EXHIBIT 4.1
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
June 8, 2005 among Western Power & Equipment Corp., a Delaware corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"APM Purchase Note" shall mean that certain Promissory Note of
the Company issued on September 8, 2004 with a principal amount of
$2,500,000 made payable to Basalite Concrete Products, LLC and Edith
Greenberg Irrevocable Trust, which note is guaranteed by Advanced
Mineral Technology of Nevada, Inc.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the
Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions
precedent to (i) the Purchasers' obligations to pay the Subscription
Amount and (ii) the Company's obligations to deliver the Securities
have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.001 per share, and any other class of securities into which
such securities may hereafter have been reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company
or its Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"Company Counsel" means Gersten Savage Kaplowitz Wolf &
Marcus, LLP.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of
another Person if the primary purpose or intent of the Person incurring
such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole
or in part) against loss with respect thereto.
"Conversion Price" shall have the meaning ascribed to such
term in the Debentures.
"Debentures" means, collectively, the Series A Debentures and
the Series B Debentures.
"Disclosure Schedules" shall have the meaning ascribed to
such term in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term
in Section 3.1(s).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
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established for such purpose, provided in no event shall the Company
issue shares of Common Stock or issue options to purchase shares of
Common Stock in excess of, in the aggregate, 3% of the Company's issued
and outstanding shares of Common Stock on the date hereof; (b)
securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise,
exchange or conversion price of any such securities; and (c) securities
issued pursuant to acquisitions of assets or securities of any other
Person, mergers, joint ventures or other strategic transactions,
provided any such issuance shall only be to a Person which is, itself
or through its subsidiaries, an operating company in a business that,
in the reasonable business judgment of the board of directors of the
Company is complementary to the existing businesses of the Company and
in which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities.
"Existing Indebtedness" shall mean the obligations set forth
on Schedule 3.1(cc) annexed hereto.
"Existing Liens" shall mean the Liens listed on Schedule
3.1(hh) annexed hereto.
"Existing Subsidiary" means any direct or indirect Subsidiary
of the Company as set forth on Schedule 3.1(a).
"Factoring Agreement" shall mean that certain Master Factoring
Agreement executed by the Company and each Subsidiary of the Company
for the benefit of the Purchasers and attached to the Security
Agreement as Annex C.
"FW" means Feldman Weinstein LLP with offices at 420
Lexington Avenue, Suite 2620, New York, New York 10170-0002.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"GE Facility" means the Company's inventory floor plan and
operating line of credit June 30, 1999 with GE Commercial Distribution
Finance, as in effect on the date hereof.
"Indebtedness" of any Person means, without duplication (A)
all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary course
of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D)
all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses,
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(E) all indebtedness created or arising under any conditional sale or
other title retention agreement, or incurred as financing, in either
case with respect to any property or assets acquired with the proceeds
of such indebtedness (even though the rights and remedies of the seller
or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations
under any leasing or similar arrangement which, in connection with
generally accepted accounting principles, consistently applied for the
periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H)
all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through (G) above.
"Intellectual Property Rights" shall have the meaning ascribed
to such term in Section 3.1(p).
"Legend Removal Date" shall have the meaning ascribed to such
term in Section 4.1(c).
"Liens" means a lien, charge, security interest, mortgage,
encumbrance, or other charge against assets of the Company or any of
its Subsidiaries.
"Lock Box Agreement" shall mean a Four Party Wholesale Lockbox
Agreement(s), by and among Wells Fargo Bank, the Company, each
Subsidiary of the Company and the agent appointed by the Purchasers, in
form and substance reasonably satisfactory to the Purchasers.
"Material Adverse Effect" shall mean any (i) material adverse
effect on the legality, validity or enforceability of any Transaction
Document, (ii) material adverse effect on the results of operations,
assets, business, prospects or condition (financial or otherwise) of
the Company and its Subsidiaries, when taken as a consolidated whole,
or (iii) material adverse effect on the Company's ability to perform in
any material respect on a timely basis its obligations under any
Transaction Document.
"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
"McLain/Rubin Notes" shall mean, collectively, that certain
Promissory Note of the Company issued on September 8, 2004 with a
principal amount
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of $100,000 made payable to McLain-Rubin Realty LLC due on September
30, 2005, that certain Promissory Note of the Company issued on
September 8, 2004 with a principal amount of $50,000 made payable to
Cindy McLain as guardian for Cassidy Larsen, due on September 30, 2005,
that certain Promissory Note of the Company issued on September 8, 2004
with a principal amount of $50,000 made payable to Christina Walstrom,
due on September 30, 2005, that certain Promissory Note of the Company
issued on September 8, 2004 with a principal amount of $100,000 made
payable to Stacy McLain Trust, due on September 30, 2005.
"Participation Maximum" shall have the meaning ascribed to
such term in Section 4.13.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in
Section 4.13.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term
in Section 4.11.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale of the Underlying Shares by each Purchaser as
provided for in the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Required Minimum" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and Debentures (including Underlying Shares issuable as
payment of interest), ignoring any conversion or exercise limits set
forth therein, and assuming that the Conversion Price is at all times
on and after the date of determination 75% of the then Conversion Price
on the Trading Day immediately prior to the date of determination.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
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"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants and the
Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated the
date hereof, among the Company and the Purchasers, in the form of
Exhibit F attached hereto.
"Security Documents" shall mean the Security Agreement, the
Subsidiary Guarantees and any other documents and filing required
thereunder in order to grant the Purchasers a security interest in all
of the assets of the Company, including all UCC-1 filing receipts.
"Series A Debentures" means, the Variable Rate Secured
Convertible Debentures due, subject to the terms therein, 60 months
from their date of issuance, issued by the Company to the Purchasers
hereunder, in the form of Exhibit A.
"Series A Subscription Amount" means, as to each Purchaser,
the aggregate amount to be paid for Series A Debentures and Series A
Warrants purchased hereunder as specified below such Purchaser's name
on the signature page of this Agreement and next to the heading "Series
A Subscription Amount", in United States Dollars and in immediately
available funds.
"Series A Warrants" means the Common Stock purchase warrants,
in the form of Exhibit C delivered to the Purchasers at the Closing in
accordance with Section 2.2(a)(iv) hereof, which Series A Warrants
shall be exercisable immediately and have a term of exercise equal to
five years.
"Series B Debentures" means, the Variable Rate Secured
Debentures due, subject to the terms therein, 6 months after their date
of issuance, issued by the Company to the Purchasers hereunder, in the
form of Exhibit G.
"Series B Subscription Amount" means, as to each Purchaser,
the aggregate amount to be paid for Series B Debentures and Series B
Warrants purchased hereunder as specified below such Purchaser's name
on the signature page of this Agreement and next to the heading "Series
B Subscription Amount", in United States Dollars and in immediately
available funds.
"Series B Warrants" means the Common Stock purchase warrants,
in the form of Exhibit C delivered to the Purchasers at the Closing in
accordance with Section 2.2(a)(vi) hereof, which Series B Warrants
shall be exercisable immediately and have a term of exercise equal to
five years.
"Series C Warrants" means the warrants to purchase additional
Series A Debentures and Series A Warrants, in the form of Exhibit E
delivered to the Purchasers at the Closing in accordance with Section
2.2(a) hereof, which Series C Warrants shall be
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exercisable immediately and have a term of exercise equal to the
earlier of (i) the 18 months anniversary of the Effective Date and (ii)
the 3 year anniversary of the date hereof.
"Short Sales" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act.
"Subscription Amount" means the Series A Subscription Amount
and the Series B Subscription Amount.
"Subsequent Financing" shall have the meaning ascribed to such
term in Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed
to such term in Section 4.13.
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having
by the terms thereof ordinary voting power to elect a majority of the
directors of such corporation (irrespective of whether or not at the
time stock of any class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency)
is at the time owned by such Person directly or indirectly through
Subsidiaries and (ii) any limited liability company, partnership,
association, joint venture or other entity in which such Person
directly or indirectly through Subsidiaries, has more than a 50% equity
or ownership interest at the time.
"Subsidiary Guarantee" means the Subsidiary Guarantee, dated
the date hereof, among each of its Subsidiaries and the Purchasers, in
the form of Exhibit H attached hereto.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq SmallCap Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Registration Rights Agreement, the Security
Agreement, the Subsidiary Guarantee, the Lock Box Agreement, the
Factoring Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"Trust Note" shall mean that certain Promissory Note of the
Company issued on September 8, 2004 with a principal amount of $200,000
made payable to the Rubin Family Irrevocable Stock Trust due on
September 30, 2005.
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"Underlying Shares" means the shares of Common Stock issuable
and issued upon conversion of the Debentures and upon exercise of the
Warrants and issuable and issued in lieu of the cash payment of
interest on the Debentures in accordance with the terms of the
Debentures.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the primary Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg Financial L.P. (based on a Trading
Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in
the "Pink Sheets" published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (c) in all other cases, the fair market value of a share
of Common Stock as determined by a nationally recognized-independent
appraiser selected in good faith by Purchasers holding a majority of
the principal amount of the Debentures then outstanding.
"Warrants" means, collectively, the Series A Warrants, the
Series B Warrants and the Series C Warrants.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Series A Warrants and the Series B Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, up to
$32,000,000 principal amount of the Debentures. Each Purchaser shall deliver to
the Company via wire transfer or a certified check immediately available funds
equal to their Subscription Amount and the Company shall deliver to each
Purchaser their respective Debenture and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of FW, or such other location as the
parties shall mutually agree.
2.2 Deliveries.
a) On the Closing Date, the Company shall deliver or
cause to be delivered to each Purchaser the
following:
(i) this Agreement duly executed by the Company;
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(ii) a Series A Debenture with a principal amount
equal to such Purchaser's Series A
Subscription Amount, registered in the name
of such Purchaser;
(iii) a Series B Debenture with a principal amount
equal to such Purchaser's Series B
Subscription Amount (for each $1 million
principal amount of Series A Debentures,
$66,666 principal amount of Series B
Debentures), registered in the name of such
Purchaser;
(iv) a Series A Warrant registered in the name of
such Purchaser to purchase up to a number of
shares of Common Stock equal to 35% of such
Purchaser's Series A Subscription Amount
divided by the arithmetic average of the 5
consecutive VWAPs immediately prior to the
date hereof, with an exercise price equal to
$1.75, subject to adjustment therein;
(v) a Series B Warrant registered in the name of
such Purchaser, to purchase up to a number of
shares of Common Stock equal to 20% of such
Purchaser's Series B Subscription Amount
divided by the arithmetic average of the 5
consecutive VWAPs immediately prior to the
date hereof, with an exercise price equal to
$1.75, subject to adjustment therein;
(vi) a Series C Warrant registered in the name of
such Purchaser, to purchase (A) such
principal amount of additional Series A
Debentures equal to 25% of such Purchaser's
Series A Subscription Amount and otherwise
identical to the Series A Debentures issued
at the Closing, and (B) a number of Series A
Warrants equal to 35% of the shares of Common
Stock issuable upon conversion of such
additional Series A Debentures and otherwise
identical to the Series A Warrants issued at
the Closing;
(vii) the Registration Rights Agreement duly
executed by the Company;
(viii) the Security Agreement, duly executed by the
Company, along with all the Security
Documents;
(ix) a payoff letter for the GE Facility and UCC
Form 3 termination statements of the Existing
Liens securing the GE Facility;
(x) pay-off for the APM Purchase Note and, if
any, UCC Form 3 termination statements of the
Existing Liens securing the APM Purchase
Note;
(xi) a first position deed of trust for the
benefit of the Purchasers granting a
first-position lien and encumbrance upon
certain real
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property owned by Arizona Pacific Materials
LLC, a wholly owned subsidiary of the
Company, located in Pinal County, Arizona,
and consisting of approximately 73.636 acres,
commonly know as 9390 East Hiller Road,
Florence, Arizona, and more particularly
described in the Deed of Trust, in form and
substance reasonably satisfactory to the
Purchasers;
(xii) a duly executed Lock Box Agreement, in form
and substance reasonably satisfactory to the
Purchasers, duly executed by the parties
thereto;
(xiii) a duly executed Factoring Agreement, in form
and substance reasonably satisfactory to the
Purchasers, duly executed by the parties
thereto;
(xiv) agreement to extend the maturity of the Trust
Note until December 31, 2005; in form and
substance reasonably satisfactory to the
Purchasers;
(xv) agreement to extend the maturity of the
McLain/Rubin Notes until, as to 1/3 principal
amount of such notes, December 31, 2006, as
to 1/3 principal amount of such notes,
December 31, 2007 and as to 1/3 principal
amount of such notes, December 31, 2008, in
form and substance reasonably satisfactory to
the Purchasers; and
(xvi) a legal opinion of Company Counsel, in the
form of Exhibit D attached hereto.
b) On the Closing Date, each Purchaser shall deliver or
cause to be delivered to the Company the following:
(i) this Agreement duly executed by such
Purchaser;
(ii) such Purchaser's Subscription Amount by wire
transfer to the account as specified in
writing by the Company;
(iii) the Security Agreement, duly executed by such
Purchaser; and
(iv) the Registration Rights Agreement duly
executed by such Purchaser.
2.3 Closing Conditions.
a) The obligations of the Company hereunder in
connection with the Closing are subject to the
following conditions being met:
(i) the accuracy in all material respects when
made and on the Closing
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Date of the representations and warranties of
the Purchasers contained herein;
(ii) all obligations, covenants and agreements of
the Purchasers required to be performed at or
prior to the Closing Date shall have been
performed; and
(iii) the delivery by the Purchasers of the items
set forth in Section 2.2(b) of this
Agreement.
b) The respective obligations of the Purchasers
hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the accuracy in all material respects on the
Closing Date of the representations and
warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of
the Company required to be performed at or
prior to the Closing Date shall have been
performed;
(iii) the delivery by the Company of the items set
forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse
Effect with respect to the Company since the
date hereof; and
(v) from the date hereof to the Closing Date,
trading in the Common Stock shall not have
been suspended by the Commission (except for
any suspension of trading of limited duration
agreed to by the Company, which suspension
shall be terminated prior to the Closing),
and, at any time prior to the Closing Date,
trading in securities generally as reported
by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices
shall not have been established on securities
whose trades are reported by such service, or
on any Trading Market, nor shall a banking
moratorium have been declared either by the
United States or New York State authorities
nor shall there have occurred any material
outbreak or escalation of hostilities or
other national or international calamity of
such magnitude in its effect on, or any
material adverse change in, any financial
market which, in each case, in the reasonable
judgment of each Purchaser, makes it
impracticable or inadvisable to purchase the
Debentures at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
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3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the Existing Subsidiaries are set
forth on Schedule 3.1(a). The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary of
the Company free and clear of any Liens, and all the issued and
outstanding shares of capital stock of each Subsidiary of the Company
are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities.
The Company has no Subsidiaries other than the Existing Subsidiaries.
(b) Organization and Qualification. The Company and each of
its Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary of the Company is in violation or default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.
Each of the Company and its Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the
case may be, could not have or reasonably be expected to result in a
Material Adverse Effect and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to
revoke, limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on
the part of the Company and no further action is required by the
Company, its board of director or its stockholders in connection
therewith other than in connection with the Required Approvals. Each
Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
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(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and thereby do
not and will not: (i) conflict with or violate any provision of the
Company's or any of its Subsidiary's certificate or articles of
incorporation, bylaws or other organizational or charter documents, or
(ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the
Company or any Subsidiary of the Company, or give to others any rights
of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary
of the Company debt or otherwise) or other understanding to which the
Company or any Subsidiary of the Company is a party or by which any
property or asset of the Company or any Subsidiary of the Company is
bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary of the
Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a
Subsidiary of the Company is bound or affected; except in the case of
each of clauses (ii) and (iii), such as could not have or reasonably be
expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) filings
required pursuant to Section 4.6, (ii) the filing with the Commission
of the Registration Statement, (iii) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the
Debentures and Warrants and the listing of the Underlying Shares for
trading thereon in the time and manner required thereby, (iv) the
filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws and (v) as related to
the Existing Indebtedness (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying
Shares at least equal to the Required Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as
set forth on Schedule 3.1(g). The Company has not issued any capital
stock since its most recently
13
filed periodic report under the Exchange Act, other than pursuant to
the exercise of employee stock options under the Company's stock option
plans, the issuance of shares of Common Stock to employees pursuant to
the Company's employee stock purchase plan and pursuant to the
conversion or exercise of outstanding Common Stock Equivalents. No
Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the
purchase and sale of the Securities or as set forth in the SEC Reports
or on Schedule 3.1(g), there are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary of the Company is or may become
bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. All of the outstanding
shares of capital stock of the Company are validly issued, fully paid
and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued
in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements
with respect to the Company's capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the
Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed
all reports, schedules, forms, statements and other documents required
to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the "SEC Reports") on
a timely basis or has received a valid extension of such time of filing
and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and
the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The financial statements of the
Company included in the SEC Reports comply in all material respects
with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a
consistent basis during the periods involved
14
("GAAP"), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has
not incurred any liabilities (contingent or otherwise) other than (A)
trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required
to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii)
the Company has not altered its method of accounting, (iv) the Company
has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and
(v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option
plans. The Company does not have pending before the Commission any
request for confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary of the Company or any of their respective properties before
or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign)
(collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary of the Company,
nor any director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty. There has
not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company
or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary of the Company under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
15
(l) Compliance. Except as set forth on Schedule 3.1(l),
neither the Company nor any Subsidiary of the Company (i) is in default
under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary of the Company), nor has the
Company or any Subsidiary of the Company received notice of a claim
that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business except in each case as could not have a Material Adverse
Effect.
(m) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not
have or reasonably be expected to result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any Subsidiary of the
Company has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(n) Title to Assets. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and its
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and its
Subsidiaries, in each case free and clear of all Liens, except for (i)
Existing Liens, (ii) and other Liens as do not materially affect the
value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and its
Subsidiaries, and (iii) Liens for the payment of federal, state or
other taxes, the payment of which is neither delinquent nor subject to
penalties.
(o) Leases. All leases of material real property and
facilities that are leased by the Company and its Subsidiaries from
third parties are valid, subsisting and in full force and effect and
neither the Company nor its Subsidiaries are in default thereunder,
nor, to the knowledge of the Company, is any other party to such lease,
in default in any material respect thereunder
(p) Patents and Trademarks. The Company and its Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the
SEC Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the "Intellectual Property Rights").
Neither the Company nor any Subsidiary of the Company has received a
written notice that the Intellectual Property Rights used by the
Company or any Subsidiary of the Company violates or infringes upon the
rights of any Person. To the knowledge of the Company, all such
Intellectual Property Rights are
16
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights of others.
(q) Insurance. The Company and its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage equal to the amount set forth on Schedule 3.1(q). To the
knowledge of the Company, such insurance contracts and policies are
accurate and complete. Neither the Company nor any Subsidiary of the
Company 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 without a significant increase in cost.
(r) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports or on Schedule 3.1(s) attached hereto, none of
the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to
any transaction with the Company or any Subsidiary of the Company
(other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee
or partner, in each case in excess of $60,000 other than (i) for
payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company and (iii)
for other employee benefits, including stock option agreements under
any stock option plan of the Company.
(s) Sarbanes-Oxley; Internal Accounting Controls. To the best
knowledge of the management of the Company, the Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which
are applicable to it as of the Closing Date. The Company and 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 GAAP and to
maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which
the Company's most recently filed periodic report under the Exchange
Act, as the case may be, is being prepared. The Company's certifying
officers have
17
evaluated the effectiveness of the Company's controls and procedures as
of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the "Evaluation
Date"). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since
the Evaluation Date, there have been no significant changes in the
Company's internal controls (as such term is defined in Item 307(b) of
Regulation S-K under the Exchange Act) or, to the knowledge of the
Company, in other factors that could significantly affect the Company's
internal controls.
(t) Certain Fees. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the
Transaction Documents. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf
of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the
Transaction Documents.
(u) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
(v) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
Notwithstanding the foregoing, the Company makes no representation or
warranty as to whether any Purchaser hereunder may be or become an
"investment company" within the meaning of said act. The Company shall
conduct its business in a manner so that it will not become subject to
the Investment Company Act.
(w) Registration Rights. Other than each of the Purchasers, no
Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company.
(x) Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason
18
to believe that it will not in the foreseeable future continue to be,
in compliance with all such listing and maintenance requirements.
(y) Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(z) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company.
All disclosure provided to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, furnished by or on behalf of
the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and
warranties and do not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.
(aa) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its affiliates, nor any Person acting
on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any
Trading Market on which any of the securities of the Company are listed
or designated.
(bb) Solvency. Based on the financial condition of the Company
as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i)
the Company's fair saleable value of its assets exceeds the amount that
will be required to be paid on or in respect of the Company's existing
debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company's assets do not constitute unreasonably
small capital to carry on its business for the current fiscal year as
now conducted and as proposed to be conducted
19
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after
taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect
of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. The SEC
Reports set forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary of the Company,
or for which the Company or any Subsidiary of the Company has
commitments.
(cc) Indebtedness. All of the Indebtedness of the Company is
as set forth on Schedule 3.1(cc). Except as set forth on Schedule
3.1(cc) annexed hereto, the Company is not in default under any
Existing Indebtedness that could reasonably be expected to have a
Material Adverse Effect.
(dd) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary of
the Company has filed all necessary federal, state and foreign income
and franchise tax returns and has paid or accrued all taxes shown as
due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary
of the Company.
(ee) No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(ff) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(gg) Accountants. The Company's accountants are set forth on
Schedule 3.1(gg) of the Disclosure Schedule. To the knowledge of the
Company, such accountants, who the Company expects will express their
opinion with respect to the
20
financial statements to be included in the Company's Annual Report on
Form 10-K for the year ending July 31, 2005 are a registered public
accounting firm as required by the Securities Act.
(hh) Senior Liens. Except as disclosed on Schedule 3.1 (hh),
as of the Closing Date, no Existing Indebtedness of the Company is
secured by Existing Liens that are senior to the Liens securing payment
of the Debentures, whether with respect to principal, interest or upon
maturity, liquidation or dissolution.
(ii) No Disagreements with Accountants and Lawyers. There are
no material disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers presently employed by the Company and the Company is current
with respect to any fees owed to its accountants and lawyers.
(jj) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length
purchaser with respect to the Transaction Documents and the
transactions contemplated hereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby
is merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
(kk) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 3.2(b) and Section 4.16 hereof), it
is understood and agreed by the Company (i) that none of the Purchasers
have been asked to agree, nor has any Purchaser agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company; (ii)
that past or future open market or other transactions by any Purchaser,
including Short Sales, and specifically including, without limitation,
Short Sales or "derivative" transactions, before or after the closing
of this or future private placement transactions, may negatively impact
the market price of the Company's publicly-traded securities; (iii)
that any Purchaser, and counter parties in "derivative" transactions to
which any such Purchaser is a party, directly or indirectly, presently
may have a "short" position in the Common Stock, and (iv) that each
Purchaser shall not be deemed to have any affiliation with or control
over any arm's length counter-party in any "derivative" transaction.
The Company further understands and acknowledges that (a) one or more
Purchasers may engage in hedging activities at various times during the
period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined and (b)
such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after
21
the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
(ll) Deed of Trust. The Company has caused its Subsidiary,
Arizona Pacific Materials LLC, to execute and deliver a Deed of Trust,
Assignment of Rents and Security Agreement (the "Deed of Trust"),
granting a first-position lien and encumbrance upon certain real
property located in Pinal County, Arizona, and consisting of
approximately 73.636 acres, commonly know as 9390 East Hiller Road,
Florence, Arizona, and more particularly described in the Deed of Trust
(the "Property"). The Deed of Trust secures any and all of the
obligations of the Company or its Subsidiaries to the Purchasers, under
the Transaction Documents. The Company shall pay for and maintain an
ALTA Extended Policy of Title Insurance insuring the Purchasers'
first-position lien upon the Property in the amount of Seven Hundred
Twenty-Nine Thousand Dollars ($729,000.00), subject only to such
matters of record as the Agent (as defined in the Security Agreement),
on behalf of the Purchasers, may approve in its sole and absolute
discretion. The legally described Property is one and the same real
property as the real property upon which the Company and/or its
Subsidiaries intend to conduct the mining activities which are the
underlying purpose of the financing evidenced by the Transaction
Documents. Any default under the Deed of Trust shall be deemed to be a
default under the Transaction Documents and any default under any of
the Transaction Documents shall be deemed to be a default under the
Deed of Trust.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution,
delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action on the part of such Purchaser.
Each Transaction Document to which it is a party has been duly executed
by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with
its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Own Account. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered
under the Securities Act or any
22
applicable state securities law and is acquiring the Securities as
principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities law,
has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law
and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser's right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its
business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the
Securities.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures it will
be either: (i) an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short Sales and Confidentiality. Other than the
transaction contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including
Short Sales (but not including the location and/or reservation of
borrowable shares of Common Stock), in the securities of the Company
during the period commencing from the time that such Purchaser first
received a term sheet from the Company or any other Person setting
forth the material terms of the transactions contemplated hereunder
until the date hereof ("Discussion Time"). Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed
investment vehicle whereby separate portfolio managers manage separate
portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser's assets, the
representation set forth above shall only apply with respect to the
portion of assets managed by the
23
portfolio manager that either (i) made the investment decision to
purchase the Securities covered by this Agreement, or (ii) has
knowledge of this Agreement. Other than to other Persons party to this
Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including
the existence and terms of this transaction).
The Company acknowledges and agrees that each Purchaser does
not make or has not made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically
set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH
24
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective
Date if required by the Company's transfer agent to effect the removal
of the legend hereunder. If all or any portion of a Debenture or
Warrant is converted or exercised (as applicable) at a time when there
is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations
thereof) then such Underlying Shares shall be issued free of all
legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent
of a certificate representing Underlying Shares, as applicable, issued
with a restrictive legend (such third Trading Day, the "Legend Removal
Date"), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive
and other legends. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section. Certificates
for Securities subject to legend removal hereunder shall be transmitted
by the transfer agent of the Company to the Purchasers by
25
crediting the account of the Purchaser's prime broker with the
Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares
(based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after the Legend Removal
Date until such certificate is delivered without a legend. Nothing
herein shall limit such Purchaser's right to pursue actual damages for
the Company's failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Company's reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
(f) Until the one year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent
of the Purchasers holding a majority in principal amount outstanding of
the Debentures.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
26
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue a press
release, reasonably acceptable to each Purchaser disclosing the material terms
of the transactions contemplated hereby. In addition, the Company shall, no
later than three (3) business days following the date hereof, file a Current
Report on Form 8-K and shall attach the Transaction Documents thereto. The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection with
the registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
27
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.9 Use of Proceeds. Except for the retirement of the Existing
Indebtedness constituting the GE Facility and the APM Purchase Note, which shall
satisfied in full directly out of the net proceeds from the sale of the
Securities hereunder at the Closing, or as otherwise set forth on Schedule 4.9
attached hereto, the Company shall use the net proceeds from the sale of the
Securities hereunder for working capital purposes and not for the satisfaction
of any portion of the Existing Indebtedness, to redeem or repurchase any Common
Stock or Common Stock Equivalents or to settle any outstanding litigation.
4.10 Reimbursement. If any Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, members, partners, employees and agents
(each, a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the
28
Transaction Documents (unless such action is based upon a breach of such
Purchaser's representation, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, such Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
4.12 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the
Company's certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.
(c) The Company shall, if applicable: (i) in the time and
manner required by the Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause
such shares of Common Stock to be approved for listing on the Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on any date at least equal to the Required Minimum on such date
on such Trading Market or another Trading Market.
4.13 Participation in Future Financing.
29
(a) From the date hereof until the date that is the 12 month
anniversary of the Effective Date, upon any financing by the Company or
any of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"Subsequent Financing"), each Purchaser shall have the right to
participate in up to an amount of the Subsequent Financing equal to
100% of the Subsequent Financing (the "Participation Maximum").
(b) At least 5 Trading Days prior to the closing of the
Subsequent Financing, the Company shall deliver to each Purchaser a
written notice of its intention to effect a Subsequent Financing
("Pre-Notice"), which Pre-Notice shall ask such Purchaser if it wants
to review the details of such financing (such additional notice, a
"Subsequent Financing Notice"). Upon the request of a Purchaser, and
only upon a request by such Purchaser, for a Subsequent Financing
Notice, the Company shall promptly, but no later than 1 Trading Day
after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto.
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than
5:30 p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing
to participate in the Subsequent Financing, the amount of the
Purchaser's participation, and that the Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Company receives no notice from a
Purchaser as of such 5th Trading Day, such Purchaser shall be deemed to
have notified the Company that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the fifth Trading
Day after all of the Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate in
the Subsequent Financing (or to cause their designees to participate)
is, in the aggregate, less than the total amount of the Subsequent
Financing, then the Company may effect the remaining portion of such
Subsequent Financing on the terms and to the Persons set forth in the
Subsequent Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the fifth Trading
Day after all of the Purchasers have received the Pre-Notice, the
Company receives responses to a Subsequent Financing Notice from
Purchasers seeking to purchase more than the aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to
purchase the greater of (a) their Pro Rata Portion (as defined below)
of the Participation Maximum and (b) the difference between the
Participation Maximum and the aggregate amount of participation by all
other Purchasers. "Pro Rata Portion" is the ratio of (x) the
Subscription Amount of Securities purchased on the Closing Date by a
Purchaser participating under this Section 4.13 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing
Date by all Purchasers participating under this Section 4.13.
30
(f) The Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have the
right of participation set forth above in this Section 4.13, if the
Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such
Subsequent Financing Notice within 60 Trading Days after the date of
the initial Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13 shall not
apply in respect of an Exempt Issuance.
4.14 Subsequent Equity Sales.
(a) From the date hereof until 90 days after the Effective
Date, neither the Company nor any Subsidiary of the Company shall issue
shares of Common Stock or Common Stock Equivalents; provided, however,
the 90 day period set forth in this Section 4.14 shall be extended for
the number of Trading Days during such period in which (i) trading in
the Common Stock is suspended by any Trading Market, or (ii) following
the Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by
the Purchasers for the resale of the Underlying Shares. Notwithstanding
the foregoing, this Section 4.14 shall not apply in respect of an
Exempt Issuance.
(b) From the date hereof until such time as no Purchaser holds
any of the Securities, the Company shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Financing
involving a "Variable Rate Transaction". The term "Variable Rate
Transaction" shall mean a transaction in which the Company (i) enters
into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined
price, unless such future determined price shall be not less than 85%
of the VWAP as of the date of issuance or sale of the overlying
security; or (ii) issues or sells any debt or equity securities that
are convertible into, exchangeable or exercisable for, or include the
right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the shares
of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock, unless in
either such event the conversion, exercise or exchange rate or other
price is not less than 85% of the VWAP as at the date of issuance or
sale of the overlying security.
4.15 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal
31
amounts outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended to
treat for the Company the Debenture holders as a class and shall not in any way
be construed as the Purchasers acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.
4.16 Short Sales and Confidentiality. Each Purchaser severally and not
jointly with the other Purchasers covenants that neither it nor any affiliates
acting on its behalf or pursuant to any understanding with it will execute any
Short Sales during the period after the Discussion Time and ending at the time
that the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.6. Each Purchaser, severally and not jointly
with the other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as
described in Section 4.6, such Purchaser will maintain, the confidentiality of
all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Each Purchaser understands and
acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that coverage of short sales of shares
of the Common Stock "against the box" prior to the Effective Date of the
Registration Statement with the Securities is a violation of Section 5 of the
Securities Act, as set forth in Item 65, Section 5 under Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the Closing has not been consummated on or
before June 30, 2005; provided, however, that no such termination will affect
the right of any party to sue for any breach by the other party (or parties).
5.2 Fees and Expenses. At the Closing, the Company has agreed to
reimburse Omicron Master Trust ("Omicron") up to $100,000, for its actual,
reasonable, out-of-pocket legal fees and expenses, $50,000 which shall be paid
prior to the Closing. Accordingly, in lieu of the foregoing payments, the
aggregate amount that Omicron is to pay for the Securities at the Closing shall
be reduced by $50,000 in lieu thereof. The Company shall deliver, prior to the
Closing, a completed and executed copy of the Closing Statement, attached hereto
as Annex A.
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Except as expressly set forth in the Transaction Documents to the contrary, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all transfer agent fees, stamp taxes and other
taxes and duties levied in connection with the delivery of any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
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5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 Survival. The representations and warranties contained herein
shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties
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will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
35
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser 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
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only Omicron. The Company has elected to provide all
Purchasers 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
Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the
36
normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(SIGNATURE PAGES FOLLOW)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
WESTERN POWER & EQUIPMENT CORP. Address for Notice:
-------------------
By:
--------------------------------
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGES TO WPEC SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: ______________________________________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: _________________________
Name of Authorized Signatory: ___________________________________________
Title of Authorized Signatory: __________________________________________
Email Address of Purchaser:______________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Series A Subscription Amount:
Series A Warrant Shares:
Series B Subscription Amount (for each $1 million principal amount of Series A
Debentures, $66,666 principal amount of Series B Debentures): Series B Warrant
Shares:
Principal Amount of Debentures underlying Series C Warrant:
Warrant Shares underlying Series C Warrant:
EIN Number:
39