (5) days prior to the date that the judgment creditor has the
right to execute the judgment; (ii) the entry of an unappealable judgment or
final appellate decision against the Indemnified Party; or (iii) a settlement of
the claim. Notwithstanding the foregoing, the reasonable expenses of counsel to
the Indemnified Party shall be reimbursed on a current basis by the Indemnifying
Party. With regard to other claims for which indemnification is payable
hereunder, the indemnification shall be paid promptly by the Indemnifying Party
upon demand by the Indemnified Party.
ARTICLE VI
ANTI-DILUTION
6.1 Issuance of Additional Shares of Common Stock.
(i) If the Company shall issue or sell, on or prior to the twelve month
anniversary of the Effective Date, any additional shares of Common Stock in
exchange for consideration in an amount per additional share of Common Stock
less than the Per Share Purchase Price at the time the additional shares of
Common Stock are issued or sold, then:
(A) the Per Share Purchase Price immediately prior to such
issue or sale shall be reduced to a price determined by dividing
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(1) an amount equal to the sum of (a) the number of
shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Per Share
Purchase Price, plus (b) the consideration, if any, received
by the Company upon such issue or sale, by
(2) the total number of shares of Common Stock
outstanding immediately after such issue or sale; and
(B) the Purchaser shall receive for no additional
consideration a number of shares of Common Stock determined as follows:
(1) multiplying the Per Share Purchase Price in
effect immediately prior to such issue or sale by the number
of shares of Common Stock purchased pursuant to this Agreement
(including shares purchased pursuant to the Over-Allotment
Option) and
(2) dividing the product thereof by the Per Share
Purchase Price resulting from the adjustment made pursuant to
clause (A) of this Section 6.1(i) and
(3) subtracting from such amount the number of shares
of Common Stock purchased pursuant to this Agreement
(including shares purchased pursuant to the Over-Allotment
Option).
(ii) No adjustment of the number of shares of Common Stock acquirable
hereunder shall be made under paragraph 6.1(i) upon the issuance of any
additional shares of Common Stock which are issued pursuant to the exercise of
any warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible securities, if
any such adjustment shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such convertible securities (or
upon the issuance of any warrant or other rights therefor) pursuant to Section
6.2.
(iii) For avoidance of doubt, the computations provided in this Section
6.1 shall not impact, retroactively or otherwise, the consideration paid by the
Purchaser for the Shares or the shares of Common Stock issuable pursuant to the
Over-Allotment Option. The Per Share Purchase Price adjustment is made solely to
calculate the number of additional shares of Common Stock to be issued pursuant
to this Section 6.1
6.2. Issuance of Common Stock Equivalents. If the Company shall issue
or sell, on or prior to the twelve month anniversary of the Effective Date, any
warrants or other rights to subscribe for or purchase any additional shares of
Common Stock or any securities convertible into shares of Common Stock
(collectively, "Common Stock Equivalents"), whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the effective
price per share for which Common Stock is issuable upon the exercise, exchange
or conversion of such Common Stock Equivalents shall be less than the Per Share
Purchase Price in effect immediately prior to the time of such issue or sale,
then the number of additional shares of Common Stock to be issued and the Per
Share Purchase Price shall be adjusted as provided in Section 6.1 on the basis
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that the maximum number of additional shares of Common Stock issuable pursuant
to all such Common Stock Equivalents shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration payable
therefor, if any, as of the date of the actual issuance of such Common Stock
Equivalents. No further adjustments shall be made under this Section 6.2 upon
the actual issue of such Common Stock upon the exercise, conversion or exchange
of such Common Stock Equivalents.
6.3. Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments provided for in
Article VI:
(a) When Adjustments to Be Made. The adjustments required by
Article VI shall be made whenever and as often as any specified event requiring
an adjustment shall occur.
(b) Fractional Interests. In computing adjustments under this
Article VI, fractional interests in Common Stock shall be rounded up or down to
the nearest whole share.
(c) Restrictions on Shares Issued. Unless the Purchaser
delivers to the Company irrevocable written notice prior to the Closing Date or
sixty-one days prior to the effective date of such notice that this Section
6.3(c) shall not apply to such Purchaser, the Purchaser may not acquire a number
of shares of Common Stock pursuant to this Article VI to the extent that, upon
such exercise, the number of shares of Common Stock then beneficially owned by
such holder and its Affiliates and any other persons or entities whose
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act (including shares held by any
"group" of which the holder is a member, but excluding shares beneficially owned
by virtue of the ownership of securities or rights to acquire securities that
have limitations on the right to convert, exercise or purchase similar to the
limitation set forth herein) exceeds 9.99% of the total number of shares of
Common Stock of the Company then issued and outstanding. For purposes hereof,
"group" has the meaning set forth in Section 13(d) of the Exchange Act and
applicable regulations of the Securities and Exchange Commission, and the
percentage held by the holder shall be determined in a manner consistent with
the provisions of Section 13(d) of the Exchange Act.
ARTICLE VII
MISCELLANEOUS
-------------
7.1 Fees and Expenses.
Each Party shall be responsible for the payment of its own legal fees
and other third-party expenses relating to the preparation, negotiation and
execution of this Agreement and the Transaction Documents and the consummation
of the transactions contemplated herein.
7.2 Entire Agreement.
The Transaction Documents, together with the exhibits and schedules
thereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to the matters, which the parties acknowledge have
been merged into the documents, exhibits and schedules.
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7.3 Notices.
Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given
and effective on the earliest of (a) the date of transmission, if the notice or
communication is delivered via facsimile at the facsimile number specified on
the signature pages attached hereto prior to 5:00 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if the
notice or communication is delivered via facsimile at the facsimile number on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:00 p.m. (New York City time) on any Trading Day, (c) the Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom the notice is
required to be given. The address for the notices and communications shall be as
follows:
If to the Company, addressed to:
Electric & Gas Technology, Inc.
3233 West Kingsley Road
Garland, TX 75041
Attention: President
Facsimile No.: 972-271-8925
Copy to:
Legal & Compliance, LLC
330 Clematis Street, Suite 217
West Palm Beach, FL 33401
Attention: Laura E. Anthony
Facsimile No.: 561-514-0832
If to the Purchaser, addressed to:
Vision Opportunity Master Fund, Ltd.
317 Madison Avenue, Suite 1220
New York, NY 10017
Attention: Antti Uusiheimala
Facsimile No.: 917-591-4943
Copy to:
Wiggin and Dana LLP
400 Atlantic Street
Stamford, CT 06901
Attention: Michael Grundei
Facsimile No.: 203-363-7676
or to the other address or addresses or facsimile number or numbers as any the
party may most recently have designated in writing to the other parties hereto
by proper notice.
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7.4 Amendments; Waivers.
No provision of this Agreement may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and the
Purchaser or, in the case of a waiver, by the party against whom enforcement of
the waiver is sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any right.
7.5 Construction.
The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
7.6 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Company may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Purchaser. The Purchaser may assign any or all of its rights
under this Agreement to any Person, provided the transferee agrees in writing to
be bound, with respect to the transferred Securities, by the provisions hereof
that apply to the Purchaser.
7.7 No Third-Party Beneficiaries.
This Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as
otherwise set forth in Article V.
7.8 Governing Law.
All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof.
7.9 Jurisdiction; Venue; Service of Process
This Agreement shall be subject to the exclusive jurisdiction of the
Federal District Court, Southern District of New York and if such court does not
have proper jurisdiction, the State Courts of New York County, New York. The
parties to this Agreement agree that any breach of any term or condition of this
Agreement shall be deemed to be a breach occurring in the State of New York by
virtue of a failure to perform an act required to be performed in the State of
New York and irrevocably and expressly agree to submit to the jurisdiction of
the Federal District Court, Southern District of New York and if such court does
not have proper jurisdiction, the State Courts of New York County, New York for
the purpose of resolving any disputes among the parties relating to this
Agreement or the transactions contemplated hereby. The parties irrevocably
waive, to the fullest extent permitted by law, any objection which they may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, or any judgment entered by any
court in respect hereof brought in New York County, New York, and further
irrevocably waive any claim that any suit, action or proceeding brought in
Federal District Court, Southern District of New York and if such court does not
have proper jurisdiction, the State Courts of New York County, New York has been
27
brought in an inconvenient forum. Each of the parties hereto consents to process
being served in any such suit, action or proceeding, by mailing a copy thereof
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing in this Section 6.9 shall affect or limit
any right to serve process in any other manner permitted by law.
7.10 Execution.
This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, the signature shall create a valid and binding
obligation of the party executing (or on whose behalf the signature is executed)
with the same force and effect as if the facsimile signature page were an
original thereof.
7.11 Severability.
If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate the substitute provision in this Agreement.
7.12 Replacement of Securities.
If any certificate or instrument evidencing any Shares or Warrant
Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause
to be issued in exchange and substitution for and upon cancellation thereof, or
in lieu of and substitution therefor, a new certificate or instrument, but only
upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft or destruction and customary and reasonable indemnity, if requested by the
Company.
7.13 Remedies.
In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, the Purchaser and the Company
will be entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any obligation the defense that a remedy at law would be adequate.
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7.14 Payment Set Aside.
To the extent that the Company makes a payment or payments to the
Purchaser pursuant to any Transaction Document or the Purchaser enforces or
exercises its rights thereunder, and the payment or payments or the proceeds of
the enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any restoration the obligation or part
thereof originally intended to be satisfied shall, to the extent permissible
under applicable law, be revived and continued in full force and effect as if
the payment had not been made or the enforcement or setoff had not occurred.
7.15 Waiver of Trial by Jury.
THE PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
7.16 Further Assurances.
Each party agrees to cooperate fully with the other party and to
execute any further instruments, documents and agreements and to give any
further written assurances as may be reasonably requested by any other party to
better evidence and reflect the transactions described herein and contemplated
hereby and to carry into effect the intents and purposes of this Agreement, and
further agrees to take promptly, or cause to be taken, all actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable law to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings, and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
Electric & Gas Technology, Inc.
By:_________________________________
Name:_______________________________
Title:______________________________
PURCHASER:
Vision Opportunity Master Fund, Ltd.
By:_________________________________
Name:_______________________________
Title:______________________________
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