SCIENCE DYNAMICS CORPORATION
SECURITIES PURCHASE AGREEMENT
February 11, 2005
Table of Contents
Page
1. Agreement to Sell and Purchase.......................................1
2. Fees and Warrant.....................................................1
3. Closing, Delivery and Payment........................................2
3.1 Closing...................................................2
3.2 Delivery..................................................2
4. Representations and Warranties of the Company........................3
4.1 Organization, Good Standing and Qualification.............3
4.2 Subsidiaries..............................................3
4.3 Capitalization; Voting Rights.............................4
4.4 Authorization; Binding Obligations........................4
4.5 Liabilities...............................................5
4.6 Agreements; Action........................................5
4.7 Obligations to Related Parties............................6
4.8 Changes...................................................6
4.9 Title to Properties and Assets; Liens, Etc................8
4.10 Intellectual Property.....................................8
4.11 Compliance with Other Instruments.........................9
4.12 Litigation................................................9
4.13 Tax Returns and Payments..................................9
4.14 Employees................................................10
4.15 Registration Rights and Voting Rights....................10
4.16 Compliance with Laws; Permits............................11
4.17 Environmental and Safety Laws............................11
4.18 Valid Offering...........................................11
4.19 Full Disclosure..........................................11
4.20 Insurance................................................12
4.21 SEC Reports..............................................12
4.22 Listing..................................................12
4.23 No Integrated Offering...................................12
4.24 Stop Transfer............................................13
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon
conversion of the Note and exercise of the Warrant is
binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests
of other shareholders of the Company.................... 13
5. Representations and Warranties of the Purchaser.....................13
5.1 No Shorting..............................................13
5.2 Requisite Power and Authority............................14
5.3 Investment Representations...............................14
5.4 Purchaser Bears Economic Risk............................14
5.5 Acquisition for Own Account..............................14
5.6 Purchaser Can Protect Its Interest.......................14
5.7 Accredited Investor......................................15
5.8 Legends..................................................15
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6. Covenants of the Company............................................16
6.1 Stop-Orders..............................................16
6.2 Trading..................................................16
6.3 Market Regulations.......................................16
6.4 Reporting Requirements...................................16
6.5 Use of Funds.............................................16
6.6 Access to Facilities.....................................17
6.7 Taxes....................................................17
6.8 Insurance................................................17
6.9 Intellectual Property....................................18
6.10 Properties...............................................18
6.11 Confidentiality..........................................19
6.12 Required Approvals.......................................19
6.13 Reissuance of Securities.................................20
6.14 Opinion..................................................20
7. Covenants of the Purchaser..........................................21
7.1 Confidentiality..........................................21
7.2 Non-Public Information...................................21
7.3 Limitation on Acquisition of Common Stock of the Company.21
8. Covenants of the Company and Purchaser Regarding Indemnification....22
8.1 Company Indemnification..................................22
8.2 Purchaser's Indemnification..............................22
8.3 SMEI Acquisition.........................................23
8.4 Termination of Inactive Subsidiaries.....................23
9. Conversion of Convertible Note......................................23
9.1 Mechanics of Conversion..................................23
10. Registration Rights.................................................24
10.1 Registration Rights Granted..............................24
10.2 Offering Restrictions....................................25
11. Miscellaneous.......................................................25
11.1 Governing Law............................................25
11.2 Survival.................................................25
11.3 Successors...............................................25
11.4 Entire Agreement.........................................26
11.5 Severability.............................................26
11.6 Amendment and Waiver.....................................26
11.7 Delays or Omissions......................................26
11.8 Notices..................................................26
11.9 Attorneys' Fees..........................................27
11.10 Titles and Subtitles.....................................27
11.11 Facsimile Signatures; Counterparts.......................28
11.12 Broker's Fees............................................28
11.13 Construction.............................................28
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LIST OF EXHIBITS
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Form of Convertible Term Note.........................................Exhibit A
Form of Warrant.......................................................Exhibit B
Form of Opinion.......................................................Exhibit C
Form of Escrow Agreement..............................................Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of February 11, 2005, by and between SCIENCE DYNAMICS CORPORATION, a
Delaware corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman
Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Two Million Dollars
($2,000,000) (as amended, modified or supplemented from time to time, the
"Note"), which Note is convertible into shares of the Company's common stock,
$0.01 par value per share (the "Common Stock") at an initial fixed conversion
price of $0.10 per share of Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase
up to 6,000,000 shares of the Company's Common Stock (subject to adjustment as
set forth therein) in connection with Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as defined
in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1 Agreement to Sell and Purchase.
Pursuant to the terms and conditions set forth in this Agreement, on the
Closing Date (as defined in Section 3), the Company agrees to sell to the
Purchaser, and the Purchaser hereby agrees to purchase from the Company, a Note
in the aggregate principal amount of $2,000,000 convertible in accordance with
the terms thereof into shares of the Company's Common Stock in accordance with
the terms of the Note and this Agreement. The Note purchased on the Closing Date
shall be known as the "Offering." A form of the Note is annexed hereto as
Exhibit A. The Note will mature on the Maturity Date (as defined in the Note).
Collectively, the Note and Warrant and Common Stock issuable in payment of the
Note, upon conversion of the Note and upon exercise of the Warrant are referred
to as the "Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a
Warrant to purchase up to 6,000,000 shares of Common Stock
in connection with the Offering (as amended, modified or
supplemented from time to time, the "Warrant") pursuant to
Section 1 hereof. The Warrant must be delivered on the
Closing Date. A form of Warrant is annexed hereto as Exhibit
B. All the representations, covenants, warranties,
undertakings, and indemnification, and other rights made or
granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted in respect of the
Warrant and shares of the Company's Common Stock issuable
upon exercise of the Warrant (the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company
shall pay to Laurus Capital Management, LLC, the manager of
the Purchaser, a closing payment in an amount equal to three
and nine tenths percent (3.90%) of the aggregate principal
amount of the Note. The foregoing fee is referred to herein
as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses) incurred in
connection with the preparation and negotiation of this
Agreement and the Related Agreements (as hereinafter
defined), and expenses incurred in connection with the
Purchaser's due diligence review of the Company and its
Subsidiaries (as defined in Section 4.2) and all related
matters. Amounts required to be paid under this Section 2(c)
will be paid on the Closing Date and shall be $27,500.00 for
such expenses referred to in this Section 2(c).
(d) The Closing Payment and the expenses referred to in the
preceding clause (c) (net of deposits previously paid by the
Company) shall be paid at closing out of funds held pursuant
to the Escrow Agreement (as defined below) and a
disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing.
Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), shall take place on the date
hereof, at such time or place as the Company and Purchaser may mutually agree
(such date is hereinafter referred to as the "Closing Date").
3.2 Delivery.
Pursuant to the Escrow Agreement, at the Closing on the Closing Date,
the Company will deliver to the Purchaser, among other things, a Note in the
form attached as Exhibit A representing the aggregate principal amount of
$2,000,000
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and a Warrant in the form attached as Exhibit B in the Purchaser's name
representing 6,000,000 Warrant Shares and the Purchaser will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter by
certified funds or wire transfer.
4. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Purchaser as follows
(which representations and warranties are supplemented by the Company's filings
under the Securities Exchange Act of 1934 made prior to the date of this
Agreement (collectively, the "Exchange Act Filings"), copies of which have been
provided to the Purchaser):
4.1 Organization, Good Standing and Qualification.
Each of the Company and each of its Subsidiaries is a corporation,
partnership or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Each of the Company and each of its Subsidiaries has the corporate
power and authority to own and operate its properties and assets, to execute and
deliver (i) this Agreement, (ii) the Note and the Warrant to be issued in
connection with this Agreement, (iii) the Master Security Agreement dated as of
the date hereof between the Company, certain Subsidiaries of the Company and the
Purchaser (as amended, modified or supplemented from time to time, the "Master
Security Agreement"), (iv) the Registration Rights Agreement relating to the
Securities dated as of the date hereof between the Company and the Purchaser (as
amended, modified or supplemented from time to time, the "Registration Rights
Agreement"), (v) the Subsidiary Guaranty dated as of the date hereof made by
certain Subsidiaries of the Company (as amended, modified or supplemented from
time to time, the "Subsidiary Guaranty"), (vi) the Stock Pledge Agreement dated
as of the date hereof among the Company, certain Subsidiaries of the Company and
the Purchaser (as amended, modified or supplemented from time to time, the
"Stock Pledge Agreement"), (vii) the Funds Escrow Agreement dated as of the date
hereof among the Company, the Purchaser and the escrow agent referred to
therein, substantially in the form of Exhibit D hereto (as amended, modified or
supplemented from time to time, the "Escrow Agreement") and (viii) all other
agreements related to this Agreement and the Note and referred to herein (the
preceding clauses (ii) through (viii), collectively, the "Related Agreements"),
to issue and sell the Note and the shares of Common Stock issuable upon
conversion of the Note (the "Note Shares"), to issue and sell the Warrant and
the Warrant Shares, and to carry out the provisions of this Agreement and the
Related Agreements and to carry on its business as presently conducted. Each of
the Company and each of its Subsidiaries is duly qualified and is authorized to
do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and its Subsidiaries, taken individually and as a whole (a "Material
Adverse Effect").
4.2 Subsidiaries.
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Each direct and indirect Subsidiary of the Company, the direct owner
of such Subsidiary and its percentage ownership thereof, is set forth on
Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any person or
entity means (i) a corporation or other entity whose shares of stock or other
ownership interests having ordinary voting power (other than stock or other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time. For the purpose of this
Agreement, a "Non Wholly-Owned Subsidiary" shall mean each Subsidiary of the
Company whose equity interests are not 100% owned by the Company or another
Subsidiary of the Company.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof consists of 210,000,000 shares, of which 200,000,000
are shares of Common Stock, par value $0.01 per share,
69,686,659 shares of which are issued and outstanding, and
10,000,000 are shares of preferred stock, par value $0.01
per share of which 0 shares of preferred stock are issued
and outstanding. The authorized capital stock of each
Subsidiary of the Company is set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the
shares reserved for issuance under the Company's stock
option plans; and (ii) shares which may be granted pursuant
to this Agreement and the Related Agreements, there are no
outstanding options, warrants, rights (including conversion
or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any
kind for the purchase or acquisition from the Company of any
of its securities. Except as disclosed on Schedule 4.3,
neither the offer, issuance or sale of any of the Note or
the Warrant, or the issuance of any of the Note Shares or
Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or
number of any securities of the Company outstanding, under
anti-dilution or other similar provisions contained in or
affecting any such securities.
(c) All issued and outstanding shares of the Company's Common
Stock: (i) have been duly authorized and validly issued and
are fully paid and nonassessable; and (ii) were issued in
compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's
Certificate of Incorporation (the "Charter"). The Note
Shares and Warrant Shares have
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been duly and validly reserved for issuance. When issued in
compliance with the provisions of this Agreement and the
Company's Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens
or encumbrances; provided, however, that the Securities may
be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
4.4 Authorization;
Binding Obligations. All corporate, partnership or limited liability
company, as the case may be, action on the part of the Company and each of its
Subsidiaries (including the respective officers and directors) necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company and its Subsidiaries hereunder and under the
other Related Agreements at the Closing and, the authorization, sale, issuance
and delivery of the Note and Warrant has been taken or will be taken prior to
the Closing. This Agreement and the Related Agreements, when executed and
delivered and to the extent it is a party thereto, will be valid and binding
obligations of each of the Company and each of its Subsidiaries, enforceable
against each such person in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 Liabilities.
Neither the Company nor any of its Subsidiaries has any contingent
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
4.6 Agreements; Action.
Except as set forth on Schedule 4.6 or as disclosed in any Exchange
Act Filings:
(a) there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs
or decrees to which the Company or any of its Subsidiaries
is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to,
the Company in excess of $50,000 (other than obligations of,
or payments to, the Company arising from purchase or
5
sale agreements entered into in the ordinary course of
business); or (ii) the transfer or license of any patent,
copyright, trade secret or other proprietary right to or
from the Company (other than licenses arising from the
purchase of "off the shelf" or other standard products); or
(iii) provisions restricting the development, manufacture or
distribution of the Company's products or services; or (iv)
indemnification by the Company with respect to infringements
of proprietary rights.
(b) Since December 31, 2003, neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to
any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations) individually in
excess of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess of
$100,000 in the aggregate; (iii) made any loans or advances
to any person not in excess, individually or in the
aggregate, of $100,000, other than ordinary course advances
for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale
of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving
the same person or entity (including persons or entities the
Company has reason to believe are affiliated therewith)
shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties.
Except as set forth on Schedule 4.7, there are no obligations of the
Company or any of its Subsidiaries to officers, directors, stockholders or
employees of the Company or any of its Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of
the Company and its Subsidiaries; (c) for other standard
employee benefits made generally available to all employees
(including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the
Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
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Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes.
Since December 31, 2003, except as disclosed in any Exchange Act
Filing or in any Schedule to this Agreement or to any of the Related Agreements,
there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or
prospects of the Company or any of its Subsidiaries, which
individually or in the aggregate has had, or could
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee
or group of employees of the Company or any of its
Subsidiaries;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the Company or
any of its Subsidiaries by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse
Effect;
(e) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of
its Subsidiaries to any stockholder, employee, officer or
director of the Company or any of its Subsidiaries, other
than advances made in the ordinary course of business;
(g) any material change in any compensation arrangement or
agreement with any employee, officer, director or
stockholder of the Company or any of its Subsidiaries;
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(h) any declaration or payment of any dividend or other
distribution of the assets of the Company or any of its
Subsidiaries;
(i) any labor organization activity related to the Company or
any of its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries, except
those for immaterial amounts and for current liabilities
incurred in the ordinary course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned
by the Company or any of its Subsidiaries;
(l) any change in any material agreement to which the Company or
any of its Subsidiaries is a party or by which either the
Company or any of its Subsidiaries is bound which either
individually or in the aggregate has had, or could
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection
(a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc.
Except as set forth on Schedule 4.9, each of the Company and each of
its Subsidiaries has good and marketable title to its properties and assets, and
good title to its leasehold estates, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially
impair the operations of the Company or any of its
Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
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4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights
and processes necessary for its business as now conducted
and to the Company's knowledge, as presently proposed to be
conducted (the "Intellectual Property"), without any known
infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind
relating to the foregoing proprietary rights, nor is the
Company or any of its Subsidiaries bound by or a party to
any options, licenses or agreements of any kind with respect
to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from
the purchase of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has received
any communications alleging that the Company or any of its
Subsidiaries has violated any of the patents, trademarks,
service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity, nor
is the Company or any of its Subsidiaries aware of any basis
therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary
information of any of its employees made prior to their
employment by the Company or any of its Subsidiaries, except
for inventions, trade secrets or proprietary information
that have been rightfully assigned to the Company or any of
its Subsidiaries.
4.11 Compliance with Other Instruments.
Neither the Company nor any of its Subsidiaries is in violation or
default of (x) any term of its Charter or Bylaws, or (y) of any provision of any
indebtedness, mortgage, indenture, contract, agreement or instrument to which it
is party or by which it is bound or of any judgment, decree, order or writ,
which violation or default, in the case of this clause (y), has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. The execution, delivery and performance of and
compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Note by the Company and the other
Securities by the Company each pursuant hereto and thereto, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term or
provision, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or any of its
Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal
9
of any permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.
4.12 Litigation.
Except as set forth on Schedule 4.12 hereto, there is no action, suit,
proceeding or investigation pending or, to the Company's knowledge, currently
threatened against the Company or any of its Subsidiaries that prevents the
Company or any of its Subsidiaries from entering into this Agreement or the
other Related Agreements, or from consummating the transactions contemplated
hereby or thereby, or which has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect or any change
in the current equity ownership of the Company or any of its Subsidiaries, nor
is the Company aware that there is any basis to assert any of the foregoing.
Neither the Company nor any of its Subsidiaries is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company or any of its Subsidiaries currently pending or
which the Company or any of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments.
Each of the Company and each of its Subsidiaries has timely filed all
tax returns (federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments imposed, and all
other taxes due and payable by the Company or any of its Subsidiaries on or
before the Closing, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on Schedule 4.13, neither the Company nor any of
its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been
or are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees.
Except as set forth on Schedule 4.14, neither the Company nor any of
its Subsidiaries has any collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to the
Company's knowledge, threatened with respect to the Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract
10
with, the Company or any of its Subsidiaries because of the nature of the
business to be conducted by the Company or any of its Subsidiaries; and to the
Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15 Registration Rights and Voting Rights.
Except as set forth on Schedule 4.15 and except as disclosed in
Exchange Act Filings, neither the Company nor any of its Subsidiaries is
presently under any obligation, and neither the Company nor any of its
Subsidiaries has granted any rights, to register any of the Company's or its
Subsidiaries' presently outstanding securities or any of its securities that may
hereafter be issued. Except as set forth on Schedule 4.15 and except as
disclosed in Exchange Act Filings, to the Company's knowledge, no stockholder of
the Company or any of its Subsidiaries has entered into any agreement with
respect to the voting of equity securities of the Company or any of its
Subsidiaries.
4.16 Compliance with Laws; Permits.
Neither the Company nor any of its Subsidiaries is in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which has had, or
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any other Related Agreement and the issuance of
any of the Securities, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. Each of the Company and its Subsidiaries has
all material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
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4.17 Environmental and Safety Laws.
Neither the Company nor any of its Subsidiaries is in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. Except as set forth on Schedule 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or any of its Subsidiaries or, to the Company's knowledge, by any other person
or entity on any property owned, leased or used by the Company or any of its
Subsidiaries. For the purposes of the preceding sentence, "Hazardous Materials"
shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state,
federal and/or foreign laws and regulations that govern the
existence and/or remedy of contamination on property, the
protection of the environment from contamination, the
control of hazardous wastes, or other activities involving
hazardous substances, including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering.
Assuming the accuracy of the representations and warranties of the
Purchaser contained in this Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
4.19 Full Disclosure.
Each of the Company and each of its Subsidiaries has provided the
Purchaser with all information requested by the Purchaser in connection with its
decision to purchase the Note and Warrant, including all information the Company
and its Subsidiaries believe is reasonably necessary to make such investment
decision. Neither this Agreement, the Related Agreements, the exhibits and
schedules hereto and thereto nor any other document delivered by the Company or
any of its Subsidiaries to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company or any
of its Subsidiaries were based on the Company's and its Subsidiaries' experience
in the industry and on assumptions of fact and opinion as to future events which
the Company or any of its Subsidiaries, at the date of the issuance of such
projections or estimates, believed to be reasonable.
4.20 Insurance.
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Each of the Company and each of its Subsidiaries has general
commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21 SEC Reports.
Except as set forth on Schedule 4.21, the Company has filed all proxy
statements, reports and other documents required to be filed by it under the
Securities Exchange Act 1934, as amended (the "Exchange Act"). The Company has
furnished the Purchaser with copies of: (i) its Annual Report on Form 10-KSB for
its fiscal year ended December 31, 2003; and (ii) its Quarterly Reports on Form
10-QSB for its fiscal quarters ended March 31, 2004, June 30, 2004 and September
30, 2004, and the Form 8-K filings which it has made during the fiscal year
ended December 31, 2004 to date (collectively, the "SEC Reports"). Except as set
forth on Schedule 4.21, each SEC Report was, at the time of its filing, in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in 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 to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.22 Listing.
The Company's Common Stock is quoted for trading on the NASD OTC
Bulletin Board ("OTC BB") and satisfies all requirements for the continuation of
such quotation. The Company has not received any notice that its Common Stock
will be removed from quotation from OTC BB or that its Common Stock does not
meet all requirements for quotation for trading.
4.23 No Integrated Offering.
Neither the Company, nor any of its Subsidiaries or 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 the offering of the Securities pursuant to
this Agreement or any of the Related Agreements to be integrated with prior
offerings by the Company for purposes of the Securities Act which would prevent
the Company from selling the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or Subsidiaries take
any action or steps that would cause the offering of the Securities to be
integrated with other offerings.
4.24 Stop Transfer.
The Securities are restricted securities as of the date of this
Agreement. Neither the Company nor any of its Subsidiaries will issue any stop
transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal securities laws.
13
4.25 Dilution.
The Company specifically acknowledges that its obligation to issue the
shares of Common Stock upon conversion of the Note and exercise of the Warrant
is binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
4.26 Patriot Act.
The Company certifies that, to the best of Company's knowledge,
neither the Company nor any of its Subsidiaries has been designated, and is not
owned or controlled, by a "suspected terrorist" as defined in Executive Order
13224. The Company hereby acknowledges that the Purchaser seeks to comply with
all applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Company hereby represents, warrants and agrees
that: (i) none of the cash or property that the Company or any of its
Subsidiaries will pay or will contribute to the Purchaser has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Company or any of its
Subsidiaries to the Purchaser, to the extent that they are within the Company's
and/or its Subsidiaries' control shall cause the Purchaser to be in violation of
the United States Bank Secrecy Act, the United States International Money
Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations ceases to be true
and accurate regarding the Company or any of its Subsidiaries. The Company
agrees to provide the Purchaser any additional information regarding the Company
or any of its Subsidiaries that the Purchaser deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
similar activities. The Company understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, the Purchaser may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of the Purchaser's investment in the Company. The
Company further understands that the Purchaser may release confidential
information about the Company and its Subsidiaries and, if applicable, any
underlying beneficial owners, to proper authorities if the Purchaser, in its
sole discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in subsection
(ii) above.
5. Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
5.1 No Shorting.
The Purchaser or any of its affiliates and investment partners has
not, will not and will not cause any person or entity, to directly engage in
"short sales" of the Company's Common Stock as long as the Note shall be
outstanding.
5.2 Requisite Power and Authority.
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The Purchaser has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and the
Related Agreements and to carry out their provisions. All corporate action on
Purchaser's part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations.
Purchaser understands that the Securities are being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon Purchaser's representations contained in the Agreement, including,
without limitation, that the Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the
"Securities Act"). The Purchaser confirms that it has received or has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Note and the Warrant to be
purchased by it under this Agreement and the Note Shares and the Warrant Shares
acquired by it upon the conversion of the Note and the exercise of the Warrant,
respectively. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company's and
its Subsidiaries' business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.4 Purchaser Bears Economic Risk.
The Purchaser has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests. The
Purchaser must bear the economic risk of this investment until the Securities
are sold pursuant to: (i) an effective registration statement under the
Securities Act; or (ii) an exemption from registration is available with respect
to such sale.
5.5 Acquisition for Own Account.
The Purchaser is acquiring the Note and Warrant and the Note Shares
and the Warrant Shares for the Purchaser's own account for investment only, and
not as a nominee or agent and not with a view towards or for resale in
connection with their distribution.
15
5.6 Purchaser Can Protect Its Interest.
The Purchaser represents that by reason of its, or of its
management's, business and financial experience, the Purchaser has the capacity
to evaluate the merits and risks of its investment in the Note, the Warrant and
the Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement and the Related Agreements. Further,
Purchaser is aware of no publication of any advertisement in connection with the
transactions contemplated in the Agreement or the Related Agreements.
5.7 Accredited Investor.
Purchaser represents that it is an accredited investor within the
meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SCIENCE DYNAMICS CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by
DWAC system (as hereinafter defined), shall bear a legend
which shall be in substantially the following form until
such shares are covered by an effective registration
statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO SCIENCE DYNAMICS
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THISWARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO SCIENCE
DYNAMICS CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
16
6. Covenants of the Company.
The Company covenants and agrees with the Purchaser as follows:
6.1 Stop-Orders.
The Company will advise the Purchaser, promptly after it receives
notice of issuance by the Securities and Exchange Commission (the "SEC"), any
state securities commission or any other regulatory authority of any stop order
or of any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
6.2 Trading.
The Company shall promptly secure the trading of the shares of Common
Stock issuable upon conversion of the Note and upon the exercise of the Warrant
on the OTC BB (the "Principal Market") upon which shares of Common Stock are
traded and shall maintain such trading so long as any other shares of Common
Stock shall be so traded. The Company will maintain the trading of its Common
Stock on the Principal Market, and will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such market, as
applicable.
6.3 Market Regulations.
The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Purchaser
and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements.
17
The Company will timely file with the SEC all reports required to be
filed pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination.
6.5 Use of Funds.
The Company agrees that it will use the proceeds of the sale of the
Note and the Warrant only for (i) general working capital purposes, (ii) the
acquisition (the "Acquisition") of no less than 80% of the equity interests of
Systems Management Engineering, Inc. ("SMEI") pursuant to the Stock Purchase
Agreement, dated as of December 16, 2004 by and among the Company, SMEI and the
shareholders of SMEI identified therein (the "Sellers") (as amended by Amendment
No. 1 to Stock Purchase Agreement, dated December 16, 2004 among the Company,
SMEI and the Sellers, the "Stock Purchase Agreement") and (iii) the acquisition
of 100% of the remaining equity interests of SMEI pursuant to a transaction in
form and substance reasonably satisfactory to the Purchaser.
6.6 Access to Facilities.
Each of the Company and each of its Subsidiaries will permit any
representatives designated by the Purchaser (or any successor of the Purchaser),
upon reasonable notice and during normal business hours, at such person's
expense and accompanied by a representative of the Company, to:
(a) visit and inspect any of the properties of the Company or
any of its Subsidiaries;
(b) examine the corporate and financial records of the Company
or any of its Subsidiaries (unless such examination is not
permitted by federal, state or local law or by contract) and
make copies thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company or
any of its Subsidiaries with the directors, officers and
independent accountants of the Company or any of its
Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes.
Each of the Company and each of its Subsidiaries will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company and its Subsidiaries; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company and/or such Subsidiary shall have set aside on
18
its books adequate reserves with respect thereto, and provided, further, that
the Company and its Subsidiaries will pay all such taxes, assessments, charges
or levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 Insurance.
Each of the Company and its Subsidiaries will keep its assets which
are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in similar business similarly situated as the
Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and evidence
of the maintenance of such policies at least thirty (30) days before any
expiration date, (y) excepting the Company's workers' compensation policy,
endorsements to such policies naming Purchaser as "co-insured" or "additional
insured" and appropriate loss payable endorsements in form and substance
satisfactory to Purchaser, naming Purchaser as loss payee, and (z) evidence that
as to Purchaser the insurance coverage shall not be impaired or invalidated by
any act or neglect of the Company or any Subsidiary and the insurer will provide
Purchaser with at least thirty (30) days notice prior to cancellation. The
Company and each Subsidiary shall instruct the insurance carriers that in the
event of any loss thereunder, the carriers shall make payment for such loss to
the Company and/or the Subsidiary and Purchaser jointly. In the event that as of
the date of receipt of each loss recovery upon any such insurance, the Purchaser
has not declared an event of default with respect to this Agreement or any of
the Related Agreements, then the Company and/or such Subsidiary shall be
permitted to direct the application of such loss recovery proceeds toward
investment in property, plant and equipment that would comprise "Collateral"
secured by
19
Purchaser's security interest pursuant to its security agreement, with any
surplus funds to be applied toward payment of the obligations of the Company to
Purchaser. In the event that Purchaser has properly declared an event of default
with respect to this Agreement or any of the Related Agreements, then all loss
recoveries received by Purchaser upon any such insurance thereafter may be
applied to the obligations of the Company hereunder and under the Related
Agreements, in such order as the Purchaser may determine. Any surplus (following
satisfaction of all Company obligations to Purchaser) shall be paid by Purchaser
to the Company or applied as may be otherwise required by law. Any deficiency
thereon shall be paid by the Company or the Subsidiary, as applicable, to
Purchaser, on demand.
6.9 Intellectual Property.
Each of the Company and each of its Subsidiaries shall maintain in
full force and effect its existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.10 Properties.
Each of the Company and each of its Subsidiaries will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and each of the Company and
each of its Subsidiaries will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could, either individually or in the aggregate, reasonably be
expected tohave a Material Adverse Effect.
6.11 Confidentiality.
The Company agrees that it will not disclose, and will not include in
any public announcement, the name of the Purchaser, unless expressly agreed to
by the Purchaser or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Company may disclose Purchaser's identity and
the terms of this Agreement in its SEC Reports and to its current and
prospective debt and equity financing sources.
6.12 Required Approvals.
For so long as twenty-five percent (25%) of the principal amount of
the Note is outstanding, the Company, without the prior written consent of the
Purchaser, shall not, and shall not permit any of its Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends, other
than dividends paid to the Parent or any of its wholly-owned Subsidiaries, (ii)
issue any preferred stock that is manditorily redeemable prior to February 11,
2009 or (iii) redeem any of its preferred stock or other equity interests;
20
(b) liquidate, dissolve or effect a material reorganization (it being
understood that in no event shall the Company dissolve, liquidate or merge with
any other person or entity (unless the Company is the surviving entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's or any of its
Subsidiaries right to perform the provisions of this Agreement, any Related
Agreement or any of the agreements contemplated hereby or thereby;
(d) except as contemplated pursuant to any strategic acquisitions,
materially alter or change the scope of the business of the Company and its
Subsidiaries taken as a whole;
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of equipment
(not in excess of five percent (5%) of the fair market value of the Company's
and its Subsidiaries' assets) whether secured or unsecured other than (x) the
Company's indebtedness to the Purchaser, (y) indebtedness set forth on Schedule
6.12(e) attached hereto and made a part hereof and any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced, and (z) any debt incurred in
connection with the purchase of assets in the ordinary course of business, or
any refinancings or replacements thereof on terms no less favorable to the
Purchaser than the indebtedness being refinanced or replaced; (ii) cancel any
debt owing to it in excess of $50,000 in the aggregate during any 12 month
period; (iii) assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except the endorsement of negotiable instruments by the Company for deposit or
collection or similar transactions in the ordinary course of business or
guarantees of indebtedness otherwise permitted to be outstanding pursuant to
this clause (e); and
(f) create or acquire any Subsidiary after the date hereof unless (i)
such Subsidiary is a wholly-owned Subsidiary of the Company (other than in
respect of SMEI which shall be at least 80% owned by the Company upon
consummation of the Acquisition), and (ii) such Subsidiary becomes party to the
Master Security Agreement, the Stock Pledge Agreement and the Subsidiary
Guaranty (either by executing a counterpart thereof or an assumption or joinder
agreement in respect thereof) and, to the extent required by the Purchaser,
satisfies each condition of this Agreement and the Related Agreements as if such
Subsidiary were a Subsidiary on the Closing Date.
(g) (i) make investments in, make any loans or advances to, or
transfer assets to, any of the Non-Wholly Owned Subsidiaries or (ii) permit any
Subsidiary to make investments in, make any loans or advances to, or transfer
assets to, any of the Non-Wholly Owned Subsidiaries, other than, in the case of
each of the foregoing clauses (i) and (ii), immaterial investments, loans,
advances and/or asset transfers made in the ordinary course of business.
21
6.13 Reissuance of Securities.
The Company agrees to reissue certificates representing the Securities
without the legends set forth in Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the Securities Act;
or
(b) upon resale subject to an effective registration statement
after such Securities are registered under the Securities
Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 Opinion.
On the Closing Date, the Company will deliver to the Purchaser an
opinion acceptable to the Purchaser from the Company's external legal counsel.
The Company will provide, at the Company's expense, such other legal opinions in
the future as are deemed reasonably necessary by the Purchaser (and acceptable
to the Purchaser) in connection with the conversion of the Note and exercise of
the Warrant.
6.15 Margin Stock.
The Company will not permit any of the proceeds of the Note or the
Warrant to be used directly or indirectly to "purchase" or "carry" "margin
stock" or to repay indebtedness incurred to "purchase" or "carry" "margin stock"
within the respective meanings of each of the quoted terms under Regulation U of
the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.
6.16 Financing Right of First Refusal.
(a) The Company hereby grants to the Purchaser a right of first
refusal to provide any Additional Financing (as defined below) to be issued by
the Company and/or any of its Subsidiaries, subject to the following terms and
conditions. From and after the date hereof, prior to the incurrence of any
additional indebtedness and/or the sale or issuance of any equity interests of
the Company or any of its Subsidiaries (an "Additional Financing"), the Company
and/or any Subsidiary of the Company, as the case may be, shall notify the
Purchaser of its intention to enter into such Additional Financing. In
connection therewith, the Company and/or the applicable Subsidiary thereof shall
submit a fully executed term sheet (a "Proposed Term Sheet") to the Purchaser
setting forth the terms, conditions and pricing of any such Additional Financing
(such financing to be negotiated on "arm's length" terms and the terms thereof
to be negotiated in good faith) proposed to be entered into by the Company
and/or such Subsidiary. The Purchaser shall have the right, but not the
obligation, to deliver its own proposed term sheet (the "Purchaser Term Sheet")
setting forth the terms and conditions upon which Purchaser would be willing to
provide such Additional
22
Financing to the Company and/or such Subsidiary. The Purchaser Term Sheet shall
contain terms no less favorable to the Company and/or such Subsidiary than those
outlined in Proposed Term Sheet. The Purchaser shall deliver such Purchaser Term
Sheet within ten business days of receipt of each such Proposed Term Sheet. If
the provisions of the Purchaser Term Sheet are at least as favorable to the
Company and/or such Subsidiary, as the case may be, as the provisions of the
Proposed Term Sheet, the Company and/or such Subsidiary shall enter into and
consummate the Additional Financing transaction outlined in the Purchaser Term
Sheet.
(b) The Company will not, and will not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of the Purchaser to consummate an Additional Financing
with the Company or any of its Subsidiaries.
6.17 Additional Investment.
The Company agrees that the Purchaser shall have the right (at its
sole option), on or prior to the date which is 120 days following the Closing
Date, to issue an additional note to the Company in an aggregate principal
amount of up to $1,000,000 on the same terms and conditions (including, without
limitation, the same interest rate, Fixed Conversion Price of $0.10 (as such
term is defined in the Note), proportionate warrant coverage (at the same
exercise prices), a proportionate amortization schedule, etc.) set forth in, and
pursuant to substantially similar documentation as, this Agreement and the
Related Agreements.
7. Covenants of the Purchaser.
The Purchaser covenants and agrees with the Company as follows:
7.1 Confidentiality.
The Purchaser agrees that it will not disclose, and will not include
in any public announcement, the name of the Company, unless expressly agreed to
by the Company or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
7.2 Non-Public Information.
The Purchaser agrees not to effect any sales in the shares of the
Company's Common Stock while in possession of material, non-public information
regarding the Company if such sales would violate applicable securities law.
7.3 Limitation on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained in this Agreement,
any Related Agreement, any document, instrument or agreement entered into in
connection with the transactions contemplated hereby or any document, instrument
or agreement entered into in connection with any other transaction entered into
by and between the Purchaser and the Company (and/or subsidiaries or affiliates
of the Company), the Purchaser shall not acquire stock in the Company
(including, without limitation, pursuant to a contract to purchase, by
exercising an option or warrant, by converting any other security or instrument,
by acquiring or exercising any other right to acquire, shares of stock or other
security convertible into shares of stock in the Company, or otherwise, and such
options, warrants, conversion or other rights shall not be exercisable) to the
extent such stock acquisition would cause any interest (including any original
issue discount) payable by the Company to the Purchaser not to qualify as
portfolio interest, within the meaning of Section 881(c)(2) of the Internal
Revenue Code of 1986, as amended (the "Code") by reason of Section 881(c)(3) of
23
the Code, taking into account the constructive ownership rules under Section
871(h)(3)(C) of the Code (the "Stock Acquisition Limitation"). The Stock
Acquisition Limitation shall automatically become null and void without any
notice to Company upon the earlier to occur of either (a) Company's delivery to
Laurus of a Notice of Redemption or (b) an Event of Default under, and as
defined in, the Note, so long as, at the time of the occurrence of an Event of
Default, the average closing price of Company's Common Stock as reported by
Bloomberg, L.P. on the Principal Market for the immediately preceding five (5)
trading days is greater than or equal to 130% of the Fixed Conversion Price at
such time.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification.
The Company agrees to indemnify, hold harmless, reimburse and defend
the Purchaser, each of the Purchaser's officers, directors, agents, affiliates,
control persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which results, arises out of
or is based upon: (i) any misrepresentation by the Company or any of its
Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries
in this Agreement, any other Related Agreement or in any exhibits or schedules
attached hereto or thereto; or (ii) any breach or default in performance by
Company or any of its Subsidiaries of any covenant or undertaking to be
performed by Company or any of its Subsidiaries hereunder, under any other
Related Agreement or any other agreement entered into by the Company and/or any
of its Subsidiaries and Purchaser relating hereto or thereto.
8.2 Purchaser's Indemnification.
Purchaser agrees to indemnify, hold harmless, reimburse and defend the
Company and each of the Company's officers, directors, agents, affiliates,
control persons and principal shareholders, at all times against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which results,
arises out of or is based upon: (i) any misrepresentation by Purchaser or breach
of any warranty by Purchaser in this Agreement or in any exhibits or schedules
attached hereto or any Related Agreement; or (ii) any breach or default in
performance by Purchaser of any covenant or undertaking to be performed by
Purchaser hereunder, or any other agreement entered into by the Company and
Purchaser relating hereto.
8.3 SMEI Acquisition.
Immediately upon consummation of the Acquisition, (x) SMEI shall enter
into an assumption and/or joinder agreement and become party to the Master
Security Agreement, the Stock Pledge Agreement and the Subsidiary Guaranty and
(y) SMEI shall be required to satisfy each condition of this Agreement and the
Related Agreements as if such Subsidiary were a Subsidiary on the Closing Date
(including, without limitation, the issuance of an opinion acceptable to the
Purchaser from the Company's external legal counsel).
24
8.4 Termination of Inactive Subsidiaries.
The Company shall cause the termination of the corporate existence of
each of M3 Acquisition Corp. and SciDyn Corp no later than the 45th day
immediately following the date hereof.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note
Shares are included in an effective registration statement
or are otherwise exempt from registration when sold: (i)
upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary
action (including the issuance of an opinion of counsel
reasonably acceptable to the Purchaser following a request
by the Purchaser) to assure that the Company's transfer
agent shall issue shares of the Company's Common Stock in
the name of the Purchaser (or its nominee) or such other
persons as designated by the Purchaser in accordance with
Section 9.1(b) hereof and in such denominations to be
specified representing the number of Note Shares issuable
upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will
be given to the transfer agent of the Company's Common Stock
and that after the Effectiveness Date (as defined in the
Registration Rights Agreement) the Note Shares issued will
be freely transferable subject to the prospectus delivery
requirements of the Securities Act and the provisions of
this Agreement, and will not contain a legend restricting
the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or
otherwise delivering an executed and completed notice of the
number of shares to be converted to the Company (the "Notice
of Conversion"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a credit to
the account of the Purchaser's prime broker through the DWAC
system (as defined below), representing the Note Shares or
until the Note has been fully satisfied. Each date on which
a Notice of Conversion is telecopied or delivered to the
Company in accordance with the provisions hereof shall be
deemed a "Conversion Date." Pursuant to the terms of the
Notice of Conversion, the Company will issue instructions to
the transfer agent accompanied by an opinion of counsel
within one (1) business day of the date of the delivery to
the Company of the Notice of Conversion and shall cause the
transfer agent to transmit the certificates representing the
Conversion Shares to the Holder by crediting the account of
the Purchaser's prime broker with the Depository Trust
Company ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system within three (3) business days
after receipt by the Company of the Notice of Conversion
(the "Delivery Date").
(c) The Company understands that a delay in the delivery of the
Note Shares in the form required pursuant to Section 9
hereof beyond the Delivery Date could result in economic
loss to the Purchaser. In the event that the Company fails
to direct its transfer agent to deliver the Note Shares to
the Purchaser via the DWAC system within the time frame set
forth in Section 9.1(b) above and the Note Shares are not
delivered to the Purchaser by the Delivery Date, as
compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late
issuance of the Note Shares in the form required pursuant to
Section 9 hereof upon conversion of the Note in the amount
equal to the greater of: (i) $500 per business day after the
Delivery Date; or (ii) the Purchaser's actual damages from
such delayed delivery. Notwithstanding the foregoing, the
Company will not owe the Purchaser any late payments if the
delay in the delivery of the Note Shares beyond the Delivery
Date is solely out of the control of the Company and the
Company is actively trying to cure the cause of the delay.
The Company shall pay any payments incurred under this
Section in immediately available funds upon demand and, in
the case of actual damages, accompanied by reasonable
documentation of the amount of such damages. Such
documentation shall show the number of shares of Common
25
Stock the Purchaser is forced to purchase (in an open market
transaction) which the Purchaser anticipated receiving upon
such conversion, and shall be calculated as the amount by
which (A) the Purchaser's total purchase price (including
customary brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate
principal and/or interest amount of the Note, for which such
Conversion Notice was not timely honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
26
10.2 Offering Restrictions.
Except as previously disclosed in the SEC Reports or in the Exchange
Act Filings, or stock or stock options granted to employees or directors of the
Company (these exceptions hereinafter referred to as the "Excepted Issuances"),
neither the Company nor any of its Subsidiaries will, prior to the full
repayment or conversion of the Note (together with all accrued and unpaid
interest and fees related thereto), (x) enter into any equity line of credit
agreement or similar agreement or (y) issue, or enter into any agreement to
issue, any securities with a variable/floating conversion and/or pricing feature
which are or could be (by conversion or registration) free-trading securities
(i.e. common stock subject to a registration statement) (the "Exclusion
Period").
11. Miscellaneous.
11.1 Governing Law.
THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST
THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH
RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN
THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
11.2 Survival.
The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Purchaser and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
11.3 Successors.
27
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, heirs,
executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Securities from time to time, other than the holders of Common Stock which has
been sold by the Purchaser pursuant to Rule 144 or an effective registration
statement. Purchaser may not assign its rights hereunder to a competitor of the
Company.
11.4 Entire Agreement.
This Agreement, the Related Agreements, the exhibits and schedules
hereto and thereto and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
11.5 Severability.
In case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the
written consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the
written consent of the Company.
11.7 Delays or Omissions.
It is agreed that no delay or omission to exercise any right, power or
remedy accruing to any party, upon any breach, default or noncompliance by
another party under this Agreement or the Related Agreements, shall impair any
such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. All remedies,
either under this Agreement or the Related Agreements, by law or otherwise
afforded to any party, shall be cumulative and not alternative.
11.8 Notices.
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given:
28
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next
business day;
(c) three (3) business days after having been sent by registered
or certified mail, return receipt requested, postage
prepaid; or
(d) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with
written verification of receipt.
All communications shall be sent as follows:
If to the Company, to: Science Dynamics Corporation
7150 N. Park Drive, Suite 500
Pennsauken, NJ 08109
Attention: Chief Financial Officer
Facsimile: (856) 910-1811
with a copy to:
Sichenzia Ross Friedman Ference LLP
1065 Avenue of theAmericas, 21st Floor
New York, NY 10018
Attention: Gregory Sichenzia, Esq.
Facsimile: (212) 930-9725
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
P.O. Box 309 GT
Ugland House
George Town
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 345-949-8080
with a copy to:
John E. Tucker, Esq.
825 Third Avenue 14th Floor
New York, NY 10022
Facsimile: 212-541-4434
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
29
11.9 Attorneys' Fees.
In the event that any suit or action is instituted to enforce any
provision in this Agreement, the prevailing party in such dispute shall be
entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
11.10 Titles and Subtitles.
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
11.11 Facsimile Signatures; Counterparts.
This Agreement may be executed by facsimile signatures and in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
11.12 Broker's Fees.
Except as set forth on Schedule 11.12 hereof, each party hereto
represents and warrants that no agent, broker, investment banker, person or firm
acting on behalf of or under the authority of such party hereto is or will be
entitled to any broker's or finder's fee or any other commission directly or
indirectly in connection with the transactions contemplated herein. Each party
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this
Section 11.12 being untrue.
11.13 Construction.
Each party acknowledges that its legal counsel participated in the
preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.
[the remainder of this page is intentionally left blank]
30
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
SCIENCE DYNAMICS CORPORATION LAURUS MASTER FUND, LTD.
By: By:
------------------------------- ---------------------------
Name: Name:
------------------------------ ---------------------------
Title: Title:
------------------------------- ---------------------------
31
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
1. Each of the Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The Note Shares and the Warrant Shares, when issued pursuant
to and in accordance with the terms of the Agreement and the Related Agreements
and upon delivery shall be validly issued and outstanding, fully paid and non
assessable.
3. The execution, delivery and performance by each of the Company and each
of its Subsidiaries of the Agreement and the Related Agreements to which it is a
party and the consummation of the transactions on its part contemplated by any
thereof, will not, with or without the giving of notice or the passage of time
or both:
(a) Violate the provisions of their respective Charter or bylaws; or
(b) Violate any judgment, decree, order or award of any court binding
upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is qualified]
or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such person is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries in accordance with their respective
terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any preemptive rights or,
C-1
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, 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 and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any of the Related Agreements, or to consummate
the transactions contemplated thereby. To such counsel's knowledge, the Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement and the Stock
Pledge Agreement create a valid security interest in favor of Laurus, in the
respective rights, title and interests of the Company and its Subsidiaries in
and to the Collateral (as defined in each of the Master Security Agreement and
the Stock Pledge Agreement). Each UCC-1 Financing Statement naming the Company
or any Subsidiary thereof as debtor and Laurus as secured party are in proper
form for filing and assuming that such UCC-1 Financing Statements have been
filed with the Secretary of State of Delaware, the security interest created
under the Master Security Agreement will constitute a perfected security
interest under the Uniform Commercial Code in favor of Laurus in respect of the
Collateral that can be perfected by filing a financing statement. After giving
effect to the delivery to Laurus of the stock certificates representing the
ownership interests of each Subsidiary of the Company (together with effective
endorsements) and assuming the continued possession by Laurus of such stock
certificates in the State of New York, the security interest created in favor of
Laurus under the Stock Pledge Agreement constitutes a valid and enforceable
first perfected security interest in such ownership interests (and the proceeds
thereof) in favor of Laurus, subject to no other security interest. No filings,
registrations or recordings are required in order to perfect (or maintain the
perfection or priority of) the security interest created under the Stock Pledge
Agreement in respect of such ownership interests. .
C-2
EXHIBIT D
FORM OF ESCROW AGREEMENT
D-3