EXHIBIT 10.20
FORM OF SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement (together with the schedules and exhibits hereto,
this "Agreement"), dated as of July 18, 2003, by and between Auto Data Network,
Inc., a Delaware corporation (the "Company"), and each of the Persons (as
defined below) who has executed a signature page to this Agreement (each a
"Purchaser," and together, the "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to purchase from the Company, the Securities (as such term is
defined below) as set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements hereinafter contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
intending to be legally bound, the parties hereto hereby agree as follows:
1. Authorization and Sale of Securities.
1.1 Authorization. The Company has duly authorized the issuance and sale of up
to 500,000 shares of its Series A-1 Preferred Stock, par value $0.001 per share
(the "Series A-1 Preferred Stock") and 2,300,000 shares of its Series A-2
Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock").
The Series A-1 Preferred Stock and the Series A-2 Preferred Stock have the
powers, designations, preferences, rights, qualifications, limitations and
restrictions contained in the Certificate of Designations of the Series A-1
Preferred Stock and the Series A-2 Preferred Stock, in the form of Exhibit A
hereto (the "Certificate of Designations"). The Series A-2 Preferred Stock
offered hereby is referred to herein as the "Securities". The Purchasers of the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock shall have the
benefit of certain registration rights in respect of the shares of Common Stock
underlying the Securities on the terms and conditions of a Registration Rights
Agreement, in the form of Exhibit B hereto (the "Registration Rights
Agreement"). The Company is offering shares of the A-2 Preferred Stock
Securities (the "Offering") for sale only to individuals, entities or groups,
including, without limitation, corporations, limited liability companies,
limited or general partnerships, joint ventures, associations, joint stock
companies, trusts, unincorporated organizations, or governments or any agencies
or political subdivisions thereof (each, a "Person") who are "accredited
investors" (as defined herein). The Company is making the Offering of the
Securities directly through its officers and its directors, but may engage a
placement agent (the "Placement Agent") and other registered broker-dealers
("Other Participating Agents") may also place Securities. All subscription
proceeds will be paid at Closing to the account or accounts specified in Section
1.2 herein, provided that in the event that a Placement Agent is utilized, the
Company will utilize an escrow agent (the "Escrow Agent") for receipt of funds.
All references in this Agreement to the Escrow Agent shall be deemed to be
references to the Company in the event that there is no third party Escrow
Agent.
1.2 Subscription.
Subject to the terms and conditions hereinafter set forth in this Agreement,
each Purchaser hereby offers to purchase, at a price of $2.50 per share, the
number of shares of Series A-2 Preferred Stock set forth beneath each such
Purchaser's name on the signature pages of this Agreement, for an aggregate
purchase price (the "Purchase Price") to be paid by such Purchaser in the amount
set forth on the signature page beneath such Purchaser's name.
1.3 Subscription Procedures. To submit this Subscription, each Purchaser must
deliver (i) this Agreement, including, without limitation, the annexed Purchaser
Questionnaire, both duly completed and executed and (ii) an executed
Registration Rights Agreement to the following address, unless otherwise advised
by the Company:
Middlebury Capital, LLC
230 park Avenue
Suite 1440
New York NY 10169
Attention: Compliance (re Auto Data Network, Inc.)
(with any questions to be raised with Eric Brackfeld at (212) 972 0900)
The Company may accept or reject subscriptions, in whole or in part, or accept
subscriptions for less than the $50,000 minimum subscription, in its sole
discretion. The Company shall notify each Purchaser of the portion, if any, of
such Purchaser's subscription which has been accepted, payment instructions for
the purchase price, including wire transfer instructions and instructions for
delivery of payment by checks, if applicable, and the date upon which the
applicable Closing shall be held and payment must be made. At each applicable
Closing, each Purchaser acquiring Securities at such Closing shall deliver and
pay the applicable purchase price in full for the Securities being purchased by
such Purchaser at such Closing, in the amount of $2.50 for each share of Series
A-2 Preferred Stock for which such Purchaser's subscription has been accepted,
in U.S. dollars, in immediately available funds, in accordance with the payment
instructions contained in the notification to such Purchaser by the Company.
2. Closing.
Upon acceptance of subscriptions for Series A-2 Preferred Stock totaling,
together with proceeds from the sale of Series A-1 Preferred Stock, at least
$3,500,000 (the "Initial Minimum Offering"), the Company shall hold a closing of
the purchase and sale of such Securities (the "Initial Closing"). The Company
may thereafter hold one or more additional closings (each closing, including the
Initial Closing, a "Closing", and the final closing the "Final Closing") upon
the purchase and sale of additional Securities until an aggregate amount of up
to $7,000,000 (the "Maximum Offering") of Series A-1 Preferred Stock and Series
A-2 Preferred Stock have been sold by the Company. Each Closing shall be held at
such location as the Company may determine. The Final Closing will take place
within sixty (60) days after the Initial Closing, unless the offering which is
the subject of this Agreement is extended by the Company for up to thirty (30)
additional days. The date of the Initial Closing will be referred to as the
"Initial Closing Date" and the date of the Final Closing is referred to as the
"Final Closing Date." At the Closing with respect to the subscription by each
Purchaser, to the extent the same is accepted by the Company, the Company will
register in the name of each such Purchaser that number of Securities being
purchased by such Purchaser in accordance with the information on the applicable
signature page of this Agreement.
2.1 Escrow. In the event that the Company engages a Placement Agent for this
Offering, pending each Closing all funds paid in respect of this Agreement with
regard to such Closing shall be deposited in an escrow account (the "Escrow
Account") maintained by the Escrow Agent or remitted direct to the company at
the company's designation. The Escrow Account shall not be interest bearing. If
the Company accepts subscriptions for the Securities at or prior to the Initial
Closing Date or the Final Closing Date, as the case may be, then all
subscription proceeds received for subscriptions accepted by the Company prior
to such Closing Date shall be paid over to the Company at each Closing, net of
the placement agent fees, if any, and other offering expenses, which shall be
paid to the appropriate parties at each such Closing. If the Company shall not
have received and accepted each Purchaser's subscription, then that subscription
shall be void and all funds paid hereunder by such Purchaser, without deduction
therefrom or interest thereon, shall be promptly returned to such Purchaser.
2.2. Return of Funds. Each Purchaser hereby authorizes and directs the Escrow
Agent to return or direct the return of any funds from the Escrow Account,
without deduction therefrom or interest thereon, to the same account from which
the funds were originally drawn, to the extent that such Purchaser's
subscription is not accepted prior to the termination of the Offering.
3. Conditions to the Obligations of each Purchaser at Closing.
The obligation of each Purchaser to purchase and pay for the Securities
subscribed for by such Purchaser at the applicable Closing is subject to the
satisfaction on or prior to the Initial Closing Date or the Final Closing Date,
as the case may be, of the following conditions, each of which may be waived by
the applicable Purchaser:
3.1 Opinion of Counsel to the Company. The Placement Agent shall have received
from counsel for the Company, its opinion dated as of the applicable Closing
Date, and addressed to the applicable Purchasers purchasing securities on such
Closing Date), covering the matters attached hereto as Exhibit C.
3.2 Representations and Warranties. The representations and warranties of the
Company contained in this Agreement which are qualified as to materiality must
be true and correct in all respects and the representations and warranties of
the Company contained in this Agreement which are not qualified as to
materiality must be true and correct in all material respects as of the Closing
Date except to the extent that the representations and warranties relate to an
earlier date in which case the representations and warranties must be true and
correct as written or true and correct in all material respects, as the case may
be, as of the earlier date.
3.3 Performance of Covenants. The Company shall have performed or complied with
in all material respects all covenants and agreements required to be performed
by it on or prior to the applicable Closing pursuant to this Agreement,
including, without limitation, the delivery of certificates evidencing the
Securities issued to the Purchasers at the Closing.
3.4 No Injunctions; etc. No court or governmental injunction, order or decree
prohibiting the purchase and sale of the Securities will be in effect. There
will not be in effect any law, rule or regulation prohibiting or restricting the
sale or requiring any consent or approval of any Person that has not been
obtained to issue and sell the Securities to the Purchasers.
3.5 Closing Documents. At each Closing, the Company shall have delivered to each
applicable Purchaser the following:
(a) a certificate of the President of the Company certifying that the conditions
in Sections 3.2 and 3.3 have been satisfied;
(b) A certificate of the Secretary of the Company, dated as of that Closing
Date, certifying (i) the attached copies of the Certificate of Incorporation and
By-laws of the Company, (ii) the resolutions of the Board of Directors of the
Company (the "Board") authorizing the execution, delivery and performance of
this Agreement and the issuance of the Securities (including, but not limited
to, for purposes of Section 203 of the Delaware General Corporation Law) and
(iii) the incumbency of the officers duly authorized to execute this Agreement
and the other documents contemplated by this Agreement;
(c) a certificate of the Secretary of State of the State of Delaware, dated as a
recent date (but no more than five business days) prior to the date of the
applicable Closing, to the effect that the Company is in good standing in the
State of Delaware and that all annual reports, if any, have been filed as
required and that all taxes and fees have been paid in connection therewith;
(d) a copy of the Certificate of Designations certified by the Secretary of
State of the State of Delaware;
(e) a certificate evidencing the Securities purchased by such Purchaser;
(f) a Registration Rights Agreement duly executed by the Company;
(g) a list of stockholders of the Company, and their respective shareholdings as
indicated in the Company stock records, certified to be true and correct in all
material respects by an executive officer of the Company; and
(h) a Financial Certificate, certifying that true and complete copies of the
unaudited consolidated balance sheet (the "2003 Balance Sheet") of the Company
as of February 28, 2003, and the related income statement and cash flow for the
period then ended (the "2003 Financial Statements") are attached thereto.
3.6 Waivers and Consents. The Company will have obtained all consents and
waivers necessary to execute and deliver this Agreement and all related
documents and agreements and to issue and deliver the Securities, and all
consents and waivers will be in full force and effect.
4. Conditions to the Obligations of the Company at Closing.
The obligation of the Company to issue and sell the Securities to any Purchaser
is subject to the satisfaction on or prior to each Closing Date of the following
conditions, each of which may be waived by the Company:
4.1 Receipt of Purchase Price. The Company shall have received payment in full
in immediately available funds in U.S. dollars of the Purchase Price for the
Securities with respect to which the Company has accepted the Subscription made
by such Purchaser by means of this Agreement.
4.2 Representations and Warranties. The representations and warranties of the
Purchaser contained in this Agreement which are qualified as to materiality must
be true and correct in all respects and the representations and warranties of
the Purchasers contained in this Agreement which are not qualified as to
materiality must be true and correct in all material respects as of the
applicable Closing Date.
4.3 Performance of Covenants. The Purchasers will have performed or complied
with in all material respects all covenants and agreements required to be
performed by the Purchasers on or prior to the Closing pursuant to this
Agreement.
4.4 Purchaser Questionnaire. All of the information furnished by such Purchaser
in the confidential purchaser questionnaire accompanying this Agreement (the
"Purchaser Questionnaire") shall have been accurate and complete in all material
respects.
4.5 No Injunctions. No court or governmental injunction, order or decree
prohibiting the purchase or sale of the Securities will be in effect.
4.6 Closing Document. The Purchasers will have delivered to the Company a
Registration Rights Agreement duly executed by the Purchasers.
4.7 Receipt of Minimum Proceeds of Offering of Series A-2 Preferred Stock. The
Company shall have received payment in immediately available funds in U.S.
dollars of the Purchase Price for at least 900,000 shares of the Securities and
for 500,000 shares of Series A-1 Preferred Stock.
5. Representations and Warranties of each Purchaser.
Each Purchaser, in order to induce the Company to perform this Agreement, hereby
represents and warrants, severally and not jointly, as follows:
5.1 Due Authorization. Each Purchaser represents for such Purchaser to the
Company that such Purchaser has full power and authority and has taken all
action necessary to authorize such Purchaser to execute, deliver and perform
such Purchaser's obligations under this Agreement. This Agreement is the legal,
valid and binding obligation of such Purchaser in accordance with its terms.
5.2 Accredited Investor. Each Purchaser represents that such Purchaser is an
Accredited Investor as that term is defined in Regulation D promulgated under
the Securities Act of 1933, as amended (the "Securities Act").
5.3 No Investment Advice. The Company has not made any other representations or
warranties to such Purchaser other than as set forth herein or incorporated
herein by reference with respect to the Company or rendered any investment
advice.
5.4 Investment Experience. Each Purchaser represents that such Purchaser has not
authorized any Person to act as such Purchaser's Purchaser Representative (as
that term is defined in Regulation D of the General Rules and Regulations under
the Securities Act) in connection with this transaction. Such Purchaser has such
knowledge and experience in financial, investment and business matters that such
Purchaser is capable of evaluating the merits and risks of the prospective
investment in the securities of the Company. Such Purchaser has consulted with
such independent legal counsel or other advisers as such Purchaser has deemed
appropriate to assist such Purchaser in evaluating the proposed investment in
the Company.
5.5 Adequate Means. Each Purchaser represents as to such Purchaser that such
Purchaser (i) has adequate means of providing for such Purchaser's current
financial needs and possible contingencies; and (ii) can afford (a) to hold
unregistered securities for an indefinite period of time as required; and (b)
sustain a complete loss of the entire amount of the subscription.
5.6 Access to Information. Each Purchaser represents that such Purchaser has
been afforded the opportunity to ask questions of, and receive answers from the
officers and/or directors of the Company acting on its behalf concerning the
terms and conditions of this transaction and to obtain any additional
information, to the extent that the Company possesses such information or can
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of the information furnished; and has had such opportunity to the
extent such Purchaser considers appropriate in order to permit such Purchaser to
evaluate the merits and risks of an investment in the Company. It is understood
that all documents, records and books pertaining to this investment have been
made available for inspection, and that the books and records of the Company
will be available upon reasonable notice for inspection by investors during
reasonable business hours at its principal place of business. The foregoing
shall in no way be deemed to limit the ability of each Purchaser to rely on the
representations and warranties set forth herein or incorporated herein by
reference.
5.7 No Endorsement. Each Purchaser further acknowledges that the offer and sale
of the Securities has not been passed upon or the merits thereof endorsed or
approved by any state or federal authorities.
5.8 Non-Registered Securities. Each Purchaser acknowledges that the offer and
sale of the Securities have not been registered under the Securities Act or any
state securities laws and the Securities and the underlying shares of Common
Stock may be resold only if registered pursuant to the provisions thereunder or
if an exemption from registration is available. Each Purchaser understands that
the offer and sale of the Securities is intended to be exempt from registration
under the Securities Act, based, in part, upon the representations, warranties
and agreements of such Purchaser contained in this Agreement.
5.9 No Resale. Each Purchaser represents that the Securities being subscribed
for, and the securities underlying the subscription, are being acquired solely
for the account of such Purchaser for such Purchaser's investment and not with a
view to, or for resale in connection with, any distribution in any jurisdiction
where such sale or distribution would be precluded. By such representation, such
Purchaser means that no other Person has a beneficial interest in the Securities
or the securities underlying the subscription, and that no other Person has
furnished or will furnish directly or indirectly, any part of or guarantee the
payment of any part of the consideration to be paid by such Purchaser to the
Company in connection therewith. Such Purchaser does not intend to dispose of
all or any part of the Securities or the securities underlying the subscription
except in compliance with the provisions of the Securities Act and applicable
state securities laws, and understands that the Securities and the securities
underlying the subscription are being offered pursuant to a specific exemption
under the provisions of the Securities Act, which exemption(s) depends, among
other things, upon the compliance with the provisions of the Securities Act.
5.10 Legend. Each Purchaser hereby acknowledges and agrees that the Company may
insert the following or similar legend on the face of the certificates
evidencing the Securities purchased by such Purchaser and the shares of Common
Stock issued upon the conversion or exercise thereof, as the case may be, if
required in compliance with the Securities Act or state securities laws:
"These securities have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws and may not be sold
or otherwise transferred or disposed of except pursuant to an effective
registration statement under the Securities Act and any applicable state
securities laws, or an opinion of counsel satisfactory to counsel to the issuer
that an exemption from registration under the act and any applicable state
securities laws is available.".
5.11 Broker's or Finder's Commissions. Other than the Placement Agent (as
placement agent on behalf of the Company) or any Other Participating Agent, if
any, no finder, broker, agent, financial person or other intermediary has acted
on behalf of any Purchaser in connection with the sale of the Securities by the
Company or the consummation of this Agreement or any of the transactions
contemplated hereby. Each Purchaser certifies that each of the foregoing
representations and warranties by such Purchaser set forth in this Section 5 are
true as of the date hereof and shall survive such date.
6. Representations and Warranties of the Company.
The Company represents and warrants to the Purchasers that:
6.1 Organization, Good Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company has full corporate power and authority to own and
hold its properties and to conduct its business. The Company is duly licensed or
qualified to do business, and in good standing, in each jurisdiction in which
the nature of its business requires licensing, qualification or good standing,
except for any failure to be so licensed or qualified or in good standing that
would not have a material adverse effect on the Company or its results of
operations, assets or financial condition or on its ability to perform its
obligations under this Agreement or to issue the Securities (a "Material Adverse
Effect").
6.2 Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock and 25,000,000 shares of
Preferred Stock, par value $0.001 per share (the "Preferred Stock"). The list of
stockholders of the Company, and their respective shareholdings as indicated in
the Company stock records, furnished to the Purchasers on the date hereof is
true and correct in all material respects. As of the date hereof, (i) 13,942,289
shares of Common Stock were issued and outstanding, (ii) no shares of Common
Stock were reserved for issuance upon exercise of outstanding options issued to
certain officers of the Company, (iii) except as set forth below in respect of
certain recent negotiations, no shares of Common Stock were reserved for
issuance upon exercise of outstanding options issued to persons other than
officers of the Company, (iv) no shares of Common Stock were reserved for
issuance upon the exercise of outstanding warrants and (v) Company is offering
up to 500,000 shares of its Series A-1 Preferred Stock and the Company is
separately offering up to 2,300,000 shares of its Series A-2 Preferred Stock,
and no other shares of Preferred Stock were issued or outstanding. All the
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable and free of preemptive rights created by or
through the Company, and have been issued in compliance with all federal and
state securities laws, and were not issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. Except as set forth
in this Section 6.2, including without limitation the next succeeding sentence,
there are no other options, warrants or other rights, convertible debt,
agreements, arrangements or commitments of any character obligating the Company
to issue or sell any shares of capital stock of or other equity interests in the
Company. The Company has recently negotiated the following agreements: (x) the
Company has an obligation to issue 300,000 shares to shareholders of County
Services within thirty (30) days of approval of the Company's audited financial
statements for the fiscal year ended February 28, 2003, and 500,000 shares
within thirty (30) days of approval of the Company's audited financial
statements for the fiscal year ended February 28, 2004; (y) upon receipt of
minimum aggregate proceeds of U.S.$3,500,000 from the sale of the Securities and
from the offering of Series A-1 Preferred Stock, the Company will retire
indebtedness to shareholders of MAM Software in the amount of U.S.$4,000,000 as
follows: $1,000,000 in cash out of said proceeds and 1,363,636 shares of Common
Stock ($3,000,000 of stock based on a price of $2.20 per share); and (z) if the
Company receives aggregate proceeds of U.S.$6,000,000 or more from the sale of
the Securities and from the offering of Series A-1 Preferred Stock, the Company
intends to close the acquisition of Epyx Limited, substantially as follows:
U.S.$1,650,000 in cash, and U.S.$1,650,000 in Common Stock of the Company, based
upon the price of the Common Stock at closing with Epyx, and $1,650,000 in
Common Stock of the Company to be issued to the shareholders of Epyx Limited
upon Epyx Limited achieving audited operating income in excess of U.S.$825,000
for the current fiscal year. The Company is not obligated to retire, redeem,
repurchase or otherwise reacquire any of its capital stock or other securities.
Except as disclosed in this Section 6.2 and as contemplated by this Agreement,
there are no stockholders agreements, voting agreements or other similar
agreements with respect to the Common Stock to which the Company is a party.
Except as contemplated by this Agreement, the Company does not directly or
indirectly own or have any investment in any of the capital stock of, or any
other proprietary interest in, any Person other than Europortal Inc., MAM
Software Ltd., Automatrix Ltd., County Services and Products and E-com Multi
Ltd. The Company has not adopted a stockholders rights plan, poison pill or
similar arrangement. The consummation of the transactions contemplated by this
Agreement will not accelerate the vesting schedule of any of the Company's
outstanding options or warrants. Upon consummation of the transactions
contemplated by this Agreement, including without limitation this Section 6.2
and the sale of 500,000 shares of the Series A-1 Preferred Stock, if at least
900,000 of the Securities are sold, the Securities so sold shall represent, on a
fully-diluted basis, approximately 11.43% of the Company's outstanding capital
stock, and if 2,300,000 shares of the Securities are sold, the Securities so
sold shall represent, on a fully-diluted basis, approximately 24.81% of the
Company's outstanding capital stock. For purposes of the foregoing sentence,
"fully-diluted" means: (I) all shares of the Company capital stock to be
outstanding immediately following the Closing; (ii) all securities, including
options and warrants, convertible into or exercisable for shares of Company
capital stock, as if exercised and converted in full at such date; (iii) all
securities issuable pursuant to contractual or other obligations of the Company
existing at the Closing; and (iv) all shares of Company capital stock reserved
for issuance to employees, consultants or directors of the Company or other
Persons not including the securities described in clause (ii).
6.3 Corporate Power, Authorization; Enforceability. The Company has full
corporate power and authority to execute, deliver and enter into this Agreement,
the Certificate of Designations, and the Registration Rights Agreement
(collectively, the "Transaction Documents") and to consummate the transactions
contemplated hereby and thereby. All action on the part of the Company, its
directors or stockholders necessary for the authorization, execution, delivery
and performance of the Transaction Documents by the Company, the authorization,
sale, issuance and delivery of the Securities contemplated hereby and the
performance of the Company's obligations hereunder and thereunder has been
taken. The Securities to be purchased on each the Closing Date and the shares of
Common Stock issuable upon the conversion of the Securities have been duly
authorized and, when issued in accordance with this Agreement, the Certificate
of Designations, as the case may be, will be validly issued, fully paid and
nonassessable and will be free and clear of any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock and equity related
preferences) (collectively, "Liens") imposed by or through the Company other
than restrictions imposed by this Agreement, the Certificate of Designations,
and the Registration Rights Agreement, as the case may be, and applicable
securities laws. No preemptive or other rights to subscribe for or purchase
equity securities of the Company exists with respect to the issuance and sale of
the Securities or the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock. The Transaction Documents have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
6.4 Financial Statements and Commission Filings; Undisclosed Liabilities. (a)
Included in the Company's Form 10-KSB/A for the year ended February 28, 2002
(the "2002 10-KSB") are true and complete copies of the audited consolidated
balance sheet (the "2002 Balance Sheet") of the Company as of February 28, 2002,
and the related audited income statement and cash flow for the period then ended
(the "2002 Financial Statements"), accompanied by the report of each of Frank
Hanson CPA. Attached to the Financial Certificate delivered at Closing are true
and complete copies of the unaudited consolidated balance sheet (the "2003
Balance Sheet") of the Company as of February 28, 2003, and the related income
statement and cash flow for the period then ended (the "2003 Financial
Statements"). As of their respective dates, the 2002 Financial Statements
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Securities and
Exchange Commission (the "Commission") with respect thereto. Each of the 2002
Financial Statements and the 2003 Financial Statements have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP"),
consistently applied, during the periods involved (except in the case of
unaudited interim statements, to the extent they may exclude footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). The
Company keeps proper accounting records in which all material assets and
liabilities and all material transactions of the Company are recorded in
conformity with GAAP. (b) Since February 28, 2002, the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing, including, but not limited to, the 2002 10-KSB, filed prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "Commission Documents") and all such Commission
Documents were filed within the time periods specified in the Exchange Act. As
of their respective filing dates, each Commission Document complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission thereunder
applicable to the Commission Documents, and no Commission Document contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein. As of
their respective filing dates, the financial statements of the Company included
in the Commission Documents complied as to form in all material respects with
then applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto, were prepared in accordance
with GAAP and as of their respective dates, fairly presented in all material
respects the consolidated financial position of the Company and the results of
its operations as of the time and for the periods indicated therein (except as
may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-QSB, and Regulations S-B and S-X of the
Commission). (c) Since February 28, 2002, the Company has not incurred any
liabilities or obligations of any nature, whether or not accrued, absolute,
contingent or otherwise ("Liabilities"), other than liabilities (i) disclosed in
the Commission Documents filed prior to the date of this Agreement, (ii)
adequately provided for in the Balance Sheet or disclosed in any related notes
thereto, (iii) incurred in connection with this Agreement, or (iv) incurred in
the ordinary course of business, in each case other than such liabilities or
obligations which do not have a Material Adverse Effect.
6.5 No Material Adverse Changes. Since February 28, 2002, except as disclosed in
the Commission Documents filed subsequent to that date, there has not been any
material adverse change in the business, financial condition or operating
results of the Company.
6.6 Absence of Certain Developments. Except as contemplated by this Agreement
and as contemplated by the Commission Documents, since February 28, 2002,
through the date immediately preceding each Closing Date, the Company has not
(a) issued any stock, options, bonds or other corporate securities other than as
reflected in Section 6.2 hereof, (b) borrowed any amount or incurred or became
subject to any Liabilities (absolute, accrued or contingent), other than current
Liabilities incurred in the ordinary course of business and Liabilities under
contracts entered into in the ordinary course of business, (c) discharged or
satisfied any material Lien or adverse claim or paid any obligation or Liability
(absolute, accrued or contingent), other than current Liabilities shown on the
Balance Sheet and current Liabilities incurred in the ordinary course of
business, (d) declared or made any payment or distribution of cash or other
property to the stockholders of the Company or purchased or redeemed any
securities of the Company, (e) mortgaged, pledged or subjected to any material
Lien or adverse claim any of its properties or assets, except for Liens for
taxes not yet due and payable or otherwise in the ordinary course of business,
(f) sold, assigned or transferred any of its assets, tangible or intangible,
except in the ordinary course of business or in an amount less than $250,000,
(g) suffered any extraordinary losses or waived any rights of material value
other than in the ordinary course of business, (h) made any capital expenditures
or commitments therefore other than in the ordinary course of business or in an
amount less than $250,000, (i) entered into any other transaction other than in
the ordinary course of business in an amount less than $250,000 or entered into
any material transaction, whether or not in the ordinary course of business, (j)
made any charitable contributions or pledges, (k) suffered any damages,
destruction or casualty loss, whether or not covered by insurance, affecting any
of the properties or assets of the Company or any other properties or assets of
the Company which could, individually or in the aggregate, have or result in a
Material Adverse Effect, (l) made any material change in the nature or
operations of the business of the Company, (m) participated in any transaction
that would have a Material Adverse Effect or otherwise acted outside the
ordinary course of business, (n) the Company has not increased the compensation
of any of its officers or the rate of pay of any of its employees, except as
part of regular compensation increases in the ordinary course of business, (o)
entered into any agreement or commitment to do any of the foregoing.
6.7 No Conflict; Governmental Consents. (a) The execution and delivery by the
Company of this Agreement and the Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby will not (i)
result in the violation of any provision of the Certificate of Incorporation or
By-laws or other organizational documents of the Company, (ii) result in any
violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or Governmental Authority to or by which the
Company is bound, or (iii) conflict with, or result in a breach or violation of,
any of the terms or provisions of, or constitute (with due notice or lapse of
time or both) a default under, any bond, debenture, note or other evidence of
indebtedness, or any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company is a party or by which it or its property is bound, nor result in
the creation or imposition of any Lien upon any of the properties or assets of
the Company, except for, in the case of clauses (ii) and (iii) of this
subsection 6.7(a), any violation, conflict, breach or default which would not
have a Material Adverse Effect.
(b) No material consent, approval, license, permit, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other Governmental Authority or Person, and no lapse of any
waiting period under any Requirements of Law, remains to be obtained (or lapsed)
or is otherwise required to be obtained by the Company in connection with the
authorization, execution and delivery of this Agreement or the Registration
Rights Agreement or the consummation of the transactions contemplated hereby or
thereby, including, without limitation the issue and sale of the Securities and
the shares of Common Stock underlying such Securities, except filings as may be
required to be made by the Company after each Closing with (i) the Commission,
(ii) the National Association of Securities Dealers, Inc. ("NASD"), (iii) the
Nasdaq Stock Market, Inc. and (iv) state blue sky or other securities regulatory
authorities. For purposes of this Agreement, "Requirements of Law" means, as to
any Person, any law, statute, treaty, rule, regulation, right, privilege,
qualification, license or franchise or determination of an arbitrator or a court
or other government of any nation, state, city, locality or other political
subdivision thereof, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing (each, a "Governmental
Authority") or stock exchange, in each case applicable or binding upon such
Person or any of its property or to which such Person or any of its property is
subject or pertaining to any or all of the transactions contemplated or referred
to herein.
6.8 Litigation. There are no claims, actions, suits, investigations or
proceedings pending or, to the Company's knowledge, threatened proceedings
against the Company or its respective assets, at law or in equity, by or before
any Governmental Authority, or by or on behalf of any third party, except for
any claim, action, suit, investigation or proceeding which would not have a
Material Adverse Effect nor does the Company have knowledge that there is any
reasonable basis for any of the foregoing. There are no claims, actions, suits,
investigations or proceedings pending or, to the Company's knowledge, threatened
proceedings against the Company contesting the right of the Company to use,
sell, import, license, or make available to any Person any of the Company's
products or services currently or previously sold, offered, licensed or made
available to any Person or used by the Company or opposing or attempting to
cancel any of the Company's Intellectual Property rights, except for any claim,
action, suit, investigation or proceeding which would not have a Material
Adverse Effect.
6.9 Compliance with Laws; No Default or Violation; Contracts. The Company is in
compliance in all material respects with all Requirements of Law and all orders
issued by any court or Governmental Authority against the Company in all
material respects. To the Company's knowledge, there is no existing or currently
proposed Requirement of Law which could reasonably be expected to prohibit or
restrict the Company from, or otherwise materially adversely affect the Company
in, conducting its business in any jurisdiction in which it now conducts or
proposes to conduct such business. The Company has all material licenses,
permits and approvals of any Governmental Authority (collectively, "Permits")
that are necessary for the conduct of the business of the Company; (ii) such
Permits are in full force and effect; and (iii) no violations are or have been
recorded in respect of any Permit. No material expenditure is presently required
by the Company to comply with any existing Requirements of Law or order. Except
as would not be reasonably expected to have a Material Adverse Effect, the
Company is not (i) in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party of
by which it or any of its properties is bound or (ii) in violation of any order,
decree or judgment of any court, arbitrator or other Governmental Authority. The
contracts described in the Commission Documents or incorporated by reference
therein that are material to the Company (collectively, the "Contractual
Obligations") are in full force and effect on the date hereof, and neither the
Company nor, to the Company's knowledge, any other party to such contracts is in
breach of or default under any of such contracts nor, to the Company's
knowledge, does any condition exist that with notice or lapse of time or both
would constitute a default by such other party thereunder. The Company has not
received notice of a default and is not in default under, or with respect to,
any Contractual Obligation nor, to the Company's knowledge, does any condition
exist that with notice or lapse of time or both would constitute a default
thereunder. All of such Contractual Obligations are valid, subsisting, in full
force and effect and binding upon the Company and, to the Company's knowledge,
the other parties thereto, and the Company has paid in full or accrued all
amounts due thereunder and has satisfied in full or provided for all of its
liabilities and obligations thereunder.
6.10 Insurance. The Company maintains and will continue to maintain insurance of
the types and in the amounts that the Company reasonably believes is adequate
for its business, including, but not limited to, insurance covering all real and
personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against
by similarly situated companies, all of which insurance is in full force and
effect.
6.11 Environmental Matters. The Company is in compliance, in all material
respects, with all applicable Environmental Laws. There is no civil, criminal or
administrative judgment, action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter pending or, to the
Company's knowledge, threatened against the Company pursuant to Environmental
Laws. To the Company's knowledge, there are no past or present events,
conditions, circumstances, activities, practices, incidents, agreements, actions
or plans which could reasonably be expected to prevent compliance with, or which
have given rise to or will give rise to liability which would have a Material
Adverse Effect, under Environmental Laws. For purposes of the foregoing,
"Environmental Laws" means federal, state, local and foreign laws, principles of
common laws, civil laws, regulations, and codes, as well as orders, decrees,
judgments or injunctions, issued, promulgated, approved or entered thereunder
relating to pollution, protection of the environment or public health and
safety.
6.12 Taxes. The Company has paid or caused to be paid, or has established
reserves in accordance with GAAP for all Tax liabilities applicable to the
Company for all fiscal years that have not been examined and reported on by the
taxing authorities (or closed by applicable statutes). No additional Tax
assessment against the Company has been heretofore proposed or, to the Company's
knowledge, threatened by any Governmental Authority for which provision has not
been made on its balance sheet. No tax audit is currently in progress and there
is no unassessed deficiency proposed or, to the Company's knowledge, threatened
against the Company. The Company has no knowledge of any change in the rates or
basis of assessment of any Tax (other than federal income tax), of the Company
which would reasonably be expected to have a Material Adverse Effect. The
Company has not agreed to or is required to make any adjustments under section
481 of the Code by reason of a change of accounting method or otherwise. None of
the assets of the Company is required to be treated as being owned by any
Person, other than the Company or any of its subsidiaries, pursuant to the "safe
harbor" leasing provisions of Section 168(f)(8) of the Code. The company is not
a "United States real property holding corporation" (a "USRPHC") as that term is
defined in Section 897(c)(2) of the Code and the regulations promulgated
thereunder. For purposes of this Agreement, "Code" means the Internal Revenue
Code of 1986, as amended, and "Taxes" means any federal, state, provincial,
county, local, foreign and other taxes (including, without limitation, income,
profits, windfall profits, alternative, minimum, accumulated earnings, personal
holding company, capital stock, premium, estimated, excise, sales, use,
occupancy, gross receipts, franchise, ad valorem, severance, capital levy,
production, transfer, withholding, employment, unemployment compensation,
payroll and property taxes, import duties and other governmental charges and
assessments), whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or interest, and penalties
with respect thereto, and including expenses associated with contesting any
proposed adjustments related to any of the foregoing.
6.13 Intellectual Property.
(a) "Intellectual Property" shall mean all of the following as they are
necessary in connection with the business of the Company as presently conducted
and as they exist in all jurisdictions throughout the world, in each case, to
the extent owned by or licensed to the Company: (i) patents, patent applications
and inventions, designs and improvements described and claimed therein,
patentable inventions and other patent rights (including any divisions,
continuations, continuations-in-part, reissues, reexaminations, or interferences
thereof, whether or not patents are issued on any such applications and whether
or not any such applications are modified, withdrawn, or resubmitted)
("Patents"); (ii) trademarks, service marks, trade dress, trade names, brand
names, designs, logos, or corporate names, whether registered or unregistered,
and all registrations and applications for registration thereof ("Trademarks");
(iii) copyrights and mask works, including all renewals and extensions thereof,
copyright registrations and applications for registration thereof, and
non-registered copyrights ("Copyrights"); (iv) trade secrets, inventions,
know-how, process technology, databases, confidential business information,
customer lists, technical data and other proprietary information and rights
("Trade Secrets"); (v) computer software programs, including, without
limitation, all source code, object code, and documentation related thereto
("Software"); (vi) Internet addresses, domain names, web sites, web pages and
similar rights and items ("Internet Assets"); and (vii) all licenses,
sublicenses and other agreements or permissions including the right to receive
royalties, or any other consideration related to the property described in
(i)-(vi). The Intellectual Property contains all of the intellectual property
necessary to operate the business of the Company as currently conducted.
(b) The Company exclusively owns (or otherwise has the right to use the
Intellectual
Property pursuant to a valid license, sublicense or other agreement), free and
clear of all Liens, and has the unrestricted right (subject to any such license
terms, if applicable) to use, sell, license, or sublicense all Intellectual
Property.
(c) There are no issued Patents, registrations, filings and applications for any
Patents, Trademarks and Copyrights filed by the Company. (d) There are no
material licenses, sublicenses, distributor agreements and other agreements or
permissions ("IP Licenses") under which the Company is a (i) licensor, or (ii)
licensee, distributor, or reseller, except such licenses, sublicenses and other
agreements relating to off-the-shelf software which is commercially available on
a retail basis for less than $500 per license and $25,000 in the aggregate and
used solely on the computers of the Company ("Off-the-Shelf Software"). To the
knowledge of the Company, all of the IP Licenses, if any, are valid,
enforceable, and in full force and effect, and, with respect to the Company,
will continue to be on identical terms immediately following the completion of
the transactions contemplated by this Agreement.
(e) All products made, used or sold by the Company under the Patents have been
marked with the proper patent notice. (f) All products and materials made, used
or sold by the Company containing Trademarks bear the proper federal
registration notice where permitted by law. (g) All works encompassed by the
Copyrights and used by the Company have been marked with the proper copyright
notice.
(h) To the Company's knowledge, upon reasonable inquiry in accordance with sound
business practice and business judgment, all the Company's Intellectual Property
rights are valid and enforceable. The Company has taken all reasonably necessary
actions to maintain and protect each item of Intellectual Property owned by the
Company.
(i) The Company has taken all reasonable precautions to protect the secrecy,
confidentiality,
and value of its Trade Secrets and the proprietary nature and value of its
Intellectual Property. To the best of the Company's knowledge, none of the Trade
Secrets, wherever located, the value of which is contingent upon maintenance of
confidentiality thereof, have been disclosed to any employee, representative or
agent of the Company or any other person not obligated to maintain such Trade
Secret in confidence pursuant to a confidentiality agreement entered into with
the Company, except as required pursuant to the filing of a patent application
by the Company.
(j) The Company is diligently prosecuting all Patent applications it has filed,
as instructed by patent counsel. The Company is diligently filing and preparing
to file Patent applications for all inventions in a manner and within a
sufficient time period to avoid statutory disqualification of any potential
Patent application.
(k) [intentionally omitted].
(l) Unless otherwise disclosed by the Company or pursuant to a current license,
it is not
necessary for the Company's business to use any Intellectual Property owned by
any present or past director, officer, employee or consultant of the Company (or
persons the Company presently intends to hire). To the actual knowledge of the
Company's executive officers, at no time during the conception or reduction to
practice of any of the Company's Intellectual Property was any developer,
inventor or other contributor to such Intellectual Property operating under any
grants from any Governmental Authority or subject to any employment agreement,
invention and assignment, nondisclosure agreement or other Contractual
Obligation with any Person that could adversely affect the Company's rights to
its Intellectual Property.
(m) To the knowledge of the Company, upon reasonable inquiry in accordance with
sound
business practice and business judgment, none of the Intellectual Property,
products or services owned, used, developed, provided, sold or licensed by the
Company, or made for, used or sold by or licensed to the Company by any person
infringes upon or otherwise violates any Intellectual Property rights of others.
(n) To the knowledge of the Company, upon reasonable inquiry in accordance with
sound business practice and business judgment, no Person is infringing upon or
otherwise violating the Intellectual Property rights of the Company.
6.14 Employee Benefit Plans.
(a) Neither the Company nor any entity which is or was under common control
within the meaning of Section 414(b), (c), (m) or (o) of the Code maintains or
contributes to, or has within the preceding six years maintained or contributed
to, or may have any liability with respect to any employee benefit plan subject
to Title IV of Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 412 of the Code or any "multiple employer plan" within the
meaning of the Code or ERISA. Each employee benefit plan, arrangement, policy,
program, agreement or commitment which the Company maintains, contributes to or
may have any liability in respect to (each, a "Plan") has been established and
administered in accordance with its terms, and complies in form and in operation
with the applicable requirements of ERISA, the Code and other applicable
Requirements of Law. No claim with respect to the administration or the
investment of the assets of any Plan (other than routine claims for benefits) is
pending. No event has occurred in connection with which the Company or any Plan,
directly or indirectly, could be subject to any material liability under ERISA,
the Code or any other law, regulation or governmental order applicable to any
Plan, or under any agreement, instrument, statute, rule of law or regulation
pursuant to or under which the Company has agreed to indemnify any person
against liability incurred under, or for a violation or failure to satisfy the
requirement of, any such statute, regulation or order. The Company has no
liability, whether absolute or contingent, including any obligations under any
Plan, with respect to any misclassification of any person as an independent
contractor rather than as an employee.
(b) The Company does not have any obligations to provide or any direct or
indirect liability, whether contingent or otherwise, with respect to the
provision of health or death benefits to or in respect of any former employee,
except as may be required pursuant to Section 4980B of the Code and the
corresponding provisions of ERISA and the cost of which are fully paid by such
former employees. (c) There are no unfunded obligations under any Plan which are
not fully reflected on the Financial Statements. 6.15 Investment Company. The
Company is not an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for an investment company, within the
meaning of the Investment Company Act of 1940, as amended.
6.16 Compliance. The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act, and is listed on the OTC bulletin board, and the Company has taken
no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the OTC Bulletin Board. The Company has not taken and will not, in
violation of applicable law, take, any action designed to or that might
reasonably be expected to cause or result in unlawful manipulation of the price
of the Common Stock to facilitate the sale or resale of the Securities.
6.17 Private Offerings. Assuming the truth of each Purchaser's representations
and acknowledgments contained in Section 5 hereof, neither the Company nor any
Person acting on its behalf (other than the Purchasers, as to whom the Company
makes no representations) has offered or sold the Securities by means of any
general solicitation or general advertising within the meaning of Rule 502(c)
under the Securities Act. The Company has not sold the Securities to anyone
other than the subscribers to this Agreement. Each Security shall bear
substantially the same legend set forth in Section 8 hereof for at least so long
as required by the Securities Act.
6.18 Broker's or Finder's Commissions. Other than the Placement Agent (as
placement agent on behalf of the Company) or any Other Participating Agent, no
finder, broker, agent, financial person or other intermediary has acted on
behalf of the Company in connection with the sale of the Securities by the
Company or the consummation of this Agreement or any of the transactions
contemplated hereby. The Company has not had any direct or indirect contact with
any other investment banking firm (or similar firm) with respect to the offer of
the Securities by the Company to the Purchasers or the Purchasers' subscriptions
for the Securities.
6.19 Disclosure. The Transaction Documents do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which they were made, not misleading. The Company does not have any
knowledge of any fact that has specific application to the Company (other than
general economic or industry conditions) and that can reasonably be foreseen to
cause a Material Adverse Effect that has not been set forth in the Transaction
Documents or the Commission Documents.
The Company certifies that each of the foregoing representations and warranties
by the Company sets forth in this Section 6 are true as of the date hereof and
shall survive such date as contemplated in Section 7.1.
7. Indemnification.
7.1 The Company agrees to indemnify and hold harmless the Purchasers, their
affiliates and each of their respective directors, officers, general and limited
partners, principals, agents and attorneys (individually, an "Indemnified Party"
and collectively, the "Indemnified Parties") from and against any and all
losses, claims, damages, Liabilities, costs (including reasonable attorneys'
fees) and expenses (collectively, "Losses") to which any Indemnified Party may
become subject, insofar as such Losses arise out of, in any way relate to, or
result from (i) any breach of any representation or warranty made by the Company
contained in or made pursuant to this Agreement, or (ii) the failure of the
Company to fulfill any agreement or covenant contained in or made pursuant to
this Agreement. All of the representations and warranties of the Company made
herein shall survive the execution and delivery of this Agreement until the date
that is ninety (90) days after the filing by the Company with the Commission of
audited financial statements of the Company for the fiscal year ending February
28, 2004 (or, if such fiscal year changes and no such audited consolidated
financial statements are available, then the successor fiscal year), except for
(a) Sections 6.1 (Organization, Good Standing and Qualification), 6.2
(Capitalization), 6.3 (Corporate Power, Authorization; Enforceability), 6.18
(Private Offerings) and 6.19 (Broker's or Finder's Commission), which
representations and warranties shall survive indefinitely (or if indefinite
survival is not permitted by law, then for the maximum period permitted by
applicable law), (b) Section 6.12 (Taxes), which representation and warranty
shall survive until the later to occur of (i) the lapse of the statute of
limitations with respect to the assessment of any tax to which such
representation and warranty relates (including any extensions or waivers
thereof) and (ii) sixty (60) days after the final administrative or judicial
determination of the Taxes to which such representation and warranty relates,
and no claim with respect to Section 6.12 may be asserted thereafter with the
exception of claims arising out of any fact, circumstance, action or proceeding
to which the party asserting such claim shall have given notice to the other
parties to this Agreement prior to the termination of such period of reasonable
belief that a tax liability will subsequently arise therefrom, and (c) Section
6.11 (Environmental Matters), which representation and warranty shall survive
until the lapse of the applicable statute of limitations. Except as set forth
herein, all of the covenants, agreements and obligations of the parties hereto
shall survive the Closing indefinitely (or if indefinite survival is not
permitted by law, then for the maximum period permitted by applicable law).
7.2 Promptly after receipt by an Indemnified Party under Section 7.1 of notice
of any claim as to which indemnity may be sought, including, without limitation,
the commencement of any action or proceeding, the Indemnified Party will, if a
claim in respect thereof may be made against the indemnifying party under this
Section, promptly notify the indemnifying party in writing of the commencement
thereof; provided that the failure of the Indemnified Party to so notify the
indemnifying party will not relieve the indemnifying party from its obligations
under this Section unless, and only to the extent that, such omission results in
the indemnifying party's forfeiture of substantive rights or defenses or being
materially prejudiced by the Indemnified Person's failure to give such notice.
In case any action or proceeding is brought against any Indemnified Party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to assume the defense thereof at its own expense, with
counsel satisfactory to such Indemnified Party in its reasonable approval (which
approval will not be withheld or delayed unreasonably); provided, however, that
any Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. After notice from the
indemnifying party to the Indemnified Party of its election to so assume the
defense thereof, the indemnifying party will not be Liable to the Indemnified
Party under that Section 7 for any legal or any other expenses subsequently
incurred by the Indemnified Party in connection with the defense thereof (other
than reasonable costs of investigation) unless incurred at the written request
of the indemnifying party. Notwithstanding the above, the Indemnified Party will
have the right to employ counsel of its own choice in any action or proceeding
(and be reimbursed by the indemnifying party for the reasonable fees and
expenses of the counsel and other reasonable costs of the defense) if, in the
written opinion of such Indemnified Party's counsel, representation of the
Indemnified Party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests or conflicts
between the Indemnified Party and any other party represented by the counsel in
the action; provided, however, that the indemnifying party will not in
connection with any one action or proceeding or separate but substantially
similar actions or proceedings arising out of the same general allegations, be
Liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for all Indemnified Parties, except to the extent that
local counsel, in addition to regular counsel, is required in order to
effectively defend against the action or proceeding. An indemnifying party will
not be Liable to any Indemnified Party for any settlement or entry of judgment
concerning any action or proceeding effected without the consent of the
indemnifying party, which consent shall not be unreasonably withheld. The
indemnifying party agrees that it will not, without the prior written consent of
the Indemnified Party, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim relating to the matters contemplated
hereby (if any Indemnified Party is a party thereto or has been actually
threatened to be made a party thereto) unless such settlement, compromise or
consent includes an unconditional release of each Indemnified Party from all
liability arising or that may arise out of such claim. The rights accorded to an
Indemnified Party hereunder shall be in addition to any rights that any
Indemnified Party may have at common law, by separate agreement or otherwise;
provided, however, that notwithstanding the foregoing or anything to the
contrary contained in this Agreement, (a) nothing in this Section 7 shall
restrict or limit any rights that any Indemnified Party may have to seek
equitable relief and (b) this Section 7 shall be the sole remedy for any breach
of the Company's representations and warranties contained in Section 6 except
with respect to claims arising out of fraud or willful misconduct.
8. Covenants.
8.1 Use of Proceeds. The Company will use the proceeds from this Offering to pay
indebtedness to certain MAM Shareholders, to make a loan to Car Parts
Technologies Inc, for partial consideration in the acquisition of Epyx Limited
and for general corporate purposes, provided that in the event that the proceeds
from the sale of the Securities and Series A-1 Preferred Stock are less than
U.S.$6,000,000, the Company does not presently intend to proceed with the
acquisition of Epyx Limited on the terms contemplated by this Agreement.
8.2 Business Development. As soon as practicable after the Closing, the Company
shall use commercially reasonable efforts to: (a) create and implement an annual
budget, approved by the Board, (b) hire additional personnel where necessary;
and (c) obtain appropriate product liability insurance to cover all risks
associated with the Company's business that are customarily insured against in
the industry in such amounts as are customary in the industry.
8.3 [intentionally omitted].
8.4 Conduct of the Company's Business. Except as contemplated by this Agreement,
during the period from the date hereof to the Closing Date, the Company will
conduct its business and operations solely in the ordinary course of business
consistent with past practice and use reasonable commercial efforts to keep
available the services of its officers and employees and preserve its current
relationships with customers, suppliers, licensors, creditors and others having
business dealings with it.
8.5 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement at the earliest
practicable date.
8.7 Tax Matters.
(a) The Company covenants that it will use commercially reasonable efforts not
to become a USRPHC at any time while any Purchaser owns any of the Securities.
(c) In the event that a Purchaser desires to sell or dispose of any of the
Securities or Conversion Stock as permitted under this Agreement and applicable
law, and upon demand by such Purchaser, the Company agrees to deliver to such
Purchaser a letter (the "Letter") which complies with Sections 1.1445- 2(c)(3)
and 1.897-2(h) of the Treasury Regulations, addressed to such Purchaser, stating
whether or not the Company is a USRPHC. The Letter shall be delivered to the
Purchaser one business day prior to the close of any sale or disposition of the
Securities or Conversion Stock by the Purchaser (the "Delivery Date"). The
Letter shall be dated as of the Delivery Date and signed by a corporate officer
who must verify under penalties of perjury that the statement is correct to his
knowledge and belief pursuant to Section 1.897-2(h) of the Treasury Regulations.
9. FOR RESIDENTS OF ALL STATES: NEITHER THE SECURITIES OFFERED
HEREBY OR THE SECURITIES INTO WHICH SUCH SECURITIES MAY BE CONVERTED HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS.
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
10. No Waiver.
Notwithstanding any of the representations, warranties, acknowledgments or
agreements made herein by the Purchasers, the Purchasers do not thereby or in
any manner waive any rights granted to the Purchasers under federal or state
securities laws.
11. Miscellaneous.
11.1 Notices. Any notice or other communication given hereunder by any party
hereto to any other party hereto shall be in writing and delivered personally or
by facsimile transmission or sent by registered or certified mail or by any
express mail or overnight courier service, postage or fees prepaid:
If to the Company:
Auto Data Network, Inc.
509 Madison Avenue
Suite 404
New York, New York 10022
Attention: Christopher R. Glover, CEO.- 19 -
Telephone: (212) 561-1837
Facsimile: (212) 937-4675
If to the Purchasers:
To each Purchaser at such Purchaser's name and address set forth on the
signature page to this Agreement. Any notice that is delivered personally or by
facsimile transmission in the manner provided herein shall be deemed to have
been duly given to the party to whom it is directed upon actual receipt by such
party or its agent. Any notice that is addressed and mailed or sent by courier
in the manner herein provided shall be conclusively presumed to have been duly
given to the party to which it is addressed at the close of business, local time
of the recipient, on the fourth business day after the day it is so placed in
the mail or, if earlier, the time of actual receipt.
11.2 Successors and Assigns. This Agreement will be binding upon and inure to
the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns, provided, that no party may assign this
Agreement without the prior written consent of the other party, such consent not
to be unreasonably withheld; provided, further, that a Purchaser may assign this
Agreement to its affiliates without consent; provided that any transfer of
Securities or shares of Common Stock underlying such Securities must be in
compliance with the Transaction Documents and all applicable law.
11.3 Entire Agreement. This Agreement sets forth the entire agreement and
understanding among the parties as to the subject matter hereof and merges and
supersedes all prior discussions, agreements and understandings of any and every
nature among them; provided that any confidentiality agreement between the
Company and any Purchaser shall remain in effect. This Agreement may be amended
only by mutual written agreement of the Company and a majority in interest of
the Purchasers, and the Company may take any action herein prohibited or omit to
take any action herein required to be performed by it, and any breach of any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or waiver of the Purchasers purchasing
a majority of the Securities offered hereby.
11.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York with respect to contracts made
and to be fully performed therein, without regard to the conflicts of laws
principles thereof. The parties hereto hereby agree that any suit or proceeding
arising under this Agreement, or in connection with the consummation of the
transactions contemplated hereby, shall be brought solely in a federal or state
court located in the County of New York and State of New York. By its execution
hereof, both the Company and the Purchasers hereby consent and irrevocably
submit to the in personam jurisdiction of the federal and state courts located
in the County of New York and State of New York and agree that any process in
any suit or proceeding commenced in such courts under this Agreement may be
served upon it personally or by certified or registered mail, return receipt
requested, or by Federal Express or other courier service, with the same force
and effect as if personally served upon the applicable party in New York and in
the city or county in which such other court is located. The parties hereto each
waive any claim that any such jurisdiction is not a convenient forum for any
such suit or proceeding and any defense of lack of in personam jurisdiction with
respect thereto.
11.5 Severability. The holding of any provision of this Agreement to be invalid
or unenforceable by a court of competent jurisdiction will not affect any other
provision of this Agreement, which will remain in full force and effect. If any
provision of this Agreement is declared by a court of competent jurisdiction to
be invalid, illegal or incapable of being enforced in whole or in part, the
provision will be interpreted so as to remain enforceable to the maximum extent
permissible consistent with applicable law and the remaining conditions and
provisions or portions thereof will nevertheless remain in full force and effect
and enforceable to the extent they are valid, legal and enforceable, and no
provisions will be deemed dependent upon any other covenant or provision unless
so expressed herein.
11.6 No Waiver. A waiver by either party of a breach of any provision of this
Agreement will not operate, or be construed, as a waiver of any subsequent
breach by that same party.
11.7 Further Assurances. The parties agree to execute and deliver all further
documents, agreements and instruments and take further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
11.8 Counterparts. This Agreement may be executed in two or more counterparts,
each of which will be deemed an original, but all of which will together
constitute the same instrument.
11.9 No Third Party Beneficiaries. Nothing in this Agreement creates in any
Person not a party to this Agreement any legal or equitable right, remedy or
claim under this Agreement, and this Agreement is for the exclusive benefit of
the parties hereto. The parties expressly recognize that this Agreement is not
intended to create a partnership, joint venture or other similar arrangement
between any of the parties or their respective affiliates.
11.10 Headings. The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
11.11 Publicity Restrictions. Except as may be required by applicable
Requirements of Law, none of the parties hereto shall issue a publicity release
or public announcement or otherwise make any disclosure concerning this
Agreement, the transactions contemplated hereby without prior approval by the
other party hereto; provided that each Purchaser may disclose on its worldwide
web pages and its offering materials, if any, the name of the Company, the name
of the Chief Executive Officer of the Company, a brief description of the
business of the Company consistent with the Commission Documents or the
Company's press releases or other public statements, the Company's logo and the
aggregate amount of such Purchaser's investment in the Company. If any
announcement is required by applicable law or the rules of any securities
exchange or market on which such shares of Common Stock are traded to be made by
any party hereto, prior to making such announcement such party will deliver a
draft of such announcement to the other parties and shall give the other parties
reasonable opportunity to comment thereon. The parties agree to attribute and
otherwise indicate ownership of the other party's trademarks and logos.
11.12 Certification. Each Purchaser certifies that such Purchaser has read this
entire Agreement and that every statement on such Purchaser's part made and set
forth herein is true and complete.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement on the date his signature has been subscribed and sworn to below.
The shares of Series A-2 Preferred Stock and the common stock purchase warrants
are to be issued in:
Print Name of Investor
____ individual name
shares of Series A-2 Preferred
Stock subscribed for
____ tenants in the entirety
Subscription price paid herewith:
$ (being $2.50 x the number of shares of Series A-2 Preferred Stock listed
above)
____ corporation (an officer must sign) Print Name of Joint Investor
(if applicable)
____ partnership (all general partners must sign) Signature of Investor
____ trust Signature of Joint Investor
____ limited liability company
(with a copy to:)
Address of Investor
Accepted as of the ___ day of ______, 2003 as to _______________ shares of
Series A-2 Preferred Stock;
Subscription price accepted being $______________, being $2.50 x the number of
shares of Series A-2 Preferred Stock as to which this Subscription is accepted:
AUTO DATA NETWORK, INC.
By: ___________________________________________
Name:
Title:.xxii
[INSERT PURCHASER QUESTIONNAIRE].iv
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATIONS.v
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT.vi
EXHIBIT C TO FORM OF SECURITIES PURCHASE AGREEMENT
Matters to be Covered in Legal Opinion of Company's Counsel
1. The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware.
2. The Company has all necessary corporate power and authority to execute,
deliver, enter into and perform its obligations under each of the Transaction
Documents and to consummate the transactions contemplated thereby, including,
without limitation, to issue, sell and deliver the Series A Preferred Stock and
the shares of Common Stock issuable upon conversion thereof. The execution,
delivery and performance of each of the Transaction Documents has been duly
authorized by all necessary corporate action on the part of the Company.
3. The Transaction Documents have been duly executed and delivered by the
Company and constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy.
4. The Securities and the shares of Common Stock into which they are convertible
have been duly authorized and, when issued in accordance with the Securities
Purchase Agreement or the Certificate of Designations, as applicable, will be
validly issued, fully paid and nonassessable and will be free and clear of all
Liens imposed by or through the Company other than restrictions imposed by the
Securities Purchase Agreement, the Certificate of Designations, and applicable
securities laws. No statutory or, to our actual knowledge based solely upon the
representations and warranties of the Company in the Transaction Documents and
upon an officers' certificate from an officer of the Company, contractual
preemptive or other rights to subscribe for or purchase equity securities of the
Company exists with respect to the issuance and sale of the Securities by the
Company pursuant to the Transaction Documents.
5. The execution and delivery by the Company of the Transaction Documents do not
and the consummation of the transactions contemplated thereby will not (A)
violate any provision of the Certificate of Incorporation or By-laws of the
Company, (B) violate any law, statute, rule, regulation, order, judgment or
decree of any court or Governmental Authority which, to our knowledge, is
applicable to the Company, or (C) to our actual knowledge based solely upon the
representations and warranties of the Company in the Transaction Documents and
upon an officers' certificate from an officer of the Company, breach or
constitute (with due notice or lapse of time or both) a default under, any
material agreement to which the Company is a party or by which it is bound or to
which any of its properties or assets is subject, nor result in the creation or
imposition of any Lien, other than Permitted Liens, upon any of the properties
or assets of the Company, except for, in the case of clauses (B) and (C), any
violation, breach or default which would not have a Material Adverse Effect.
6. Except for filings, authorizations or approvals contemplated by the
Securities Purchase Agreement, no authorizations or approvals of, and no filings
with, any Governmental Authority are necessary or required by the Company for
the execution and delivery of the Transaction Documents or the consummation of
the transactions contemplated thereby..vii
7. The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
8. Assuming the accuracy of the representations and warranties of the Purchasers
in the Securities Purchase Agreement, the offer and sale of the Securities is
exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2) and/or Rule 506 under Regulation D of the
Securities Act. The opinion will set forth the Firm's customary assumptions and
qualifications. The opinion will only be given as to matters of New York law and
U.S. federal law, and Delaware General Corporation law. For clarity, we note
that the Company is a corporation organized under the laws of the State of
Delaware but its principal business operations are in Europe and in States other
than New York and Delaware, and its subsidiaries are organized under the laws of
other jurisdictions, and we will not opine on such laws.