EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
SSP SOLUTIONS, INC.
AND
THE INVESTORS LISTED ON EXHIBIT A HERETO
DATED AS OF NOVEMBER 19, 2003
TABLE OF CONTENTS
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1. DEFINITIONS............................................................................................1
2. PURCHASE AND SALE OF COMPANY SECURITIES................................................................1
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................................2
3.1 Organization and Qualification................................................................2
3.2 Authorization; Enforcement; Validity..........................................................2
3.3 Capitalization................................................................................2
3.4 Issuance of Securities........................................................................3
3.5 No Conflicts..................................................................................3
3.6 SEC Documents; Financial Statements...........................................................4
3.7 Absence of Certain Changes....................................................................4
3.8 Absence of Litigation.........................................................................5
3.9 No Undisclosed Events, Liabilities, Developments or Circumstances.............................5
3.10 No General Solicitation.......................................................................5
3.11 Employee Relations............................................................................5
3.12 Intellectual Property Rights..................................................................6
3.13 Environmental Laws............................................................................6
3.14 Title.........................................................................................6
3.15 Insurance.....................................................................................6
3.16 Regulatory Permits............................................................................7
3.17 Internal Accounting Controls..................................................................7
3.18 Tax Status....................................................................................7
3.19 Transactions With Affiliates..................................................................7
3.20 Rights Agreement..............................................................................8
3.21 Foreign Corrupt Practices.....................................................................8
3.22 No Undisclosed Liabilities....................................................................8
3.23 Investment Company Act Status.................................................................8
3.24 No Integrated Offering........................................................................8
3.25 Ownership By Certain Stockholders.............................................................8
3.26 Disclosure....................................................................................9
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3.27 S-3 Eligibility...............................................................................9
3.28 Significant Shareholders......................................................................9
3.29 Key Employees. ...............................................................................9
3.30 Listing.......................................................................................9
3.31 Anti-Takeover Provisions......................................................................9
3.32 Acknowledgement Regarding Each Investor's Purchase of the Securities.........................10
3.33 ACKNOWLEDGEMENT REGARDING SECURITIES.........................................................10
3.34 Legal Compliance.............................................................................10
3.35 Variable Securities..........................................................................10
4. INVESTORS' REPRESENTATIONS AND WARRANTIES.............................................................11
4.1 Investment Purpose...........................................................................11
4.2 Accredited Investor Status...................................................................11
4.3 Reliance on Exemptions.......................................................................11
4.4 Information..................................................................................11
4.5 No Governmental Review.......................................................................11
4.6 Transfer or Resale...........................................................................12
4.7 Legends......................................................................................12
4.8 Authorization; Enforcement; Validity.........................................................13
4.9 Residency....................................................................................13
4.10 Representations and Warranties Effective as of Closing Date..................................13
5. INTENTIONALLY DELETED.................................................................................13
6. COVENANTS.............................................................................................13
6.1 Payments with Respect to the Preferred Shares................................................13
6.2 Notice of Default or Litigation..............................................................13
6.3 Books, Records and Inspections...............................................................13
6.4 Taxes........................................................................................14
6.5 Covenants Concerning Intellectual Property and Company Identity..............................14
6.6 Form D and Blue Sky..........................................................................14
6.7 Reporting Status.............................................................................14
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6.8 Reservation of Shares........................................................................14
6.9 Listing......................................................................................14
6.10 Expenses.....................................................................................15
6.11 Filing of Form 8-K...........................................................................15
6.12 Stockholder Approval; Proxy Statement........................................................15
6.13 Chief Operating Officer......................................................................16
6.14 Investors' Covenants.........................................................................16
6.15 Independent Nature of Investors. ............................................................16
7. DEFAULTS AND REMEDIES.................................................................................17
7.1 Events of Default............................................................................17
7.2 Remedies. ...................................................................................18
7.3 Waiver of Past Defaults......................................................................18
8. INTENTIONALLY DELETED.................................................................................18
9. CLOSING...............................................................................................18
10. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL........................................................18
10.1 Execution of Transaction Documents...........................................................18
10.2 Payment of Purchase Price....................................................................18
10.3 Representations and Warranties True; Covenants Performed.....................................19
10.4 No Legal Prohibition.........................................................................19
10.5 Investor Notes. .............................................................................19
11. CONDITIONS TO EACH INVESTOR'S OBLIGATIONS TO PURCHASE.................................................19
11.1 Execution of Transaction Documents...........................................................19
11.2 Delivery of Securities. .....................................................................19
11.3 Listing. ....................................................................................19
11.4 Representations and Warranties True; Covenants Performed. ...................................19
11.5 No Legal Prohibition. .......................................................................20
11.6 Legal Opinion................................................................................20
11.7 Corporate Approvals..........................................................................20
11.8 Investor Notes...............................................................................20
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12. MISCELLANEOUS.........................................................................................20
12.1 Consent to Amendments........................................................................20
12.2 Form, Registration, Transfer and Exchange of Certificates; Lost Certificates.................20
12.3 Entire Agreement.............................................................................20
12.4 Severability.................................................................................21
12.5 Successors and Assigns.......................................................................21
12.6 Notices......................................................................................21
12.7 Accounting Terms.............................................................................21
12.8 Descriptive Headings.........................................................................22
12.9 Exhibits and Disclosure Schedules............................................................22
12.10 Counterparts.................................................................................22
12.11 Survival.....................................................................................22
12.12 Remedies.....................................................................................22
12.13 Governing Law and Choice of Forum............................................................22
12.14 Indemnification..............................................................................22
12.15 Representation by Counsel....................................................................23
12.16 WAIVER OF JURY TRIAL.........................................................................23
EXHIBITS
Exhibit A.........Names, Addresses, Contact Information and Purchase Amounts for Investors
Exhibit B.........List and Description of Promissory Notes
Exhibit C.........Certain Definitions
Exhibit D.........Form of Escrow Agreement
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is entered into
as of November 19, 2003 by and among the investor(s) listed on EXHIBIT A hereto
("INVESTORS"), and SSP Solutions, Inc., a Delaware corporation (the "COMPANY").
RECITALS
A. The Company desires to issue and sell to the Investors, and the
Investors desire to purchase, on the terms and conditions set forth herein, (i)
an aggregate of up to 2,150 shares of Series A Preferred Stock of the Company,
par value $0.01 per share (the "PREFERRED SHARES"); (ii) Series A-1 Warrants to
Purchase Common Stock in the aggregate amount of up to 5,375,000 shares of the
Company's Common Stock; and (iii) Series A-2 Warrants to Purchase Common Stock
in the aggregate amount of 5,375,000 shares of the Company's Common Stock (such
warrants described in this clause (iii) and the preceding clause (ii) as they
may be amended, modified, restated, supplemented or extended, are collectively
referred to herein as the "WARRANTS").
C. Each of the Investors is purchasing the Preferred Shares and
Warrants set forth opposite his or its respective name on EXHIBIT A by delivery
at the Closing (as defined in SECTION 9) of (i) immediately available funds in
the amount set forth opposite his or its name on EXHIBIT A and (ii) if
applicable, certain of their Promissory Notes for cancellation.
AGREEMENT
In consideration of the mutual covenants and agreements set forth
herein, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
For the purpose of this Agreement capitalized terms not otherwise
defined herein have the meanings set forth in EXHIBIT C.
2. PURCHASE AND SALE OF COMPANY SECURITIES.
Subject to the terms and conditions contained herein, and in reliance
upon the representations, warranties and agreements contained herein, the
Company shall issue and sell to the Investors, and the Investors shall purchase,
the Securities on the Closing Date (as defined in SECTION 9). The purchase price
being paid by the Investors shall be $7,000 per unit of (i) one Preferred Share,
(ii) A-1 Warrant(s) to purchase 2,500 Common Shares and (iii) A-2 Warrant(s) to
purchase 2,500 Common Shares, or an aggregate of up to $15,000,000 ("PURCHASE
PRICE"). Simultaneously with the execution of this Agreement, the Company and
the Escrow Agent shall execute the Escrow Agreement, and each of the Investors
shall deliver to the Escrow Agent (i) immediately available funds equal to the
"cash consideration" amount set forth opposite their respective names on EXHIBIT
A and (ii) if applicable, their original Promissory Notes for cancellation as
described on EXHIBIT B. Prior to the Closing, the Company shall deliver to the
Escrow Agent (i) certificates representing the Preferred Shares and Warrants
purchased by the Investors hereunder, as set forth on EXHIBIT A and (ii) fully
executed Retained Notes as described on EXHIBIT B. On the Closing Date, and upon
satisfaction of all Closing conditions set forth in this Agreement, the Escrow
Agent shall release (i) to the Company the cash and original Promissory Notes
tendered as consideration for the Preferred Shares and Warrants, and (ii) to the
Investors the certificates representing the Preferred Shares, the Warrants and
the Retained Notes.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Investors that:
3.1 ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authorization to own its properties and to
carry on its businesses as now being conducted or as is proposed to be
conducted. The Company and each of its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
or proposed to be conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. The Company has no Subsidiaries except as set
forth on SCHEDULE 3.1.
3.2 AUTHORIZATION; ENFORCEMENT; VALIDITY. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants, the Escrow Agreement, the Registration Rights
Agreement and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby, including without limitation the issuance of the Warrants
and the reservation for issuance and the issuance of the Conversion Shares
issuable upon conversion of the Preferred Shares and the Warrant Shares issuable
upon exercise of the Warrants have been duly authorized by the Company's Board
of Directors and, except for the approval of the stockholders of the Company as
contemplated by SECTION 6.12, no further consent or authorization is required by
the Company, its Board of Directors or its stockholders. The Transaction
Documents have been duly executed and delivered by the Company. The Transaction
Documents constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
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3.3 CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of (i) 100,000,000 shares of Common Stock and (ii)
5,000,000 shares of Preferred Stock, of which as of the date hereof, no shares
are issued and outstanding. There is disclosed on Schedule 3.3 the number of
shares of Common Stock (x) issued and outstanding, (y) reserved for issuance
pursuant to the Company's stock option and purchase plans and (z) issuable and
reserved for issuance pursuant to securities (other than the Preferred Shares
and the Warrants) exercisable or exchangeable for, or convertible into, shares
of Common Stock. All of such outstanding or issuable shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in SCHEDULE 3.3, (A) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances granted or created by the Company; (B) there are no outstanding
debt securities issued by the Company; (C) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (D) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the Securities Act (except this
Agreement); (E) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (F) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement; and (G) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement.
3.4 ISSUANCE OF SECURITIES. Upon conversion or exercise of the
Preferred Shares or the Warrants, as the case may be, the Conversion Shares and
the Warrant Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
number of shares of Common Stock that have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares and upon exercise of the
Warrants and upon payment of interest due under the Retained Notes is set forth
on SCHEDULE 3.4. The issuance by the Company of the Securities is exempt from
registration under the Securities Act.
3.5 NO CONFLICTS. Except as disclosed in SCHEDULE 3.5, the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby (including,
without limitation, the reservation for issuance and issuance of the Conversion
Shares and the Warrant Shares) will not (i) result in a violation of the
Company's Certificate of Incorporation or the Bylaws; (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party; (iii)
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result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in SCHEDULE 3.5, neither
the Company nor any of its Subsidiaries is in violation of any term of its
Certificate of Incorporation or Bylaws or their organizational charter or
bylaws, respectively. Except as disclosed in SCHEDULE 3.5, neither the Company
nor any of its Subsidiaries is in violation or any term of or in default under
any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries. The business of the Company and its Subsidiaries is
not being conducted, and shall not be conducted, in violation of any law,
ordinance or regulation of any governmental entity, except where such violation
would not have a Material Adverse Effect. Except as specifically contemplated by
this Agreement and as required under the Securities Act, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof. Except as disclosed in SCHEDULE 3.5, all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain as described in the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its Subsidiaries are
unaware of any facts or circumstances that might give rise to any of the
foregoing. The Company is not in violation of the listing requirements of the
Principal Market and has no actual knowledge of any facts or any reason to
believe that facts exist that would reasonably lead to delisting or suspension
of the Common Stock by the Principal Market in the foreseeable future.
3.6 SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 2001,
except as set forth on SCHEDULE 3.6, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed prior to the date hereof (including all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein) being hereinafter referred to as the "SEC
DOCUMENTS"). A complete and accurate list of the SEC Documents that have been
filed by the Company on EDGAR is set forth on SCHEDULE 3.6. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents. None of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
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operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Neither the Company
nor any of its Subsidiaries or any of their officers, directors, employees or
agents have provided the Investors with any material, nonpublic information.
3.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 3.7,
since December 31, 2002, there has been no material adverse change and no
material adverse development in the business, properties, assets, operations,
results of operations, financial conditions or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
Except as disclosed in SCHEDULE 3.7, since December 31, 2002, the Company has
not declared or paid any dividends, sold any assets, individually or in the
aggregate, in excess of $100,000 outside of the ordinary course of business or
had capital expenditures, individually or in the aggregate, in excess of
$100,000.
3.8 ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company
or any of its Subsidiaries or any of the Company's or any Subsidiary's officers
or directors in their capacities as such, except as expressly set forth in
SCHEDULE 3.8. Except as set forth in SCHEDULE 3.8, to the knowledge of the
Company none of the directors or officers of the Company have been involved in
securities related litigation during the past five years.
3.9 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
Except for the issuance of the Preferred Shares and Warrants contemplated by
this Agreement and as set forth on SCHEDULE 3.9, no event, liability,
development or circumstance has occurred or exists, or is contemplated to occur,
with respect to the Company or its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a
registration statement on Form S-1 filed with the SEC relating to an issuance
and sale by the Company of its Common Stock and which has not been publicly
disclosed.
3.10 NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities.
3.11 EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
such employee's relationship with the Company or its Subsidiaries, neither the
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Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relations
with their employees are good. No executive officer (as defined in Rule 501(f)
of the Securities Act) has notified the Company that he intends to leave the
Company or otherwise terminate his employment with the Company. No executive
officer, to the best knowledge of the Company and its Subsidiaries, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
3.12 INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted or as proposed to be
conducted in the future. Except as set forth on SCHEDULE 3.12, none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, governmental authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, trade secrets or other intellectual property rights of others, or of
any development of similar or identical trade secrets or technical information
by others and, except as set forth on SCHEDULE 3.12, there is no claim, action
or proceeding being made or brought against, or to the Company's knowledge,
being threatened against, the Company or its Subsidiaries regarding its
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, trade secrets,
or infringement of other intellectual property rights; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties consistent with industry practices used by comparable
companies. SCHEDULE 3.12 contains a complete list of all patents and trademarks
for which the Company has sought intellectual property protection with the
Patent and Trademark Office.
3.13 ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
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3.14 TITLE. The Company and its Subsidiaries have good title to all
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in SCHEDULE 3.14 or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and any of its Subsidiaries.
Any real property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and facilities by the Company and its
Subsidiaries.
3.15 INSURANCE. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company reasonably believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and, except as set forth in
SCHEDULE 3.15, neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
3.16 REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
3.17 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
3.18 TAX STATUS. The Company and each of its Subsidiaries (i) has made
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes), (ii) has paid all taxes and other governmental assessments
and charges shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and for which the
Company has made appropriate reserves for on its books, and (iii) has set aside
on its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
(referred to in clause (i) above) apply. There are no unpaid taxes in any
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material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.
3.19 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
3.19, and other than the grant of stock options disclosed on SCHEDULE 3.3, none
of the officers, directors, or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
3.20 RIGHTS AGREEMENT. The Company has not adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
3.21 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
3.22 NO UNDISCLOSED LIABILITIES. The Company has no liabilities or
obligations of any nature, whether accrued, absolute, contingent, unliquidated
or otherwise, except those disclosed or described in the SEC Documents,
including the financial statements and notes thereto included in the SEC
Documents, and those liabilities and obligations incurred since the last day
covered by the financial statements included in the most recently filed SEC
Document listed on SCHEDULE 3.6.
3.23 INVESTMENT COMPANY ACT STATUS. Neither the Company nor any of the
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" as those terms are defined in the Investment Company Act of
1940, as amended.
3.24 NO INTEGRATED OFFERING. Except as set forth on SCHEDULE 3.24,
neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of any of the Securities under the Securities Act or
cause this offering of the Securities to be integrated with prior offerings by
the Company for purposes of the Securities Act or any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
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securities of the Company are listed or designated, nor will the Company or any
of its Subsidiaries take any action or steps that would require registration of
any of the Securities under the Securities Act or cause the offering of the
Securities to be integrated with other offerings.
3.25 OWNERSHIP BY CERTAIN STOCKHOLDERS. Marvin Winkler is the current
Chairman and Chief Executive Officer of the Company. Kris Shah is the current
President, Chief Operating Officer and Secretary of the Company. Thomas E.
Schiff is the current Executive Vice President and Chief Financial Officer of
the Company. Ramesh Shah and Dilip Shah are brothers of Kris Shah and part of
the management of the Company. Harris Toibb and Richard Kiphart are stockholders
who have agreed in writing to vote in favor of the Transactions. Kris Shah,
Marvin Winkler, Thomas E. Schiff, Ramesh Shah, Dilip Shah, Harris Toibb and
Richard Kiphart owned or controlled the voting rights to at least 50.1% of the
voting securities of the Company that are issued and outstanding as of the
record date for the Company Stockholder Meeting (as defined in Section 6.13(a)).
3.26 DISCLOSURE. This Agreement (including the schedules and exhibits
hereto) does not contain any untrue statement of any material fact or omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they were made, not
misleading. To the Company's knowledge, there are no facts that, individually or
in the aggregate, would have a Material Adverse Effect that have not been set
forth in this Agreement (including the schedules attached hereto).
3.27 S-3 ELIGIBILITY. The Company is, and during all relevant periods
under the Registration Rights Agreement, will be, eligible to register the
Registrable Securities on SEC Form S-3.
3.28 SIGNIFICANT SHAREHOLDERS. Set forth on SCHEDULE 3.28 is a list of
stockholders each of whom is the record owner of 100,000 or more shares of the
Company's Common Stock.
3.29 KEY EMPLOYEES. Each of the Company's directors and officers and
any Key Employee (as defined below) is currently serving the Company in the
capacity disclosed in the SEC Documents. No Key Employee is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its Subsidiaries to any material liability with respect to any
of the foregoing matters. No Key Employee has, to the knowledge of the Company
and its Subsidiaries, any intention to terminate or limit his employment with,
or services to, the Company or any of its Subsidiaries, nor is any such Key
Employee subject to any constraints which would cause such employee to be unable
to devote his full time and attention to such employment or services. For
purposes of this Agreement, "KEY EMPLOYEE" means the persons listed in SCHEDULE
3.29 and any individual who assumes or performs any of the duties of a Key
Employee.
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3.30 LISTING. The Common Stock is currently listed for trading on the
Nasdaq National Market (the "NATIONAL MARKET"). The Company is not in violation
of the listing requirements of the National Market, does not reasonably
anticipate that the Common Stock will be delisted by the National Market for the
foreseeable future, and, except as set forth in SCHEDULE 3.30, had not received
during 2003 any notice regarding the possible delisting of the Common Shares
from the National Market. The Company shall secure the listing of the Conversion
Shares and Warrant Shares on the National Market and on each other national
securities exchange, automated quotation system or over-the-counter market upon
which shares of Common Stock are currently listed (subject to official notice of
issuance).
3.31 ANTI-TAKEOVER PROVISIONS. The Company and its board of directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under its Certificate of Incorporation or Bylaws which is or could become
applicable to any Investor as a result of the transactions contemplated by this
Agreement and the other Transaction Documents (the "TRANSACTIONS"), including,
without limitation, the Company's issuance of the Securities or any other
securities pursuant to the terms of this Agreement and any and all Investors'
ownership of the Securities or any such other securities.
3.32 ACKNOWLEDGEMENT REGARDING EACH INVESTOR'S PURCHASE OF THE
SECURITIES. The Company acknowledges and agrees that each Investor is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the other Transaction Documents and the Transactions, and that no
Investor is (i) an officer or director of the Company, (ii) an "affiliate" of
the Company (as defined in Rule 144 under the Securities Act (including any
successor rule, "RULE 144")) or (iii) to the actual knowledge of the Company
(without any inquiry of the Investors), except as set forth on SCHEDULE 3.32, a
"beneficial owner" of more than 5% of the Common Stock (as defined for purposes
of Rule 13d-3 of the Exchange Act). The Company further acknowledges that no
Investor is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement or the other Transaction
Documents and the Transactions, and any advice given by an Investor or any of
its representatives or agents in connection with this Agreement or the other
Transaction Documents and the Transactions is merely incidental to such
Investor's purchase of the Securities. The Company further represents to each
Investor that the Company's decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
3.33 ACKNOWLEDGEMENT REGARDING SECURITIES. THE NUMBER OF CONVERSION
SHARES AND THE NUMBER OF WARRANT SHARES ISSUABLE UPON EXERCISE OF THE WARRANT
MAY INCREASE IN CERTAIN CIRCUMSTANCES. THE COMPANY'S DIRECTORS AND EXECUTIVE
OFFICERS HAVE STUDIED AND FULLY UNDERSTAND THE NATURE OF THE SECURITIES BEING
SOLD HEREUNDER. THE COMPANY ACKNOWLEDGES THAT ITS OBLIGATION TO ISSUE CONVERSION
SHARES UPON CONVERSION OF THE PREFERRED SHARES IN ACCORDANCE WITH THE TERMS
THEREOF AND THE WARRANT SHARES UPON THE EXERCISE OF THE WARRANTS IN ACCORDANCE
WITH THE TERMS THEREOF IS ABSOLUTE AND UNCONDITIONAL, REGARDLESS OF THE DILUTION
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THAT SUCH ISSUANCE MAY HAVE ON THE OWNERSHIP INTERESTS OF OTHER STOCKHOLDERS AND
THE AVAILABILITY OF REMEDIES PROVIDED FOR IN ANY OF THE TRANSACTION DOCUMENTS
RELATING TO A FAILURE OR REFUSAL TO ISSUE CONVERSION SHARES OR WARRANT SHARES.
TAKING THE FOREGOING INTO ACCOUNT, THE COMPANY'S BOARD OF DIRECTORS HAS
DETERMINED IN ITS GOOD FAITH BUSINESS JUDGMENT THAT THE ISSUANCE OF THE
PREFERRED SHARES AND THE WARRANTS HEREUNDER AND THE CONSUMMATION OF THE OTHER
TRANSACTIONS ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS.
3.34 LEGAL COMPLIANCE. The Company shall conduct its business in
compliance with all laws, ordinances or regulations of governmental entities
applicable to such businesses, except where the failure to do so would not have
a Material Adverse Effect.
3.35 VARIABLE SECURITIES. So long as any Investor (or any of their
respective affiliates) beneficially owns any Securities, the Company shall not,
without first obtaining the written approval of the holders of a majority of the
aggregate face value of the Retained Notes and a majority of the holders of the
Preferred Stock then outstanding (which approval may be given or withheld by
such holders in their sole discretion), issue or sell any rights, warrants or
options to subscribe for or purchase Common Stock, or any other securities
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock, at an effective conversion, exchange or exercise price that varies
or may vary with the market price of the Common Stock, including by way of one
or more reset(s) to any fixed price.
4. INVESTORS' REPRESENTATIONS AND WARRANTIES.
Each Investor represents and warrants, with respect to only such
Investor, that:
4.1 INVESTMENT PURPOSE. The Investor (i) is acquiring the Preferred
Shares and the Warrants, (ii) upon conversion of the Preferred Shares, will
acquire the Conversion Shares then issuable, and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof for
such Investor's own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the Securities Act. Except as set forth on
SCHEDULE 4.1, (x) from April 1, 2003 through the date hereof, the Investor has
not purchased, sold or "sold short" any securities of the Company or (y) on the
date hereof, the Investor does not, and as of the Closing Date will not, have
any "short" position in the Company's securities. Each of Crestview Capital
Fund, L.P. and Crestview Capital Fund II, L.P. represents and warrants that from
April 1, 2003 through the date hereof, it has not purchased, sold or "sold
short" any securities of the Company, except as set forth on SCHEDULE 4.1.
4.2 ACCREDITED INVESTOR STATUS. The Investor is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
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4.3 RELIANCE ON EXEMPTIONS. The Investor understands that the
Securities are being offered and sold to the Investor in reliance on specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying in part upon the truth and
accuracy of, and the Investor's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Investor set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Investor to acquire the Securities.
4.4 INFORMATION. The Investor and the Investor's advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company, including, without limitation, the information
required to be delivered to the Investors under Rule 502(b)(2) of Regulation D
as promulgated under the Securities Act, and any other materials relating to the
offer and sale of the Securities that have been requested by the Investor. The
Investor and such Investor's advisors, if any, have been afforded the
opportunity to ask questions of the Company. The Investor understands that the
Investor's investment in the Securities involves a high degree of risk. The
Investor has sought such accounting, legal and tax advice as the Investor has
considered necessary to make an informed investment decision with respect to the
Investor's acquisition of the Securities.
4.5 NO GOVERNMENTAL REVIEW. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
4.6 TRANSFER OR RESALE. The Investor understands that, except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the Securities Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) the Investor delivers to the Company an
opinion of counsel, in a generally acceptable form, to the effect that the
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) the Investor
provides the Company with reasonable assurance that the Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the Securities
Act, as amended, (or a successor rule thereto) ("RULE 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the SEC thereunder; and
except as provided in this Agreement (iii) neither the Company nor any other
person is under any obligation to register the Preferred Shares or Warrants
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder. Notwithstanding the foregoing,
the Securities may be pledged in connection with a bona fide margin account or
other loan or financing arrangement secured by the Securities.
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4.7 LEGENDS. The Investor understands that the certificates or other
instruments representing the Preferred Shares and the Warrants and, until such
time as the sale of the Registrable Securities has been registered under the
Securities Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Registrable Securities, except as set forth below,
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
UNLESS SOLD PURSUANT TO RULE 144 UNDER THAT ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Registrable Securities upon
which it is stamped, if, unless otherwise required by state securities laws, (i)
the Registrable Securities are registered for resale under the Securities Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of the Registrable Securities may be made
without registration under the Securities Act, or (iii) such holder provides the
Company with reasonable assurances that the Registrable Securities can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold.
4.8 AUTHORIZATION; ENFORCEMENT; VALIDITY. This Agreement has been duly
and validly authorized, executed and delivered on behalf of the Investor and is
a valid and binding agreement of the Investor enforceable against the Investor
in accordance with its terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
4.9 RESIDENCY. The Investor is a resident of that jurisdiction
specified in its address on EXHIBIT A.
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4.10 REPRESENTATIONS AND WARRANTIES EFFECTIVE AS OF CLOSING DATE. The
representations and warranties of each Investor set forth in this SECTION 4 will
be true, correct and complete on the Closing Date as if made as of that date.
5. INTENTIONALLY DELETED
6. COVENANTS.
The Company covenants and agrees as set forth in SECTIONS 6.1 THROUGH
6.13. The Investors covenant and agree as set forth in SECTION 6.14. The Company
and the Investors mutually covenant and agree as set forth in SECTION 6.15.
6.1 PAYMENTS WITH RESPECT TO THE PREFERRED SHARES. The Company shall
make all dividend and other payments due pursuant to the terms of the Preferred
Shares on the dates and in the manner provided in the Certificate of
Designation.
6.2 NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event within
one Business Day, after an officer of the Company obtains knowledge thereof, the
Company shall deliver to the Investors notice of (i) the occurrence of any
event, act or condition which constitutes a Default or Event of Default, (ii)
any litigation or governmental proceeding pending against the Company and (iii)
any other event which is likely to have a Material Adverse Effect. Each such
notice shall specify in reasonable detail the nature of the event, act,
condition, Default, Event of Default or proceeding and what action the Company
is taking or proposes to take with respect thereto.
6.3 BOOKS, RECORDS AND INSPECTIONS. The Company shall keep proper books
of record and account in which full, true and correct entries in conformity with
all requirements of law and with GAAP (except that all interim information shall
be subject to normal year-end adjustments) shall be made of all dealings and
transactions in relation to its business and activities. The Company shall
permit designated agents of the Investors to visit and inspect any of the
properties of the Company, and to examine the books of account and records of
the Company and make copies thereof, and discuss the affairs, finances and
accounts of the Company with, and be advised as to the same by, its officers and
independent accountants, all during the Company's normal business hours, upon
prior notice and to such extent as the Investors may request.
6.4 TAXES. The Company shall pay when due all Taxes, except as
contested in good faith and by appropriate proceedings if adequate reserves have
been established with respect thereto.
6.5 COVENANTS CONCERNING INTELLECTUAL PROPERTY AND COMPANY IDENTITY.
For so long as any of the Preferred Shares remain outstanding:
6.5.1 INTELLECTUAL PROPERTY. Neither the Company nor any
Subsidiary shall, without the prior written consent of the Investors holding a
majority of the outstanding Preferred Shares, create or allow to exist, any
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lien, encumbrance or other security interest in any intellectual property of the
Company, except for rights of the U.S. government and certain prime contractors
pursuant to government contracts.
6.5.2 CORPORATE IDENTITY. Neither the Company nor any
Subsidiary shall change its name, identity, state of incorporation or corporate
structure in any manner unless it shall have given the Investors at least 30
days' prior written notice thereof.
6.6 FORM D AND BLUE SKY. The Company agrees to file, at its expense, a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to the Investors and their counsel promptly after the
filing. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Investors pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States, and shall
provide evidence of any such action so taken to the Investors. The Company, at
its expense, shall make all filings and reports relating to the offer and sale
of the Securities required under applicable securities or "Blue Sky" laws of the
states of the United States.
6.7 REPORTING STATUS. Until the date as of which the Investors may sell
all of the Registrable Securities without restriction pursuant to Rule 144(k)
promulgated under the Securities Act (or successor thereto), the Company shall
timely file all reports required to be filed with the SEC pursuant to the
Exchange Act and with any Principal Market, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would otherwise permit
termination.
6.8 RESERVATION OF SHARES. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, the
number of shares of Common Stock needed to provide for the issuance of the
shares of Common Stock upon (i) conversion of all Preferred Shares and (ii)
exercise of all outstanding Warrants.
6.9 LISTING. The Company shall promptly secure the listing of all of
the Registrable Securities upon each national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on The Nasdaq National Market or The Nasdaq SmallCap Market or listed
on The New York Stock Exchange, Inc. or The American Stock Exchange, Inc. (as
applicable, the "PRINCIPAL MARKET"). Neither the Company nor any of its
Subsidiaries shall take any action that would be reasonably expected to result
in the delisting or suspension of the Common Stock from the Principal Market,
and the Company shall use best efforts to continue such listing. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this SECTION 6.8.
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6.10 EXPENSES. The Company shall reimburse the Investors an aggregate
of up to $65,000 for expenses incurred by the Investors in connection with the
Transactions, including, without limitation, expenses incurred to perform a due
diligence investigation of the Company and legal expenses in connection with
drafting and negotiation of the Transaction Documents. Prior to the date hereof,
the Company paid certain of the Investors $25,000 of the $65,000 referred to
above, so the Company shall only be obligated to reimburse the Investors for an
aggregate of up to an additional $40,000 pursuant to this SECTION 6.9. Any
additional reimbursement required to be made hereunder shall be made by the
Company promptly upon presentment by the Investors of evidence satisfactory to
the Company that expenses greater than $25,000 have been incurred by the
Investors for the purposes described above. Crestview I (an affiliate of an
Investor) may withhold payment of $40,000 (or such lesser amount of expenses not
previously reimbursed by the Company as contemplated in this SECTION 6.9) of its
subscription price for the Securities as a set-off of the Company's obligations
not previously satisfied hereunder.
6.11 FILING OF FORM 8-K. On or before the second Business Day following
the Closing Date, the Company shall issue a press release describing the
material terms of the Transactions and shall also file a Current Report on Form
8-K with the SEC describing the terms of the Transactions and including as
exhibits to the Form 8-K this Agreement, the Certificate of Designation, the
Registration Rights Agreement and the form of Warrant, as and to the extent
required by the Exchange Act.
6.12 STOCKHOLDER APPROVAL; PROXY STATEMENT.
(a) The Company shall use its reasonable best efforts to cause
a meeting of its stockholders (the "COMPANY STOCKHOLDER MEETING") to be held on
its currently scheduled date of December 19, 2003, for the purpose of voting on
the approval or ratification of the Transactions. The Company's Board of
Directors shall recommend approval and adoption or ratification of the
Transactions.
(b) In connection with the Company Stockholder Meeting, the
Company (i) not later than 20 days after the Closing Date, shall prepare and
file with the SEC, and use its reasonable best efforts to have cleared by the
SEC and will thereafter mail to its stockholders as promptly as practicable a
proxy statement meeting the requirements of Regulation 14A promulgated under the
Exchange Act (the "PROXY STATEMENT") and all other proxy materials relating to
the Company Stockholder Meeting, which Proxy Statement shall include the
recommendation of the Company's Board of Directors in favor of the Transactions,
(ii) shall ensure that all proxies solicited in connection with the Company
Stockholder Meeting are solicited in compliance with all applicable statutes,
laws and regulations, including the rules and regulations promulgated by the
SEC, and (iii) shall otherwise comply with Applicable Law in connection with the
Transactions. The Company will provide the Investors with a copy of the
preliminary Proxy Statement and all modifications thereto prior to filing or
delivery to the SEC and will consult with the Investors in connection therewith.
The Company will notify the Investors promptly of any receipt of any comments
from the SEC or its staff and of any request by the SEC or its staff for
amendments or supplements to the Proxy Statement or for additional information
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and will supply the Investors with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement. If at any time
after the mailing of the Proxy Statement to the Company's stockholders there
occurs any event that should be set forth in an amendment or supplement to the
Proxy Statement, the Company will promptly prepare and mail to its stockholders
such an amendment or supplement. The Company will not mail any Proxy Statement,
or any amendment or supplement thereto, to which the Investors reasonably
object. The Company covenants that the Proxy Statement, including any amendment
or supplement thereto, shall not contain any untrue statement of a material fact
or omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(c) If the Transactions are not approved at the Company
Stockholder Meeting, each Investor shall, from and after the date of the Company
Stockholder Meeting, have the redemption rights specified in the Certificate of
Designation and any other rights hereunder, at law or in equity.
6.13 CHIEF OPERATING OFFICER. Not later than 120 days after the Closing
Date, the Board of Directors shall duly elect a Chief Operating Officer.
6.14 INVESTORS' COVENANTS. Each Investor hereby covenants and agrees
that (a) he, she or it shall abstain from voting any Registrable Securities he,
she or it may have acquired prior to the record date of the Company Stockholder
Meeting for or against the Transactions to be voted upon at the Company
Stockholder Meeting, and (b) he, she or it shall comply with all prospectus
delivery requirements under applicable law in connection with the Securities as
to which the legend referenced in SECTION 4.7 has been removed, and if a
registration statement covering any such Securities has lapsed, been withdrawn
or is otherwise ineffective, he, she or it shall tender certificates
representing such previously registered Securities held by him, her or it to the
Company (whereupon the Company shall promptly return to such Investors new
certificates for such Securities bearing a legend substantially similar to the
one referenced in SECTION 4.7), it being understood and agreed that the
Investors shall in any case have the right to pursue any remedies they may have
under any applicable law or agreement if such lapse, withdrawal or
ineffectiveness constitutes a breach or violation of the Company's obligations
to one or more Investors.
6.15 INDEPENDENT NATURE OF INVESTORS. The Company acknowledges that the
obligations of each Investor under the Transaction Documents are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under the Transaction Documents. The decision of each Investor to
purchase Securities pursuant to this Agreement has been made by such Investor
independently of any other Investor and independently of any information,
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materials, statements or opinions as to the business, affairs, operation,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiaries which may have
been made or given by any other Investor or by any agent or employee of any
other Investor, and no Investor or any of its agents or employees shall have any
liability to any Investor (or any other person) relating to or arising from any
such information, materials, statements or opinions. The Company further
acknowledges that nothing contained herein, or any Transaction Document, and no
action taken by any Investor pursuant hereto or thereto, including any
renegotiation, amendment, early conversion, exercise or termination, or other
modification to the Transaction Documents or the transactions related thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a "group" for purposes of
Section 13(d) of the 1934 Act with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Investor shall be
entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Investor to
be joined as an additional party in any proceeding for such purpose. For reasons
of administrative convenience only, at the request of the Company, Investors and
their respective counsel have chosen to communicate with the Company through
Levenfeld Pearlstein, counsel for one of the Investors. Such counsel does not
represent any of the other Investors and each other Investor has retained its
own counsel in connection with the negotiation and review of the Transaction
Documents. The Company has elected to provide all Investors with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Investors.
7. DEFAULTS AND REMEDIES.
7.1 EVENTS OF DEFAULT. An "EVENT OF DEFAULT" occurs if:
(a) the Company fails to make any dividend or other payment in
respect of the Preferred Shares when due;
(b) the Company fails to comply with any of the agreements or
covenants contained in, or otherwise breaches, the Certificate of Designation or
any other agreement, covenant or provision contained in the Transaction
Documents and such failure continues for a period of ten days after an officer
of the Company obtains knowledge thereof;
(c) any representation or warranty made by the Company under,
relating to or in connection with this Agreement shall be false or misleading
when made;
(d) the Company, pursuant to or within the meaning of any
Bankruptcy Law, commences a voluntary case or proceeding, consents to the entry
of an order for relief against it in an involuntary case or proceeding, consents
to the appointment of a Custodian of it or for all or substantially all of its
property, makes a general assignment for the benefit of its creditors, or
generally is unable to pay its debts as they become due;
(e) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that is for relief against the Company in an
involuntary case or proceeding, appoints a Custodian of the Company or for all
or substantially all of its property, or orders the liquidation of the Company;
or
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(f) except for liens or security interests described in
clauses (A) through (D) of Article XI.A(ii)(b) of the Certificate of
Designation, the Company or any Subsidiary grants or agrees to grant to any
Person a security interest in any property of the Company or any Subsidiary.
7.2 REMEDIES. If any Default or Event of Default occurs and is
continuing, the Investors may proceed to protect and enforce their rights under
this Agreement or the Certificate of Designation with respect to the Preferred
Shares by exercising such remedies as are available in respect thereof under
this Agreement or under applicable law, either by suit in equity or by action at
law, or both, whether for the collection of the payment of dividends in respect
of the Preferred Shares or to enforce the specific performance of any covenant
or other agreement contained in this Agreement or the Certificate of
Designation. No remedy conferred in this Agreement upon the Investors is
intended to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
7.3 WAIVER OF PAST DEFAULTS. The Investors, by written notice to the
Company, may waive an existing Default or Event of Default and its consequences
with respect to the Preferred Shares; provided, however, that no such waiver
will extend to any subsequent or other Default or Event of Default or impair any
right of the Investors which may arise as a result of the Default or Event of
Default.
8. INTENTIONALLY DELETED.
9. CLOSING.
The closing of the transactions contemplated by this Agreement
("CLOSING") shall occur on November 19, 2003 or such other date as the Company
and the Investors may agree in writing (the "CLOSING DATE").
10. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Preferred
Shares and the Warrants to each Investor hereunder is subject to the
satisfaction, at or before the Closing Date, of each of the following conditions
as to such Investor, provided that such conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion:
10.1 EXECUTION OF TRANSACTION DOCUMENTS. Each Investor shall have
executed such Investor's Execution page to this Agreement and each other
Transaction Document to which such Investor is a party and delivered the same to
the Company.
10.2 PAYMENT OF PURCHASE PRICE. Each Investor shall have delivered to
the Escrow Agent: (i) the full amount of the cash portion of such Investor's
Purchase Price to the Escrow Agent by wire transfer in accordance with the
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Company's written wiring instructions; and (ii) if applicable, such Investor's
original Promissory Note.
10.3 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED. The
representations and warranties of each Investor shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as of such date),
and such Investor shall have performed, satisfied and complied with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Investor at or prior to the Closing Date.
10.4 NO LEGAL PROHIBITION. No statute, rule, regulation, executive
order, decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which restricts or prohibits the consummation of
any of the transactions contemplated by this Agreement.
10.5 INVESTOR NOTES. The aggregate principal amount of the Retained
Notes shall not exceed $2,000,000, and all other Promissory Notes shall have
been tendered to the Escrow Agent in payment of the Purchase Price for
Securities.
11. CONDITIONS TO EACH INVESTOR'S OBLIGATIONS TO PURCHASE.
The obligation of each Investor hereunder to purchase the Preferred
Shares and the Warrants for which it is subscribing from the Company hereunder
is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that such conditions are for each Investor's
individual and sole benefit and may be waived by any Investor as to such
Investor at any time in such Investor's sole discretion:
11.1 EXECUTION OF TRANSACTION DOCUMENTS. The Company shall have
executed this Agreement and each other Transaction Document to which the Company
is a party and delivered executed originals of the same to the Investors.
11.2 DELIVERY OF SECURITIES. The Company shall have delivered to the
Escrow Agent certificates representing the number of Preferred Shares and
Warrants being purchased by each Investor (each in such denominations as such
Investor shall request), registered in such Investor's name.
11.3 LISTING. The Common Stock shall be authorized for quotation and
listed on the National Market and trading in the Common Stock (or on the
National Market generally) shall not have been suspended by the SEC or the
National Market.
11.4 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED. The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
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(except for representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as of such date)
and the Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Investors
shall have received a certificate, executed by the Chief Executive Officer of
the Company after reasonable investigation, dated as of the Closing Date to the
foregoing effect and as to such other matters as may reasonably be requested by
such Investor.
11.5 NO LEGAL PROHIBITION. No statute, rule regulation, executive
order, decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which restricts or prohibits the consummation of
any of the transactions contemplated by this Agreement.
11.6 LEGAL OPINION. Such Investor shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in the form and substance
acceptable to the Investors.
11.7 CORPORATE APPROVALS. Such Investor shall have received a copy of
resolutions, duly adopted by the Board of Directors of the Company, which shall
be in full force and effect at the time of the Closing, authorizing the
execution, delivery and performance by the Company of this Agreement and the
other Transaction Documents and the consummation by the Company of the
Transactions, certified as such by the Secretary or Assistant Secretary of the
Company, and such other documents they reasonably request in connection with the
Closing.
11.8 INVESTOR NOTES. The aggregate principal amount of the Retained
Notes shall not exceed $2,000,000, and all other Promissory Notes shall have
been tendered to the Escrow Agent in payment of the Purchase Price for
Securities.
12. MISCELLANEOUS.
12.1 CONSENT TO AMENDMENTS. This Agreement may be amended, restated,
supplemented, modified or extended, and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
if, and only if, prior to taking any such action or omitting to perform any such
act, the Company shall have obtained the written consent of the Investors
holding a majority of the outstanding Preferred Shares to such amendment,
restatement, supplement, modification, extension, action, or omission to act.
12.2 FORM, REGISTRATION, TRANSFER AND EXCHANGE OF CERTIFICATES; LOST
CERTIFICATES. The Company shall keep at its principal office a register in which
it shall provide for the registration of the Securities and of transfers of the
Securities or any portions thereof. Upon surrender of any certificate for
registration or transfer of such Securities at the principal office in
accordance with the provisions hereof, the Company shall, at its expense and
within three Business Days of such surrender and provided it can do so without
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violating Applicable Law, execute and deliver one or more new certificates of
like tenor, which new Securities shall be registered in the name of such
Transferee or Transferees.
12.3 ENTIRE AGREEMENT. This Agreement, the Certificate of
Incorporation, the Registration Rights Agreement, the Escrow Agreement, the
Warrants and the other agreements and instruments furnished pursuant hereto or
in connection herewith constitute the full and entire agreement and
understanding between the Investors and the Company, and supersede all prior
written or oral agreements and understandings relating to the subject matter
hereof, including, without limitation, the term sheet, dated August 20, 2003,
relating to the Transactions.
12.4 SEVERABILITY. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
12.5 SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
(including, without limitation, any Transferee). The Investors may assign any
and all of their rights under this Agreement, the Preferred Shares, the Retained
Notes and the Warrants to any Transferee and upon such assignment the Transferee
shall be entitled to all of the rights of the Investors hereunder to the same
extent as if the Transferee were an original party hereof, provided that the
Transferee agrees to be bound by any covenants, restrictions or limitations
applicable to the Investors under this Agreement and the other Transaction
Documents.
12.6 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given if transmitted by telecopier with
receipt acknowledged, or upon delivery, if delivered personally or by recognized
commercial courier with receipt acknowledged, or upon the expiration of 72 hours
after mailing, if mailed by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company, at: If to the Investors, at each
of the following:
SSP Solutions, Inc. as designated on Exhibit A,
17861 Cartwright Road at closing
Irvine, California 92614
Attention: President
Telecopy: (949) 851-8679
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With a copy to:
Rutan & Tucker, LLP
611 Anton Boulevard, Suite 1400
Costa Mesa, California 92629
Attention: Gregg Amber, Esq.
Telecopy: (714) 546-9035
or at such other address or addresses as the Investors or the Company, as the
case may be, may specify by written notice given in accordance with this SECTION
12.6.
12.7 ACCOUNTING TERMS. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to them by
generally accepted accounting principles and all accounting determinations
hereunder or pursuant hereto shall be made, and all financial statements
required to be delivered by the Company hereunder shall be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis.
12.8 DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are for convenience of reference only and do not
constitute a part of this Agreement and are not to be considered in construing
or interpreting this Agreement.
12.9 EXHIBITS AND DISCLOSURE SCHEDULES. The Exhibits and the Schedules
attached hereto are incorporated herein and shall be an integral part of this
Agreement.
12.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
12.11 SURVIVAL. The warranties and representations of the Company and
the Investors contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement, the Closing Date and any investigation
of the subject matter thereof made by or on behalf of the Investors.
12.12 REMEDIES. In the event of any litigation relating to this
Agreement or the Securities, each party shall bear its own fees, costs, and
expenses, including without limitation fees and expenses of attorneys and
accountants and all fees, costs and expenses of appeals. None of the rights,
powers or remedies conferred under this Agreement or the Securities shall be
mutually exclusive, and each such right, power or remedy shall be cumulative and
in addition to any other right, power or remedy whether conferred by this
Agreement or now or hereafter available at law, in equity, by statute or
otherwise.
-23-
12.13 GOVERNING LAW AND CHOICE OF FORUM. In all respects, including all
matters of construction, validity and performance, this Agreement and the rights
and obligations arising hereunder shall be governed by, and construed and
enforced in accordance with, the laws of the State of California applicable to
contracts made and performed in such state, without regard to principles thereof
regarding conflicts of laws. The parties hereby consent, in any dispute, action,
litigation or other proceeding concerning the Transaction Documents (including
arbitration) to the jurisdiction of the courts of California, with the County of
Orange being the sole venue for the bringing of the action or proceeding.
12.14 INDEMNIFICATION. The Company shall indemnify and hold harmless
the Investors, their respective Affiliates and their respective officers,
directors, partners and members (collectively, the "INVESTOR Indemnitees"), from
and against any and all claims, losses, damages and liabilities, and agrees to
reimburse the Investor Indemnitees for all reasonable out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Investor Indemnitees and to the extent arising out
of or in connection with:
(a) any misrepresentation, omission of fact or breach of any
of the representations or warranties by the Company contained in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement;
(b) any failure by the Company to perform in any material
respect its respective covenants, agreements, undertakings or obligations set
forth in this Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the Company
pursuant to this Agreement; or
(c) any action instituted against the Investors, or any of
them, by any stockholder of the Company who is not an Affiliate of an Investor,
with respect to any of the transactions contemplated by this Agreement.
12.15 REPRESENTATION BY COUNSEL. Each party represents and warrants
that it has been represented by independent counsel in the negotiation of this
Agreement, its Exhibits and Schedules, the Certificate of Incorporation, the
Registration Rights Agreement, the Escrow Agreement and the Warrants, and has
received the advice of its counsel prior to executing this Agreement and the
Warrants.
12.16 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION AND UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, THE
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PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT OR
OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS
AGREEMENT, THE SECURITIES AND/OR ANY RELATED AGREEMENT OR THE TRANSACTIONS
COMPLETED HEREBY OR THEREBY.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives as of the date
first written above.
"COMPANY" SSP SOLUTIONS, INC.
By:/s/ MARVIN J. WINKLER
--------------------------------------------
Marvin J. Winkler, Chief Executive Officer
By:/s/ THOMAS E. SCHIFF
--------------------------------------------
Thomas E. Schiff, Chief Financial Officer
"INVESTORS" [INVESTORS' SIGNATURES APPEAR ON EXHIBIT A]
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EXHIBIT A
INVESTOR INFORMATION AND SIGNATURE PAGE
Cash
Consideration/
Retained Notes/ No. of
Name, Address Surrendered Preferred No. of
and Contact Information Notes Shares Warrants Signature
----------------------- ----- ------ -------- ---------
A-1
EXHIBIT B
LIST AND DESCRIPTION OF NOTES
B-1
EXHIBIT C
DEFINITIONS
"AFFILIATE" has the meaning specified in Rule 405 under the Securities
Act.
"APPLICABLE LAWS" means any federal, state or local statute, law, rule,
regulation or ordinance applicable to the Company or its business, including,
without limitation, laws relating to franchise, building, zoning, health,
sanitation, safety or labor relations, and any order, ruling, judgment or decree
of any court, governmental agency or authority or self-regulatory agency which
is binding on the Company or its properties.
"BANKRUPTCY LAW" means Title 11 of the U.S. Code or any similar Federal
or state law for the relief of debtors.
"BOARD OF DIRECTORS" means the board of directors of any Person.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
either is a legal holiday under the laws of the State of California or is a day
on which banking institutions located in such state are authorized or required
by law or other governmental action to close.
"CERTIFICATE OF DESIGNATION" means the Certificate of Designation,
Preferences and Rights of the Company, as filed with the Secretary of State of
the State of Delaware on November 18, 2003.
"COMMON STOCK" means the common stock, $.01 par value per share, of the
Company.
"CONVERSION SHARES" means the shares of the Company's Common Stock
issuable upon conversion of (a) the Preferred Shares and (b) those Convertible
Notes that will remain outstanding after the Closing as "Retained Notes."
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means any event which is, or after notice or lapse of time or
both would be, an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder, all as the same
shall be in effect at the time.
"ESCROW AGENT" has the meaning ascribed to such term in the Escrow
Agreement.
C-1
"ESCROW AGREEMENT" means that certain Escrow Agreement, dated the date
hereof, among the Company, the Escrow Agent and the Investors, substantially in
the form attached hereto as EXHIBIT D.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect at the time.
"GAAP" means generally accepted accounting principles and practices set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.
"MATERIAL ADVERSE EFFECT" means an adverse effect on the Company's
ability to satisfy its covenants or obligations to the Investors under this
Agreement or the other Transaction Documents or, with respect to any Person, a
material adverse effect on the condition (financial or otherwise), business,
results of operations, prospects or properties of that Person.
"PERSON" means any individual, trustee, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, limited liability partnership, public
benefit corporation, institution, entity or government.
"PROMISSORY NOTES" means those original promissory notes previously
issued by the Company to certain of the Investors (or any replacements thereof
in the case of lost promissory notes) and more particularly described on EXHIBIT
B, some portion of which is being tendered in payment of the Purchase Price for
Securities, and some portion of which is being retained by those Investors as
"RETAINED NOTES."
"REGISTRABLE SECURITIES" has the meaning given to it in the
Registration Rights Agreement.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement dated the date hereof among the Company and the Investors,
substantially in the form attached hereto as EXHIBIT E.
"RETAINED NOTES" means the promissory notes described on Exhibit B
which reflect the portion of the principal amount of the Promissory Notes that
is not being tendered by certain Investors as Purchase Price for Securities.
"SEC" means the Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
C-2
"SECURITIES" means the Preferred Shares and the Warrants issuable to
the Investors hereunder and the Conversion Shares and Warrant Shares issuable
upon conversion or exercise thereof and the Interest Shares issued pursuant to
the Bridge Loan Documents and issuable, at the election of the Company, in
satisfaction of the Company's interest payment obligations under the Retained
Notes.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder, all as the same
shall be in effect at the time.
"SUBSIDIARY" and "SUBSIDIARIES" means any Person of which more than 50%
of the total voting power of shares of capital stock (or equivalent interest in
a limited liability company or other entity) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, officers or
trustees thereof, is at the time owned in the aggregate, directly or indirectly,
by the Company or its Subsidiaries.
"TAXES" means any income, excise, sales, use, stamp or franchise taxes
and any other taxes, fees, duties, levies, withholdings or other charges of any
nature whatsoever imposed by any taxing authority, whether Federal, state, local
or foreign, together with any interest and penalties and additions to tax.
"TRANSFEREE" means any direct or indirect transferee of all or any part
of the Securities.
"WARRANT SHARES" means the shares of the Company's Common Stock
issuable upon exercise of the Warrants.
C-3
EXHIBIT D
FORM OF ESCROW AGREEMENT
D-1
DISCLOSURE SCHEDULES