EXHIBIT 10.1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 11th day of
April, 2006, by and among PharmaFrontiers Corp., a Texas corporation (the
"Company"), and the Investors set forth on the signature pages affixed hereto
(each an "Investor" and collectively the "Investors").
RECITALS
A. The Company and the Investors are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by the provisions of Regulation D ("Regulation D"), as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended; and
B. The Investors wish to purchase from the Company, and the
Company wishes to sell and issue to the Investors, upon the terms and conditions
stated in this Agreement, (i) an aggregate of up to 46,000,000 shares (the
"Shares") of the Company's Common Stock, par value $0.05 per share (together
with any securities into which such shares may be reclassified the "Common
Stock"), at purchase price of $0.50 per share, and (ii) warrants to purchase an
aggregate of up to 23,000,000 shares of Common Stock (subject to adjustment) at
an exercise price of $0.65 per share (subject to adjustment) in the form
attached hereto as EXHIBIT A (the "Warrants"); and
C. Contemporaneous with the execution of this Agreement, the
parties hereto will execute and deliver a Registration Rights Agreement, in the
form attached hereto as EXHIBIT B (the "Registration Rights Agreement"),
pursuant to which the Company will agree to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, and applicable state securities laws.
In consideration of the mutual promises made herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. In addition to those terms defined above and elsewhere
in this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"10-KSB" has the meaning set forth in Section 4.6
"AFFILIATE" means, with respect to any Person, any other
Person which directly or indirectly through one or more intermediaries Controls,
is controlled by, or is under common control with, such Person.
"BUSINESS DAY" means a day, other than a Saturday or Sunday,
on which banks in New York City are open for the general transaction of
business.
"CLOSING" has the meaning set forth in Section 3.
"CLOSING DATE" has the meaning set forth in Section 3.
"COMPANY'S KNOWLEDGE" means the actual knowledge of the
executive officers (as defined in Rule 405 under the 1933 Act) of the Company,
after due inquiry.
"CONFIDENTIAL INFORMATION" means trade secrets, confidential
information and know-how (including but not limited to ideas, formulae,
compositions, processes, procedures and techniques, research and development
information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans,
and customer and supplier lists and related information).
"CONTROL" (including the terms "controlling", "controlled by"
or "under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"EFFECTIVE DATE" means the date on which the initial
Registration Statement is declared effective by the SEC.
"EFFECTIVENESS DEADLINE" means the date on which the initial
Registration Statement is required to be declared effective by the SEC under the
terms of the Registration Rights Agreement.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section
4.16.
"ESCROW AGENT" means Continental Stock Transfer & Trust
Company, its successors and assigns.
"ESCROW AGREEMENT" means the Escrow Agreement, as amended,
entered into among the Company, the Escrow Agent and MDB Capital Group, LLC, a
true and complete copy of which is attached hereto as EXHIBIT C.
"EVALUATION DATE" has the meaning set forth in Section 4.26.
"GAAP" has the meaning set forth in Section 4.18.
"INFRINGE" has the meaning set forth in Section 4.15(d).
"INTELLECTUAL PROPERTY" means all of the following: (i)
patents, patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice); (ii) trademarks, service
marks, trade dress, trade names, corporate names, logos, slogans and Internet
domain names, together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).
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"LICENSE AGREEMENTS" has the meaning set forth in Section
4.15(d).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(i) the assets, liabilities, results of operations, condition (financial or
otherwise), business, or prospects of the Company and its Subsidiaries taken as
a whole, or (ii) the ability of the Company to perform its obligations under the
Transaction Documents.
"PERSON" means an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically listed
herein.
"PRIVATE PLACEMENT MEMORANDUM" means the Company's Private
Placement Memorandum, dated January 23, 2006, as supplemented by the supplement
thereto, dated March 20, 2006.
"PROHIBITED TRANSACTION" has the meaning set forth in Section
5.11.
"PROPOSAL" has the meaning set forth in Section 7.9.
"PROXY STATEMENT" has the meaning set forth in Section 7.9.
"PURCHASE PRICE" means up to Twenty-Three Million Dollars
($23,000,000).
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in
the recitals.
"REGISTRATION STATEMENT" has the meaning set forth in the
Registration Rights Agreement.
"REVERSE SPLIT" means a one-for-ten reverse split of the
Common Stock that does not reduce the number of shares of Common Stock the
Company is authorized to issue.
"SEC FILINGS" has the meaning set forth in Section 4.6.
"SECURITIES" means the Shares, the Warrants and the Warrant
Shares.
"SHARES" means the shares of Common Stock being purchased by
the Investors hereunder.
"STOCKHOLDERS MEETING" has the meaning set forth in Section
7.9.
"STOCKHOLDERS MEETING DEADLINE" has the meaning set forth in
Section 7.9.
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"SUBSIDIARY" of any Person means another Person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"TRADING AFFILIATES" has the meaning set forth in Section
5.11.
"TRANSACTION DOCUMENTS" means this Agreement, the Warrants,
the Escrow Agreement and the Registration Rights Agreement.
"TRANSFER AGENT" has the meaning set forth in Section 7.8.
"WARRANTS" has the meaning set forth in the recitals.
"WARRANT SHARES" means the shares of Common Stock issuable
upon the exercise of the Warrants.
"1933 ACT" means the Securities Act of 1933, as amended, or
any successor statute, and the rules and regulations promulgated thereunder.
"1934 ACT" means the Securities Exchange Act of 1934, as
amended, or any successor statute, and the rules and regulations promulgated
thereunder.
2. PURCHASE AND ISSUANCE OF THE SHARES AND WARRANTS. Subject to the
terms and conditions of this Agreement, on the Closing Date, each of the
Investors shall severally, and not jointly, purchase, and the Company shall sell
and issue to the Investors, the Shares and Warrants in the respective amounts
set forth opposite the Investors' names on the signature pages attached hereto
in exchange for the Purchase Price.
3. CLOSING. Unless an Investor shall have made alternative delivery
arrangements with the Company, within one Business Day of the date of executing
this Agreement, the Company shall cause the delivery of the certificates
representing the Shares and the Warrants, registered in the names and amounts of
the Investors as set forth on the signature pages attached hereto to Continental
Stock Transfer & Trust Company (the "Escrow Agent") and each of the Investors
shall wire to the Escrow Agent in same day funds an amount representing such
Investor's pro rata portion of the Purchase Price, as set forth on the signature
page hereto. The Closing shall occur upon confirmation that (i) the conditions
to Closing in Section 6 hereof have been satisfied or duly waived, (ii) the
Escrow Agent has received the portion of the Purchase Price to be held by it and
the certificates representing the Shares and Warrants to be held by it and (iii)
any alternative delivery requirements have been satisfied. Upon such
confirmation, (x) pursuant to the Escrow Agreement, the Escrow Agent shall
deliver (A) the certificates representing the Shares and Warrants held by it to
the respective Investors and (B) the Purchase Price to the Company and (y) the
remaining portion of the Purchase Price shall be paid to the Company and any
remaining Shares and Warrants shall be released to the Investors not
participating in the escrow (the consummation of such transactions is
hereinafter referred to as the "Closing" and the date on which the Closing takes
place is hereinafter referred to as the "Closing Date"). The Closing of the
purchase and sale of the Shares and Warrants shall take place at the offices of
Lowenstein Sandler PC, 1251 Avenue of the Americas, 18th Floor, New York, New
York 10020, or at such other location and on such other date as the Company and
the Investors shall mutually agree.
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4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the "Disclosure Schedules"):
4. 1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of
the Company and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted and to own its properties. Each of the Company and
its Subsidiaries is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property makes such qualification or leasing
necessary unless the failure to so qualify has not had and could not reasonably
be expected to have a Material Adverse Effect. The Company's Subsidiaries are
listed in the SEC Filings.
4.2 AUTHORIZATION. Except for approval of the Proposal by its
stockholders as contemplated in Section 7.9, the Company has full power and
authority and has taken all requisite action on the part of the Company, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of the Transaction Documents, (ii) the authorization of
the performance of all obligations of the Company hereunder or thereunder, (iii)
the authorization, issuance (or reservation for issuance) and delivery of the
Securities and (iv) the consummation of the Reverse Split. The Transaction
Documents constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors'
rights generally.
4.3 CAPITALIZATION. SCHEDULE 4.3 sets forth (a) the
authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding; (c) the number of shares of
capital stock issuable pursuant to the Company's stock plans; and (d) the number
of shares of capital stock issuable and reserved for issuance pursuant to
securities (other than the Shares and the Warrants) exercisable for, or
convertible into or exchangeable for any shares of capital stock of the Company.
All of the issued and outstanding shares of the Company's capital stock have
been duly authorized and validly issued and are fully paid, nonassessable and
free of pre-emptive rights and were issued in full compliance with applicable
state and federal securities law and any rights of third parties. Except as
described on SCHEDULE 4.3, all of the issued and outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights, were issued in full
compliance with applicable state and federal securities law and any rights of
third parties and are owned by the Company, beneficially and of record, subject
to no lien, encumbrance or other adverse claim. Except as described on SCHEDULE
4.3, no Person is entitled to pre-emptive or similar statutory or contractual
rights with respect to any securities of the Company. Except as described on
SCHEDULE 4.3, there are no outstanding warrants, options, convertible securities
or other rights, agreements or arrangements of any character under which the
Company or any of its Subsidiaries is or may be obligated to issue any equity
securities of any kind and except as contemplated by this Agreement, neither the
Company nor any of its Subsidiaries is currently in negotiations for the
issuance of any equity securities of any kind. Except as described on SCHEDULE
4.3 and except for the Registration Rights Agreement, there are no voting
agreements, buy-sell agreements, option or right of first purchase agreements or
other agreements of any kind among the Company and any of the securityholders of
the Company relating to the securities of the Company held by them. Except as
described on SCHEDULE 4.3 and except as provided in the Registration Rights
Agreement, no Person has the right to require the Company to register any
securities of the Company under the 1933 Act, whether on a demand basis or in
connection with the registration of securities of the Company for its own
account or for the account of any other Person.
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Except as described on SCHEDULE 4.3, the issuance and sale of
the Securities hereunder will not obligate the Company to issue shares of Common
Stock or other securities to any other Person (other than the Investors) and
will not result in the adjustment of the exercise, conversion, exchange or reset
price of any outstanding security.
Except as described on SCHEDULE 4.3, the Company does not
have outstanding stockholder purchase rights or "poison pill" or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.
4.4 VALID ISSUANCE. The Shares have been duly and validly
authorized and, when issued and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws. The Warrants have been duly and validly
authorized. Assuming that the Reverse Split has been effected, upon the due
exercise of the Warrants, the Warrant Shares will be validly issued, fully paid
and non-assessable free and clear of all encumbrances and restrictions, except
for restrictions on transfer set forth in the Transaction Documents or imposed
by applicable securities laws and except for those created by the Investors.
Upon effecting the Reverse Split, the Company will have reserved a sufficient
number of shares of Common Stock for issuance upon the exercise of the Warrants,
free and clear of all encumbrances and restrictions, except for restrictions on
transfer set forth in the Transaction Documents or imposed by applicable
securities laws and except for those created by the Investors.
4.5 CONSENTS. Except for approval of the Proposal by its
stockholders as contemplated in Section 7.9 and the effectuation of the Reverse
Split, the execution, delivery and performance by the Company of the Transaction
Documents and the offer, issuance and sale of the Securities require no consent
of, action by or in respect of, or filing with, any Person, governmental body,
agency, or official other than filings that have been made pursuant to
applicable state securities laws and post-sale filings pursuant to applicable
state and federal securities laws which the Company undertakes to file within
the applicable time periods. Subject to the accuracy of the representations and
warranties of each Investor set forth in Section 5 hereof, the Company has taken
all action necessary to exempt (i) the issuance and sale of the Securities, (ii)
the issuance of the Warrant Shares upon due exercise of the Warrants, and (iii)
the other transactions contemplated by the Transaction Documents from the
provisions of any stockholder rights plan or other "poison pill" arrangement,
any anti-takeover, business combination or control share law or statute binding
on the Company or to which the Company or any of its assets and properties may
be subject and any provision of the Company's Articles of Incorporation or
Bylaws that is or could reasonably be expected to become applicable to the
Investors as a result of the transactions contemplated hereby, including without
limitation, the issuance of the Securities and the ownership, disposition or
voting of the Securities by the Investors or the exercise of any right granted
to the Investors pursuant to this Agreement or the other Transaction Documents.
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4.6 DELIVERY OF SEC FILINGS; BUSINESS. The Company has made
available to the Investors through the EDGAR system, true and complete copies of
the Company's most recent Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2004 (the "10-KSB"), and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the 10-KSB and prior to the date
hereof (collectively, the "SEC Filings"). The SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period. The Company
and its Subsidiaries are engaged in all material respects only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.
4.7 USE OF PROCEEDS. The net proceeds of the sale of the
Shares and the Warrants hereunder shall be used by the Company for (i) Phase IIb
clinical trials of the Company's Tovaxin(R) product, (ii) completing the
Company's "good manufacturing practices" manufacturing facility, (iii)
finalizing preclinical studies and preparing the investigational new drug
application for stem cells, (iv) acquiring or investing in businesses, products
and/or technologies that are complementary to those of the Company as approved
by the Company's Board of Directors and (v) working capital and general
corporate purposes.
4.8 NO MATERIAL ADVERSE CHANGE. Since December 31, 2004,
except for the Reverse Split, as identified and described in the SEC Filings or
as described on SCHEDULE 4.18, there has not been:
(i) any change in the consolidated assets,
liabilities, financial condition or operating results of the Company from that
reflected in the financial statements included in the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2005, except for changes in
the ordinary course of business which have not had and could not reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate;
(ii) any declaration or payment of any dividend, or
any authorization or payment of any distribution, on any of the capital stock
of the Company, or any redemption or repurchase of any securities of the
Company;
(iii) any material damage, destruction or loss,
whether or not covered by insurance to any assets or properties of the Company
or its Subsidiaries;
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(iv) any waiver, not in the ordinary course of
business, by the Company or any Subsidiary of a material right or of a material
debt owed to it;
(v) any satisfaction or discharge of any lien, claim
or encumbrance or payment of any obligation by the Company or a Subsidiary,
except in the ordinary course of business and which is not material to the
assets, properties, financial condition, operating results or business of the
Company and its Subsidiaries taken as a whole (as such business is presently
conducted and as it is proposed to be conducted);
(vi) any change or amendment to the Company's
Articles of Incorporation or Bylaws, or material change to any material contract
or arrangement by which the Company or any Subsidiary is bound or to which any
of their respective assets or properties is subject;
(vii) any material labor difficulties or labor union
organizing activities with respect to employees of the Company or any
Subsidiary;
(viii) any material transaction entered into by the
Company or a Subsidiary other than in the ordinary course of business;
(ix) the loss of the services of any key employee, or
material change in the composition or duties of the senior management of the
Company or any Subsidiary;
(x) the loss or threatened loss of any customer which
has had or could reasonably be expected to have a Material Adverse Effect; or
(xi) any other event or condition of any character
that has had or could reasonably be expected to have a Material Adverse Effect.
4.9 SEC FILINGS.
(a) At the time of filing thereof, the SEC Filings
complied as to form in all material respects with the requirements of the 1934
Act and did 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 the
light of the circumstances under which they were made, not misleading.
(b) Each registration statement and any amendment
thereto filed by the Company since January 1, 2004 pursuant to the 1933 Act and
the rules and regulations thereunder, as of the date such statement or amendment
became effective, complied as to form in all material respects with the 1933 Act
and did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
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4.10 NO CONFLICT, BREACH, VIOLATION OR DEFAULT. Subject to
the approval of the Proposal by its stockholders as contemplated in Section 7.9
and the effectuation of the Reverse Split, the execution, delivery and
performance of the Transaction Documents by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company's Articles of Incorporation or the Company's Bylaws, both as in effect
on the date hereof (true and complete copies of which have been made available
to the Investors through the EDGAR system), or (ii)(a) any statute, rule,
regulation or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company, any Subsidiary or any of their
respective assets or properties, or (b) any agreement or instrument to which the
Company or any Subsidiary is a party or by which the Company or a Subsidiary is
bound or to which any of their respective assets or properties is subject.
4.11 TAX MATTERS. The Company and each Subsidiary has timely
prepared and filed all tax returns required to have been filed by the Company or
such Subsidiary with all appropriate governmental agencies and timely paid all
taxes shown thereon or otherwise owed by it. The charges, accruals and reserves
on the books of the Company in respect of taxes for all fiscal periods are
adequate in all material respects, and there are no material unpaid assessments
against the Company or any Subsidiary nor, to the Company's Knowledge, any basis
for the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole. All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or, to the Company's
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property. There are no outstanding tax sharing agreements
or other such arrangements between the Company and any Subsidiary or other
corporation or entity.
4.12 TITLE TO PROPERTIES. Except as disclosed in the SEC
Filings, the Company and each Subsidiary has good and marketable title to all
real properties and all other properties and assets owned by it, in each case
free from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
and each Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
4.13 CERTIFICATES, AUTHORITIES AND PERMITS. The Company and
each Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
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4.14 LABOR MATTERS.
(a) The Company is not a party to or bound by any collective
bargaining agreements or other agreements with labor organizations. The Company
has not violated in any material respect any laws, regulations, orders or
contract terms, affecting the collective bargaining rights of employees, labor
organizations or any laws, regulations or orders affecting employment
discrimination, equal opportunity employment, or employees' health, safety,
welfare, wages and hours.
(b) (i) There are no labor disputes existing, or to the
Company's Knowledge, threatened, involving strikes, slow-downs, work stoppages,
job actions, disputes, lockouts or any other disruptions of or by the Company's
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other federal, state or local labor commission relating
to the Company's employees, (iii) no demand for recognition or certification
heretofore made by any labor organization or group of employees is pending with
respect to the Company and (iv) to the Company's Knowledge, the Company enjoys
good labor and employee relations with its employees and labor organizations.
(c) The Company is, and at all times has been, in compliance
in all material respects with all applicable laws respecting employment
(including laws relating to classification of employees and independent
contractors) and employment practices, terms and conditions of employment, wages
and hours, and immigration and naturalization. There are no claims pending
against the Company before the Equal Employment Opportunity Commission or any
other administrative body or in any court asserting any violation of Title VII
of the Civil Rights Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C.
ss.ss. 1981 or 1983 or any other federal, state or local Law, statute or
ordinance barring discrimination in employment.
(d) Except as disclosed in the SEC Filings or as described on
SCHEDULE 4.14, the Company is not a party to, or bound by, any employment or
other contract or agreement that contains any severance, termination pay or
change of control liability or obligation, including, without limitation, any
"excess parachute payment," as defined in Section 2806(b) of the Internal
Revenue Code.
(e) Each of the Company's employees is a Person who is either
a United States citizen or a permanent resident entitled to work in the United
States. To the Company's Knowledge, the Company has no liability for the
improper classification by the Company of such employees as independent
contractors or leased employees prior to the Closing.
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4.15 INTELLECTUAL PROPERTY.
(a) All Intellectual Property of the Company and its
Subsidiaries is currently in compliance with all legal requirements (including
timely filings, proofs and payments of fees) and is valid and enforceable. No
Intellectual Property of the Company or its Subsidiaries which is necessary for
the conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted has been or is now
involved in any cancellation, dispute or litigation, and, to the Company's
Knowledge, no such action is threatened. No patent of the Company or its
Subsidiaries has been or is now involved in any interference, reissue,
re-examination or opposition proceeding.
(b) All of the licenses and sublicenses and consent, royalty
or other agreements concerning Intellectual Property which are necessary for the
conduct of the Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound
(other than generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $10,000 per
license) (collectively, "License Agreements") are valid and binding obligations
of the Company or its Subsidiaries that are parties thereto and, to the
Company's Knowledge, the other parties thereto, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.
(c) The Company and its Subsidiaries own or have the valid
right to use all of the Intellectual Property that is necessary for the conduct
of the Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted and for the
ownership, maintenance and operation of the Company's and its Subsidiaries'
properties and assets, free and clear of all liens, encumbrances, adverse claims
or obligations to license all such owned Intellectual Property and Confidential
Information, other than licenses entered into in the ordinary course of the
Company's and its Subsidiaries' businesses. The Company and its Subsidiaries
have a valid and enforceable right to use all third party Intellectual Property
and Confidential Information used or held for use in the respective businesses
of the Company and its Subsidiaries.
(d) The conduct of the Company's and its Subsidiaries'
businesses as currently conducted does not infringe or otherwise impair or
conflict with (collectively, "Infringe") any Intellectual Property rights of any
third party or any confidentiality obligation owed to a third party, and, to the
Company's Knowledge, the Intellectual Property and Confidential Information of
the Company and its Subsidiaries which are necessary for the conduct of
Company's and each of its Subsidiaries' respective businesses as currently
conducted or as currently proposed to be conducted are not being Infringed by
any third party. There is no litigation or order pending or outstanding or, to
the Company's Knowledge, threatened or imminent, that seeks to limit or
challenge or that concerns the ownership, use, validity or enforceability of any
Intellectual Property or Confidential Information of the Company and its
Subsidiaries and the Company's and its Subsidiaries' use of any Intellectual
Property or Confidential Information owned by a third party, and, to the
Company's Knowledge, there is no valid basis for the same.
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(e) The consummation of the transactions contemplated hereby
and by the other Transaction Documents will not result in the alteration, loss,
impairment of or restriction on the Company's or any of its Subsidiaries'
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted.
(f) The Company and its Subsidiaries have taken reasonable
steps to protect the Company's and its Subsidiaries' rights in their
Intellectual Property and Confidential Information. Each employee, consultant
and contractor who has had access to Confidential Information which is necessary
for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company's standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company's or its
Subsidiaries' Confidential Information to any third party.
4.16 ENVIRONMENTAL MATTERS. Neither the Company nor any
Subsidiary is in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "Environmental Laws"), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company's Knowledge,
threatened investigation that might lead to such a claim.
4.17 LITIGATION. There are no pending actions, suits or
proceedings against or affecting the Company, its Subsidiaries or any of its or
their properties; and to the Company's Knowledge, no such actions, suits or
proceedings are threatened or contemplated.
4.18 FINANCIAL STATEMENTS. The financial statements included
in each SEC Filing present fairly, in all material respects, the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis ("GAAP") (except as
may be disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described on SCHEDULE 4.18, neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.
-12-
4.19 INSURANCE COVERAGE. The Company and each Subsidiary
maintains in full force and effect insurance coverage that is customary for
comparably situated companies for the business being conducted and properties
owned or leased by the Company and each Subsidiary, and the Company reasonably
believes such insurance coverage to be adequate against all liabilities, claims
and risks against which it is customary for comparably situated companies to
insure.
4.20 BROKERS AND FINDERS. No Person will have, as a result of
the transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company, other than as
described in SCHEDULE 4.20.
4.21 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION.
Neither the Company nor any Person acting on its behalf has conducted any
general solicitation or general advertising (as those terms are used in
Regulation D) in connection with the offer or sale of any of the Securities.
4.22 NO INTEGRATED OFFERING. 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 Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
4.23 PRIVATE PLACEMENT. The offer and sale of the Securities
to the Investors as contemplated hereby is exempt from the registration
requirements of the 1933 Act.
4.24 QUESTIONABLE PAYMENTS. Neither the Company nor any of
its Subsidiaries, nor their respective directors, officers or employees nor, to
the Company's Knowledge, any of their respective current or former stockholders,
agents or other Persons acting on behalf of the Company or any Subsidiary, has
on behalf of the Company or any Subsidiary or in connection with their
respective businesses: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company or any Subsidiary; or
(e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature.
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4.25 TRANSACTIONS WITH AFFILIATES. Except as disclosed in the
SEC Filings, none of the officers or directors of the Company and, to the
Company's Knowledge, none of the employees of the Company is presently a party
to any transaction with the Company or any Subsidiary (other than as holders of
stock options and/or warrants, and 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 Company's Knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
4.26 INTERNAL CONTROLS. The Company is in material compliance
with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to
the Company. The Company and the 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 1934
Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the 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 period report under the 1934 Act, as the case may
be, is being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the end of the
period covered by the most recently filed periodic report under the 1934 Act
(such date, the "Evaluation Date"). The Company presented in its most recently
filed periodic report under the 1934 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 308 of Regulation S-B) or, to the Company's Knowledge,
in other factors that could significantly affect the Company's internal
controls. The Company maintains and will continue to maintain a standard system
of accounting established and administered in accordance with GAAP and the
applicable requirements of the 1934 Act.
4.27 SOLVENCY. Based on the financial condition of the
Company as of the Closing Date and giving effect to the net proceeds from the
Closing, (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 2006 fiscal year as now conducted and as
proposed to be conducted 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
proceeds the Company receives, giving effect to the Closing, 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. As of Closing, 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).
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4.28 DISCLOSURES. Neither the Company nor any Person acting
on its behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information. The Private Placement Memorandum and the other written materials
delivered to the Investors in connection with the transactions contemplated by
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 therein, in light of the circumstances under which they were made, not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of the
Investors hereby severally, and not jointly, represents and warrants to the
Company that:
5.1 ORGANIZATION AND EXISTENCE. Such Investor is either an
individual or a validly existing corporation, limited partnership or limited
liability company and has all requisite corporate, partnership or limited
liability company power and authority to invest in the Securities pursuant to
this Agreement.
5.2 AUTHORIZATION. The execution, delivery and performance by
such Investor of the Transaction Documents to which such Investor is a party
have been duly authorized and will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
5.3 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Securities to be
received by such Investor hereunder will be acquired for such Investor's own
account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of the 1933 Act, and such Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the same in violation of the 1933 Act without prejudice, however,
to such Investor's right at all times to sell or otherwise dispose of all or any
part of such Securities in compliance with applicable federal and state
securities laws. Nothing contained herein shall be deemed a representation or
warranty by such Investor to hold the Securities for any period of time. Such
Investor is not a broker-dealer registered with the SEC under the 1934 Act or an
entity engaged in a business that would require it to be so registered.
5.4 INVESTMENT EXPERIENCE. Such Investor acknowledges that it
can bear the economic risk and complete loss of its investment in the Securities
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 DISCLOSURE OF INFORMATION. Such Investor has had an
opportunity to receive all information related to the Company requested by it
and to ask questions of and receive answers from the Company regarding the
Company, its business and the terms and conditions of the offering of the
Securities. Such Investor acknowledges receipt of copies of the SEC Filings and
the Private Placement Memorandum. Neither such inquiries nor any other due
diligence investigation conducted by such Investor shall modify, amend or affect
such Investor's right to rely on the Company's representations and warranties
contained in this Agreement.
-15-
5.6 RESTRICTED SECURITIES. Such Investor understands that the
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 LEGENDS. It is understood that, except as provided below,
certificates evidencing the Securities may bear the following or any similar
legend:
(a) "The securities represented hereby may not be
transferred unless (i) such securities have been registered for sale pursuant to
the Securities Act of 1933, as amended, (ii) such securities may be sold
pursuant to Rule 144(k), or (iii) the Company has received an opinion of counsel
reasonably satisfactory to it that such transfer may lawfully be made without
registration under the Securities Act of 1933 or qualification under applicable
state securities laws. Notwithstanding the foregoing, the securities may be
pledged in connection with a bona fide margin account secured by the
securities."
(b) If required by the authorities of any state in
connection with the issuance of sale of the Securities, the legend required by
such state authority.
5.8 ACCREDITED INVESTOR. Such Investor is an accredited
investor as defined in Rule 501(a) of Regulation D, as amended, under the 1933
Act.
5.9 NO GENERAL ADVERTISEMENT. Such Investor did not learn of
the investment in the Securities as a result of any public advertisement,
article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television, radio or
internet or presented at any seminar or other general advertisement.
5.10 BROKERS AND FINDERS. No Person will have, as a result of
the transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.
5.11 PROHIBITED TRANSACTIONS. During the last thirty (30)
days prior to the date hereof, neither such Investor nor any Affiliate of such
Investor which (x) had knowledge of the transactions contemplated hereby, (y)
has or shares discretion relating to such Investor's investments or trading or
information concerning such Investor's investments, including in respect of the
Securities, or (z) is subject to such Investor's review or input concerning such
Affiliate's investments or trading (collectively, "Trading Affiliates") has,
directly or indirectly, effected or agreed to effect any short sale, whether or
not against the box, established any "put equivalent position" (as defined in
Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities (each, a "Prohibited
Transaction"). Prior to the earliest to occur of (i) the termination of this
Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline, such
Investor shall not, and shall cause its Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction. Such Investor acknowledges
that the representations, warranties and covenants contained in this Section
5.11 are being made for the benefit of the Investors as well as the Company and
that each of the other Investors shall have an independent right to assert any
claims against such Investor arising out of any breach or violation of the
provisions of this Section 5.11.
-16-
5.12 PATRIOT ACT. Neither such Investor nor any of its
Affiliates has been designated, and is not owned or controlled, by a "suspected
terrorist" as defined in Executive Order 13224. None of the cash used to fund
such Investor's portion of the Purchase Price has been, and none of the cash
used to fund any cash exercise of such Investor's Warrants will be, or derived
from, any activity that could cause the Company to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO THE INVESTORS' OBLIGATIONS. The obligation
of each Investor to purchase the Shares and the Warrants at the Closing is
subject to the fulfillment to such Investor's satisfaction, on or prior to the
Closing Date, of the following conditions, any of which may be waived by such
Investor (as to itself only):
(a) The representations and warranties made by the
Company in Section 4 hereof qualified as to materiality shall be true and
correct at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct as of such
earlier date, and, the representations and warranties made by the Company in
Section 4 hereof not qualified as to materiality shall be true and correct in
all material respects at all times prior to and on the Closing Date, except to
the extent any such representation or warranty expressly speaks as of an earlier
date, in which case such representation or warranty shall be true and correct in
all material respects as of such earlier date. The Company shall have performed
in all material respects all obligations and covenants herein required to be
performed by it on or prior to the Closing Date.
(b) The Company shall have obtained any and all
consents, permits, approvals, registrations and waivers (excluding stockholder
approval of the Proposal) necessary or appropriate for consummation of the
purchase and sale of the Securities and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect.
-17-
(c) The Company shall have executed and delivered the
Registration Rights Agreement.
(d) The Company shall have received gross proceeds
from the sale of the Shares and Warrants as contemplated hereby of at least
Twenty-One Million Dollars ($21,000,000) and not more than Twenty-Three Million
Dollars ($23,000,000).
(e) No judgment, writ, order, injunction, award or
decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any order of or by any governmental authority,
shall have been issued, and no action or proceeding shall have been instituted
by any governmental authority, enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents.
(f) The Company shall have delivered a Certificate,
executed on behalf of the Company by its Chief Executive Officer or its Chief
Financial Officer, dated as of the Closing Date, certifying to the fulfillment
of the conditions specified in subsections (a), (b), (d), (e) and (i) of this
Section 6.1.
(g) The Company shall have delivered a Certificate,
executed on behalf of the Company by its Secretary, dated as of the Closing
Date, certifying the resolutions adopted by the Board of Directors of the
Company approving the transactions contemplated by this Agreement and the other
Transaction Documents, the Reverse Split and the issuance of the Securities,
certifying the current versions of the Articles of Incorporation and Bylaws of
the Company and certifying as to the signatures and authority of persons signing
the Transaction Documents and related documents on behalf of the Company.
(h) The Investors shall have received an opinion from
Brewer & Pritchard, P.C., the Company's counsel, dated as of the Closing Date,
in form and substance reasonably acceptable to the Investors and addressing such
legal matters as the Investors may reasonably request.
(i) No stop order or suspension of trading shall have
been imposed by the SEC or any other governmental or regulatory body with
respect to public trading in the Common Stock.
[(j) Messrs Brooks Boveroux, Tony Kamin, and Terry
Wesner shall tender resignations to be effective no later than the Closing Date,
and the two remaining directors shall appoint Scott B. Seaman and Gregory H.
Bailey as directors to be effective at Closing.](1)
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to sell and issue the Shares and the Warrants at the Closing is
subject to the fulfillment to the satisfaction of the Company on or prior to the
Closing Date of the following conditions, any of which may be waived by the
Company:
- --------------------------------------------------
(1) To be included only at the specific request of an Investor
-18-
(a) The representations and warranties made by the
Investors in Section 5 hereof, other than the representations and warranties
contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the "Investment
Representations"), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date. The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date. The Investors
shall have performed in all material respects all obligations and covenants
herein required to be performed by them on or prior to the Closing Date.
(b) The Investors shall have executed and delivered
the Registration Rights Agreement.
(c) The Investors shall have delivered the Purchase
Price to the Escrow Agent or as otherwise agreed to with the Company.
6.3 TERMINATION OF OBLIGATIONS TO EFFECT CLOSING; EFFECTS.
(a) The obligations of the Company, on the one hand,
and the Investors, on the other hand, to effect the Closing shall terminate as
follows:
(i) Upon the mutual written consent of the
Company and the Investors;
(ii) By the Company if any of the conditions
set forth in Section 6.2 shall have become incapable of fulfillment, and shall
not have been waived by the Company;
(iii) By an Investor (with respect to itself
only) if any of the conditions set forth in Section 6.1 shall have become
incapable of fulfillment, and shall not have been waived by the Investor; or
(iv) By either the Company or any Investor
(with respect to itself only) if the Closing has not occurred on or prior to
5:00 p.m., New York time, on April 17, 2006;
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party's seeking to
terminate its obligation to effect the Closing.
(b) In the event of termination by the Company or any Investor
of its obligations to effect the Closing pursuant to this Section 6.3, written
notice thereof shall forthwith be given to the other Investors and the other
Investors shall have the right to terminate their obligations to effect the
Closing upon written notice to the Company and the other Investors. Nothing in
this Section 6.3 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.
-19-
7. COVENANTS AND AGREEMENTS OF THE COMPANY.
7.1 RESERVATION OF COMMON STOCK. Upon consummation of the
Reverse Split, the Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
providing for the exercise of the Warrants, such number of shares of Common
Stock as shall from time to time equal the number of shares sufficient to permit
the exercise of the Warrants issued pursuant to this Agreement in accordance
with their respective terms.
7.2 REPORTS. The Company will furnish to the Investors and/or
their assignees such information relating to the Company and its Subsidiaries as
from time to time may reasonably be requested by the Investors and/or their
assignees; provided, however, that the Company shall not disclose material
nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides
the Investors, such advisors and representatives with the opportunity to accept
or refuse to accept such material nonpublic information for review and any
Investor wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.
7.3 NO CONFLICTING AGREEMENTS. The Company will not take any
action, enter into any agreement or make any commitment that would conflict or
interfere in any material respect with the Company's obligations to the
Investors under the Transaction Documents.
7.4 INSURANCE. The Company shall maintain in full force and
effect insurance coverage that is customary for comparably situated companies
for the business being conducted and properties owned or leased by the Company
and each Subsidiary, in amounts the Company reasonably believes to be adequate
against all liabilities, claims and risks against which it is customary for
comparably situated companies to insure.
7.5 COMPLIANCE WITH LAWS. The Company will comply in all
material respects with all applicable laws, rules, regulations, orders and
decrees of all governmental authorities.
7.6 LISTING OF UNDERLYING SHARES AND RELATED MATTERS.
Promptly following the Closing, the Company shall take all necessary action to
cause the Shares and the Warrant Shares to be listed on the Nasdaq Capital
Market as soon as practicable after the Closing Date. Further, if the Company
applies to have its Common Stock or other securities traded on any other
principal stock exchange or market, it shall include in such application the
Shares and the Warrant Shares and will take such other action as is necessary to
cause such Common Stock to be so listed. Once approved for listing, the Company
will use commercially reasonable efforts to continue the listing and trading of
its Common Stock on the Nasdaq Capital Market and, in accordance, therewith,
will use commercially reasonable efforts to comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
such market or exchange, as applicable.
-20-
7.7 TERMINATION OF COVENANTS. The provisions of Sections 7.2
through 7.5 shall terminate and be of no further force and effect on the date on
which the Company's obligations under the Registration Rights Agreement to
register or maintain the effectiveness of any registration covering the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate.
7.8 REMOVAL OF LEGENDS. Upon the earlier of (i) registration
for resale pursuant to the Registration Rights Agreement or (ii) Rule 144(k)
becoming available the Company shall (A) deliver to the transfer agent for the
Common Stock (the "Transfer Agent") irrevocable instructions that the Transfer
Agent shall reissue a certificate representing shares of Common Stock without
legends upon receipt by such Transfer Agent of the legended certificates for
such shares, together with either (1) a customary representation by the Investor
that Rule 144(k) applies to the shares of Common Stock represented thereby or
(2) a statement by the Investor that such Investor has sold the shares of Common
Stock represented thereby in accordance with the Plan of Distribution contained
in the Registration Statement and, if applicable, in accordance with any
prospectus delivery requirements, and (B) cause its counsel to deliver to the
Transfer Agent one or more blanket opinions to the effect that the removal of
such legends in such circumstances may be effected under the 1933 Act. From and
after the earlier of such dates, upon an Investor's written request, the Company
shall promptly cause certificates evidencing the Investor's Securities to be
replaced with certificates which do not bear such restrictive legends, and
Warrant Shares subsequently issued upon due exercise of the Warrants shall not
bear such restrictive legends provided the provisions of either clause (i) or
clause (ii) above, as applicable, are satisfied with respect to such Warrant
Shares. When the Company is required to cause unlegended certificates to replace
previously issued legended certificates, if unlegended certificates are not
delivered to an Investor within three (3) Business Days of submission by that
Investor of legended certificate(s) to the Transfer Agent as provided above (or
to the Company, in the case of the Warrants), the Company shall be liable to the
Investor for liquidated damages in an amount equal to 1.5% of the aggregate
purchase price of the Securities evidenced by such certificate(s) for each
thirty (30) day period (or portion thereof) beyond such three (3) Business Day
that the unlegended certificates have not been so delivered.
7.9 REVERSE SPLIT; STOCKHOLDERS MEETING; PROXY STATEMENT.
Promptly following the Closing, the Company shall take all action necessary to
effect the Reverse Split. Without limiting the generality of the foregoing,
promptly following the Closing, the Company shall take all action necessary to
call a meeting of its stockholders (the "Stockholders Meeting"), which shall
occur not later than June 30, 2006 (the "Stockholders Meeting Deadline"), for
the purpose of seeking approval of the Company's stockholders for the Reverse
Split (the "Proposal"). In connection therewith, the Company will promptly
prepare and file with the SEC proxy materials (including a proxy statement and
form of proxy) for use at the Stockholders Meeting and, after receiving and
promptly responding to any comments of the SEC thereon, shall promptly mail such
proxy materials to the stockholders of the Company. Upon request of the Company,
each Investor shall promptly furnish in writing to the Company the information
contained in the Shareholders Questionnaire attached as Exhibit B to the
Registration Rights Agreement for inclusion in the Proxy Statement. The Company
will comply with Section 14(a) of the 1934 Act and the rules promulgated
thereunder in relation to any proxy statement (as amended or supplemented, the
"Proxy Statement") and any form of proxy to be sent to the stockholders of the
Company in connection with the Stockholders Meeting, and the Proxy Statement
shall not, on the date that the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to stockholders or at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein
not false or misleading, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies or the Stockholders Meeting which has become false or misleading. If the
Company should discover at any time prior to the Stockholders Meeting, any event
relating to the Company or any of its Subsidiaries or any of their respective
affiliates, officers or directors that is required to be set forth in a
supplement or amendment to the Proxy Statement, in addition to the Company's
obligations under the 1934 Act, the Company will promptly inform the Investors
thereof. Subject to their fiduciary duties, the Company's Board of Directors
shall recommend to the Company's stockholders that the stockholders vote in
favor of the Proposal. The Company shall notify the Investors in writing
promptly and, in any event not more than within one Business Day after, the
Reverse Split becomes effective.
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[7.10 BOARD OF DIRECTORS; SCHEDULE 14F-1. As soon as practicable after Closing,
the Company shall cause to be prepared an information statement on Schedule
14f-1 in accordance with the requirements of Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder with respect to the intended appointment
of David Hung as a director of the Company. Ten days after the filing of such
information statement with the Securities and Exchange Commission and the
mailing thereof to the stockholders of record of the Company, the Board of
Directors of the Company shall take such actions as are necessary to appoint
David Hung to the Board of Directors.](2)
8. SURVIVAL AND INDEMNIFICATION.
8.1 SURVIVAL. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement.
8.2 INDEMNIFICATION. The Company agrees to indemnify and hold
harmless each Investor and its Affiliates and their respective directors,
officers, employees and agents from and against any and all losses, claims,
damages, liabilities and expenses (including without limitation reasonable
attorney fees and disbursements and other expenses incurred in connection with
investigating, preparing or defending any action, claim or proceeding, pending
or threatened and the costs of enforcement thereof) (collectively, "Losses") to
which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by or to be performed on
the part of the Company under the Transaction Documents, and will reimburse any
such Person for all such amounts as they are incurred by such Person.
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(2) To be included only at the specific request of an Investor.
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8.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after
receipt by any Person (the "Indemnified Person") of notice of any demand, claim
or circumstances which would or might give rise to a claim or the commencement
of any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; PROVIDED,
HOWEVER, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
9. MISCELLANEOUS.
9.1 SUCCESSORS AND ASSIGNS. This Agreement may not be
assigned by a party hereto without the prior written consent of the Company or
the Investors, as applicable, provided, however, that an Investor may assign its
rights and delegate its duties hereunder in whole or in part to an Affiliate or
to a third party acquiring some or all of its Securities in a private
transaction without the prior written consent of the Company or the other
Investors, after notice duly given by such Investor to the Company provided,
that no such assignment or obligation shall affect the obligations of such
Investor hereunder. The provisions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
9.2 COUNTERPARTS; FAXES. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement may
also be executed via facsimile, which shall be deemed an original.
-23-
9.3 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 NOTICES. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one Business Day after
delivery to such carrier. All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days' advance written notice to the other party:
If to the Company:
PharmaFrontiers Corp.
2635 Crescent Ridge Drive
The Woodlands, Texas 77381
Attention: William Rouse
Facsimile: (281) 872-8585
With a copy to:
Brewer & Pritchard, P.C.
Three Riverway, 18th Floor
Houston, Texas 77056
Attention: Thomas Pritchard, Esq.
Facsimile: (713) 659-5302
If to the Investors:
to the addresses set forth on the signature pages hereto.
9.5 EXPENSES. The parties hereto shall pay their own costs
and expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of Lowenstein Sandler PC not to exceed $40,000; it
being understood that Lowenstein Sandler PC has only rendered legal advice to
the Special Situations Funds participating in this transaction and not to the
Company or any other Investor in connection with the transactions contemplated
hereby, and that each of the Company and each Investor has relied for such
matters on the advice of its own respective counsel. Such expenses shall be paid
not later than the Closing. The Company shall reimburse the Investors upon
demand for all reasonable out-of-pocket expenses incurred by the Investors,
including without limitation reimbursement of attorneys' fees and disbursements,
in connection with any amendment, modification or waiver of this Agreement or
the other Transaction Documents. In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement
in connection with this Agreement or the other Transaction Documents, the party
or parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys' fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in
such proceedings.
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9.6 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investors.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such Securities, and the Company.
9.7 PUBLICITY. Except as set forth below, no public release
or announcement concerning the transactions contemplated hereby shall be issued
by the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day immediately following the Closing Date, the Company
shall issue a press release, reviewed and approved by MDB Capital Group, LLC,
disclosing the consummation of the transactions contemplated by this Agreement.
No later than the third trading day following the Closing Date, the Company will
file a Current Report on Form 8-K, reviewed and approved by MDB Capital Group,
LLC, attaching the press release described in the foregoing sentence as well as
copies of the Transaction Documents. In addition, the Company will make such
other filings and notices in the manner and time required by the SEC.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Investor, or include the name of any Investor in any filing with the SEC
(other than the Registration Statement and any exhibits to filings made in
respect of this transaction in accordance with periodic filing requirements
under the 1934 Act) or any regulatory agency, without the prior written consent
of such Investor, except to the extent such disclosure is required by law or
trading market regulations, in which case the Company shall provide the
Investors with prior notice of such disclosure.
9.8 SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
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9.9 ENTIRE AGREEMENT. This Agreement, including the Exhibits
and the Disclosure Schedules, and the other Transaction Documents constitute the
entire agreement among the parties hereof with respect to the subject matter
hereof and thereof and supersede all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter hereof
and thereof.
9.10 FURTHER ASSURANCES. The parties shall execute and
deliver all such further instruments and documents and take all such other
actions as may reasonably be required to carry out the transactions contemplated
hereby and to evidence the fulfillment of the agreements herein contained.
9.11 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York without regard to the choice of law
principles thereof. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
9.12 INDEPENDENT NATURE OF INVESTORS' OBLIGATIONS AND RIGHTS.
The obligations of each Investor under any Transaction Document are several and
not joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
[signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement
or caused their duly authorized officers to execute this Agreement as of the
date first above written.
The Company: PHARMAFRONTIERS CORP.
By:_________________________
Name:
Title:
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INVESTOR:
By:
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Name:
----------------------
Title:
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Aggregate Purchase Price: $
-----------------------------------
Number of Shares:
-----------------------------------
Number of Warrants:
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Address for Notice:
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Facsimile:
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Email:
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Optional Provisions:
Section 6.1(j) and 7.10 of the Purchase Agreement
Unless checked here Section 6.1(j) and 7.10 of the Purchase Agreement will not
be included as a condition to your Closing: [_]
Section 23 of the Warrant
Unless checked below neither Section 23A nor Section 23B of the Warrant will be
included in your Warrant. You have the option of including either Section 23A or
23B, not both.
If you would like to include Section 23A in your Warrant check here [_]
If you would like to include Section 23B in your Warrant check here [_]